market relief

European stocks rallied yesterday as hopes for a US-China trade deal were high. 

President Trump said the March deadline is not a ‘magical date’, and that raised traders hopes as it suggested the date is moveable, and it gave the impression he is open to compromise. The DAX hit a new three month high, and the CAC 40 reached a four month high.

The Federal Reserve minutes were released last night, and the impression was given off that interest rates will remain on hold for the next few months. The Fed expressed intentions to end balance sheet reduction this year, and the move would be clearly signalled to the market in advance. Policy makers are concerned about the economic slowdown in China and Europe. The Dow Jones and the S&P 500 posted small gains last night.  

Asian stocks traded higher overnight as it was reported that US and Chinese trade negotiators are mapping out an agreement that will end the trade war.

There were further fractures in British politics yesterday as three Conservative Party MPs resigned and joined the independent group. Sterling lost ground in the day, but the losses were recovered. In numerical terms, it wasn’t a massive blow to Theresa May, but it was certainty symbolic.

Gold’s positive run continued as the metal hit a level not seen since April. The commodity has been driving higher since mid-November, and now that the Federal Reserve don’t seem in any rush to hike rates any time soon, the commodity’s upward move might continue.

Oil had a volatile session yesterday. The Energy Information Administration (EIA) predicted that US shale output will increase to 8.4 million barrels per day next month. That was balanced out by the announcement from Nigeria that the country is willing to reduce oil output in order to firm up prices. Last night the American Petroleum Institute report showed that inventories were grew by 1.3 million barrels. At 4pm today (UK time), the EIA will reveal the latest inventory report, and the consensus estimate is for a build of 3.1 million barrels.

There is a raft of eurozone data due out today. German and French CPI reports will be announced at 7am (UK time) and 7.45am (UK time) respectively, and economists are expecting 1.7% and 1.4% respectively. The updates will give us a good gauge of demand in the two largest economies in the currency union.

French manufacturing and services PMI reports will be announced at 8.15am (UK time), and dealers are expecting 51 and 48.7 respectively.  German manufacturing and services PMI report will be revealed at 8.30am (UK time) and economists are predicting 49.7 and 52.9 respectively. The German economy just about avoided a recession at the end of 2018, and this year hasn’t gotten off to a great start, so traders will be keen to find out how the powerhouse of Europe is performing. Last week, we heard the European Central Bank might be open to the idea of additional targeted liquidity, so some traders might view negative economic news as a positive for stocks as the central bank might be more inclined to intervene.

The UK public sector net borrowing report will be announced at 9.30am (UK time) and consensus estimate a surplus of £11.1 billion in January.

The US will announce a number of reports at 1.30pm (UK time). Jobless claims is expected to be 229,000, durable goods are tipped to be 1.5%, and the Philly Fed business index is forecast to be 14. US manufacturing and services PMI reports will be revealed at 2.45pm (UK time), and dealers are expecting 54.7 and 54.3 respectively. At 3pm (UK time), the existing homes sales report will be announced and economists are expecting a 0.8% increase.

EUR/USD – has been broadly pushing lower since early January, and if the negative move continues it might retest the 1.1216 area. Resistance might be found at 1.1400 or 1.1500.  

GBP/USD – has been driving higher since early December, and if it holds above the 200-day moving average at 1.3000, it might retest the 1.3200 area. The 1.2775 area region might act as support.

EUR/GBP – while its holds below the 200-day moving average at 0.8862, its outlook is likely to be negative. 0.8620 might act as support. A rally might encounter resistance at 0.9000. 

USD/JPY – has been on the rise since early January, and if the bullish move continues it might target the 112.00 area. A break below 109.50, might bring 108.50 into play. 

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