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Europe poised for higher open as mood lightens

CMC Markets

Stock markets in Europe largely ended lower yesterday as the concerns about the health of the global economy continue to hang over the markets. 

The FTSE 100 lost the most ground of the major European markets as oil, mining and banking stocks were the biggest fallers. The natural resources sector was hit hard as dealers were fearful that demand would fall for metals and oil.

Eurozone equity markets finished lower too despite a hint that the European Central Bank (ECB) would reveal a big stimulus package next month. Olli Rehn, of the ECB, called for ‘significant and impactful’ policy in September, and the central banker said it is better to ‘overshoot than undershoot’ when it comes to additional policy measures. Many eurozone banks are still limping along from the credit crisis era, and the prospect of even deeper negative interest rates on deposits is likely to hurt an industry which is already suffering.  

In recent weeks we have seen interest cuts from a number of major economies like, Australia, New Zealand, India, and the US, and it would appear that the ECB want to keep in step with them. This week we saw the German economy contract in the second-quarter, and the talk of a recession is circulating. The eurozone also has to contend with the possibility of a no-deal Brexit too, and it appears the central banker is priming the market for a loosening of the monetary policy to weaken the euro.

The S&P 500 posted a small gain last night as the market rebounded a little form the massive losses incurred on Wednesday, while the NASDAQ 100 finished fractionally in the red. US retail sales jumped by 0.7% in July and that assisted the greenback – which took a battering at the beginning of the month. The inversion of the yield curve spooked traders, but when you look at the economic indicators, the US economy is in rude health. The jobs market is strong, earnings are above CPI and workers are spending money, so we might see a row back in the calls for a rate cut from the Fed next month.

Stocks markets in Asia are a little higher as the mood has lightened, and that paved the way for bargain hunting.

Sterling had a good run yesterday as the UK retail sales report showed an increase of 0.2% in July, which comfortably topped the -0.2% forecast. It was a good week for British economic reports as the unemployment rate is still very low, wages are strong, core inflation edged higher, and the retail sales figure was solid.      

The US will announce some housing reports at 1.30pm (UK time), building permits are tipped to be 1.27 million and housing starts are expected to be 1.26 million.

The University of Michigan consumer sentiment report will be revealed at 3pm (UK time) and economists are expecting the reading to cool to 97.2, from 98 4 in July.

EUR/USD – remains in the wider down trend of 2019, and if the bearish moves continues it might target the 1.1000 area. A rally might encounter resistance at the 1.1300 region – the 200-day moving average.

GBP/USD – has been driving lower since mid-March, and if the bearish move continues it might target the 1.2000 region. The 1.2200 area might act as resistance.

EUR/GBP – has rallied for over two months, and if it holds above 0.9200, it might bring 0.9410 into play. A move to the downside might put 0.9089 on the radar.

USD/JPY – has been in a down trend since late April, and if the bearish move continues it might target the 104.63 region. 107.72 - 50-day moving average, might act as resistance should the market rally.