After the sharp post payrolls sell-off seen last Friday US markets rebounded strongly on their return from their long weekend, taking their cues from a strong start to the week from European markets, as investors chose to ignore another set of lousy monthly Chinese trade numbers, and focussed on a fairly significant upward revision to EU Q2 GDP, and some positive German import and export data. Yesterday’s rebound has continued in Asia this morning with strong gains there as investors speculate that Chinese authorities will continue to ramp up their recent stimulus measures with further action in the coming days. According to a Ministry of Finance statement late Tuesday investment in major construction projects will be brought forward with the help of private financing. Some income tax changes to dividends were also announced to encourage long term investment in Chinese shares. While Asia’s markets have rallied strongly this morning, Europe’s are still within the trading range that has confined the FTSE100 and German DAX in the last two weeks, and while we should see a positive European open this morning, we need to break above the range highs at 6,270 and 10,440 respectively to suggest a short term base might be in. The recent comments from Chinese officials that they were confident that the volatility seen in recent weeks would recede have calmed some nerves in the early part of this week, and the lack of division in the G20 towards Chinese officials was certainly welcome but yesterday&rsquo s Chinese trade data still points to an economy suffering from a lack of internal demand, as the plunge in imports appears to confirm. While equity markets may have settled down somewhat so far this week we still remain just over a week away from next week’s Federal Reserve rate decision, and their still remains no greater clarity on what that might be after another intervention last night from an economic body for the Fed to tread carefully when it comes to raising rates. The World Bank’s chief economist Kaushik Basu cited significant concerns about turmoil in emerging markets, echoing similar concerns from the IMF earlier this month, if the Fed were to raise rates next week, making next week’s decision even more finely balanced than it was already. For today the main focus will be on the latest UK economic data for industrial and manufacturing production for July, and with this part of the economy struggling in Q3 in data seen thus far there is a concern that further disappointing data here could well point to concerns about a weakening recovery. Industrial production is expected to rise 0.1% in July after a 0.4% decline in June, while manufacturing production is expected to rise 0.2%, unchanged from the previous month. The July trade balance is expected widen slightly to -£1.8bn from -£1.6bn, while the latest NIESR Q3 GDP estimate for August could slip back from the 0.7% seen in July to 0.6% EURUSD – while above the 1.1080 level the risk remains for a return towards the 1.1400 level, but we need to get back above the 200 day MA at 1.1280 first. GBPUSD – the tweezer bottom at 1.5170 and bullish engulfing day seen this week has the potential to see a sterling move through 1.5430 towards 1.5520. Pullbacks should now find support at the 1.5330 area. A move below 1.5170 argues for a test of the May lows at 1.5080. EURGBP – the pressure remains for a return to the 0.7230 level while below the 200 day MA at 0.7360. Only above 0.7400 argues for a move towards the May highs at 0.7485. USDJPY – having peaked at 121.75 last week and back below the 200 day MA at 120.75 the US dollar looks vulnerable to a return to the 116.20 area seen a couple of weeks ago. CMC Markets is an execution only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
Europe to open higher after positive Asia session
01:00, 09 September 2015