European stocks finished in the red yesterday as traders were a little worried about the state of US-China trade relations.
On Tuesday, President Trump said that trade talks with China still have a long way to go, and he also reminded Beijing and traders, that tariffs could be imposed on $325 billion worth of Chinese imports.
US stocks also slipped as sentiment was a little on the sour side, with the beige book showing that businesses were concerned about the trade spat between the US and China. The economy grew at a modest pace between mid-May and early-July, and price pressures were muted, and inflation was ‘stable to down’. Due to ‘brisk competition’, manufacturers were unable to pass on price increases, and that's likely to impact their profit margins further down the line. The increase for loans was ‘broad based’, and overall the outlook was ‘positive’. The Fed are tipped to cut rates at the end of the month, but traders remain divided over the size of the rate cut.
Overnight, equity markets in Asia traded lower as trade worries played on traders’ minds, and stocks in Japan were the worst performers.
The weakness in the US dollar helped gold, and the slight risk-off attitude of traders helped the metal too. Gold has been broadly range bound recently, but while it holds above the $1,382 mark, the wider bullish trend is likely to remain intact.
Eurozone CPI edged up to 1 3% yesterday, and the core reading was 1.1%. The cost of living remains subdued in the eurozone, and should the European Central Bank (ECB) loosen monetary policy, it might come as a reaction to the Federal Reserve cutting rates.
Oil sold off aggressively yesterday when gasoline stockpiles surged. Oil inventories dropped by 3.11 million barrels, while traders are expecting a draw of 2.69 million barrels. Gasoline inventories jumped by 3.56 million barrels, while the consensus estimate was for a decline of 925,000 barrels. The slight renewal of trade fears also added to the drop in the energy.
UK retail sales will be posted at 9.30am (UK time), and economists are expecting -0.3%, and keep in mind the May report was -0.5%. The report that strips out fuel is tipped to come in at -0.2%, and the previous reading was -0.3%. This week we saw that the unemployment rate in May remained at 3.8%, and average wages excluding bonuses ticked up to 3.6%, so workers are getting a nice increase in wages. Judging by updates from UK retailers, the consumer climate seems fragile, and workers might be keen to save rather than spend.
The US jobless claims report is expected to be 216,000, while the previous report was 209,000, and it will be revealed at 1.30pm (UK time). The Philly Fed report will be released at the same time, and traders are expecting 5, which would be an improvement from the 0.3 in June.
EUR/USD – has fallen back into the wider downtrend and a move back below 1.1200 might pave the way for the 1.1110 area to be retested. 1.1400 might act as resistance.
GBP/USD – has been driving lower since mid-March, and a break below the 1.2365 region, might bring 1.2109 into play. The 1.2600 area might act as resistance.
EUR/GBP – has rallied for over two months, and if it holds above 0.8872, it might bring 0.9116 into play. A move to the downside might bring the 200-day moving average at 0.8787 into play.
USD/JPY – has been in a downtrend since late April, and if the bearish move continues it might target the 106.00 mark. Resistance might be found at the 50-day moving average at 108.73.