European stocks finished lower yesterday as the disappointing growth figures from the eurozone added to the Continents woes. In the third-quarter, the euro area grew by 0.2%, which undershot the 0.4% that economists were expecting. 

The region grew by 0.4% in the second-quarter, so the report represents a slowdown in activity. Germany is in good shape, and that was confirmed by the steady unemployment rate at 5.1%, and inflation crept up to 2.4%. One reasonable economy can’t prop up the region.

The stand-off between the Italian government and the EU continues. Italy’s economy grew 0.8% in the third-quarter on an annual basis, which was below the forecast of 0.9%. Matteo Salvini, Italy’s joint deputy prime minister claimed the underwhelming update is a reason the government needs to increase spending, and in turn increase the budget deficit. The Italian situation could spark another round of the eurozone debt crisis, and given that the country has the third-largest government bond market in the world, the fallout could be enormous. Dealers will be keeping an eye out for the eurozone CPI and unemployment reports which are due out at 10am (UK time). The CPI rate is tipped to be 2.2%, and the jobless rate is expected to hold steady at 8.1%.

Asian stocks moved higher overnight despite underwhelming data from China. The manufacturing PMI reading was 50.2, and traders were anticipating 50.6. The non-manufacturing PMI reading was 53.9, and that compares with the previous reading of 54.9. The manufacturing report was the weakest reading since July 2016, and it highlights the slowing growth in the Chinese economy. The Bank of Japan kept their policy unchanged, and cautioned about the rise in protectionism.   

The major US indices had a strong finish last night as some of the fear that has been circulating Wall Street evaporated.  The US labour market is in good shape and the latest ADP employment report will be released at 12:15pm (UK time), and traders are expecting 189,000. A strong number could renew fears about monetary tightening from the Federal Reserve.

S&P warned that a ‘no-deal’ Brexit could bring about a recession in the UK, and might lead to a reduction in the country’s credit rating. The ratings agency announced the possibility of the UK leaving the EU without a deal has ‘increased sufficiently’, and should the event happen, the recession might last four or five quarters. Sterling was hit by the announcement.

The US dollar had a positive session yesterday, partly because of the poor performance of the euro and the pound, but the fact that the Conference Board consumer confidence report hit an 18 year high helped the greenback too. The firmer US dollar dented the gold market, as the inverse relationship between the two markets has been strong recently.  

Oil fell again yesterday as dealers were fearful about future demand levels, and at the same time were cautious about excess supply levels. The trade dispute between the US and China has left traders worried that global demand will fall. Keep in mind, the Chinese economy is already cooling, and we haven’t seen much evidence of the tariffs hurting the Chinese economy yet. The International Energy Agency warned that demand could fall next year, and the group cited high prices for the possible dent in demand. The American Petroleum Institute report showed that oil stockpiles jumped by 5.7 million barrels. At 2.30pm (UK time) the Energy Information Administration report will be announced and the consensus estimate is for a build of 3.5 million barrels.  

EUR/USD – has been diving lower since late September and if it holds below the 1.1510/00 region, it could pave the way for the 1.1300 area to be retested. A move to the upside could run into resistance at 1.1598 – the 100-day moving average.

GBP/USD – the push higher since mid-August is starting to look weak, and if it remains below 1.3000, it could put 1.2661 on the radar. A rally above 1.3000, could bring the 1.3250 region into play. 

EUR/GBP – has been pushing higher since mid-October and if it holds above the 200-day moving average at 0.8836, it might bring 0.9000 into play. If the wider downtrend continues, it might target 0.8800.

USD/JPY – the upward trend that began in March is still intact and if the positive move continues it might target 114.73. Support might be found at 111.37.  

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