US markets managed to bounce back with the S&P500 closing at another record high on Friday
after some disappointing tech earnings initially sent markets lower. It would appear that the prospect of continued US central bank stimulus after last week’s Bernanke comments is able to keep pullbacks to a minimum.
As for the start of the European week, markets here are expected to open higher this morning
, despite a rather mixed Asia session, with the Nikkei
along with other Asia markets struggling to make gains as Japanese investors absorb the consequences
of a comprehensive victory for Japanese PM Shinzo Abe
in the weekend upper house elections.
Given the nature of the victory, investors will now hold Mr Abe
to his promises to deliver on the “third arrow” of his promised reform program
to help revitalise the Japanese economy.
Any prospect that he might feel compelled to pull back on the promised labour market reforms
could well see markets lose confidence in the wake of a fairly promising start, though it would appear that his weekend victory has been mostly priced in.
On the economic data front
it is expected to be a fairly quiet day in Europe
; however Portuguese bond yields
could well start to edge higher after the failure of the two main political parties to come to an agreement on a “national salvation” government.
With the next troika report delayed
until after the German elections, both parties are expected to stagger on trying to implement the bailout agreement
as the Portuguese president decides on what steps to take next. This failure to adopt consensus is becoming all too familiar in the politics of southern Europe and is likely to jeopardise any prospect of Portugal being able to return to the markets next year.
What seems more likely is that the country will probably need another bailout.
As far as this week is concerned there are a number of key data releases of particular importance to both the UK and Europe, with the latest UK Q2 GDP number expected to show growth of 0.6% or more, driven largely by the services sector. The key concern is likely to be around how sustainable that is in the longer term.
We also have French and German manufacturing and services PMI data with small improvements expected in all, though by not enough to encourage significant amounts of growth for the first month of Q3. Only German services PMI is expected to show any type of growth, even that is expected to be meagre at 50.7, while the German IFO on Thursday is only expected to improve slightly.
These poor numbers are expected to increase the pressure on ministers across Europe and the G20 to deliver on Friday’s G20 communiqué which promised to deliver an action plan for jobs and growth in time for the September meeting, while at the same time ensuring that central bank monetary policy
remained as accommodative as possible to help boost domestic demand.
In the US
the latest existing homes sales for June are expected to show a rise of 1.4%, down from the 4.2% rise in May.
– continues to find selling pressure at the 1.3180 area, while at the same time finding support around the 1.3060 area. The long shadows on the daily candles suggest buying interest on dips, but only a move through the 1.3230 area could see a move back to 1.3400.
Only a break below 1.2750 argues for a move towards the 1.2680 level which is 61.8% retracement of the entire up move from 1.2045 lows in July last year to the highs this year at 1.3710.
– the 100 day and 50 MA between 1.5265 and 1.5275 continue to act as some kind of resistance, but it is 1.5300 we really need to crack, 50% retracement of the 1.5752/1.4815 down move. We need to hold above 1.5160 to open up 1.5400, otherwise a move below 1.5160 retargets the 1.5030 area.
– last week’s bearish key day reversal keeps the bias towards the downside but we need to break below the 0.8580 area to target further losses. We also saw a bearish weekly reversal which reinforces the downside pressure. For now any pullbacks need to stay below 0.8650. We need a break below the 0.8580 level to retarget a move back towards the 0.8520 area.
– while below the trend line resistance from the 103.75 highs at 100.85 the risk remains for a move lower, back below 99.80 and towards the cloud support at 98.22. Only above 101.00 changes the outlook and retargets the highs this year at 103.75 and then 105.80.
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