The brutal decline in US tech stocks yesterday sparked a wave of selling in Europe and the US. 

It really was a day of two halves as sentiment in Europe was initially bullish on account of the optimism surrounding the health crisis and the news about the French €100 billion relief package. Not long after the start of trading in the US, there was intense selling pressure in the much-talked about tech sector. The fast move to the downside in US indices dragged their European counterparts into the red – the FTSE 100, the DAX 30 and the CAC 40 finished -1.4%, -1.52% and -0.44% respectively – while they were showing healthy gains earlier.

Recently, the NADSAQ 100 has powered ahead as big name companies like Apple, Netflix, Amazon, Alphabet, Microsoft and Tesla have been in extremely high demand. There has been talk of gross overvaluations for some time, and yesterday there was a big sell-off in the stocks. Panic selling set in and equities across the board suffered as a result. In the end, the NASDAQ 100 finished down more than 5%, and the S&P 500 lost 3.5%.

The US non-farm payrolls at 1.30pm (UK time) will be in focus. Economists are expecting that 1.4 million jobs were added in August, which would be a dip from the 1.76 million that were created in July. The unemployment rate is tipped to fall to 9.8% from 10.2%. Average wages on a yearly basis are anticipated to be 4.5%, down from 4.8%. A slide in wages would suggest that more lower-income workers have gone back to work.

A strong jobs report would add weight to the argument the recovery continues. The latest manufacturing and services updates have been positive, broadly speaking. On the other side of the coin, a disappointing update could put pressure on the Republicans to reach a compromise with the Democrats with regards the stimulus package.

Equity markets in Asia are in the red as the massive declines in the US dented sentiment. European markets are tipped to open lower, and US index futures point to further losses.

The US labour department changed the way it measures the jobless claims metric to take into account for seasonal adjustments. Yesterday’s reading was 881,000, the lowest since the US economy was forced into lockdown. The continuing claims reading for the week ending 22 August, was 13.25 million, down from 14.49 million. There are clear signs the jobs market is improving.      

Putting aside the carnage in the tech sector there were some positive sounds from the US in regards to the pandemic. The Centre for Disease Control (CDC) said that health officials need to be ready to distribute a Covid-19 vaccine around the country from as early as November. The fact the CDC are talking in those terms suggests they are hopeful that a drug might be developed in the near-term. Dr Anthony Fauci, an expert in diseases, said it is very unlikely that a pharmaceutical company would develop a vaccine by the end of October, but it wouldn’t be impossible.  

The French government will spend €100 billion to help assist the economy. Funds will be deployed across industrial innovation, green energy and transport. President Macron pledged the relief package in July, but the finder details were published yesterday. The French President wants to cushion the blow of the coronavirus and he will have an election to contest in 2022. 

There are growing concerns the economic recovery in the eurozone is fading. Yesterday, the final reading of the services PMI reports for August, from Spain, Italy, France and Germany, all showed declines on July. The readings from Spain and Italy showed contractions – which is worrying. Earlier in the week, the Italian and French manufacturing updates confirmed the negative growth rates in August. The British services PMI report was the best of the European bunch but UK economy re-opened after its continental counterparts so the real test will be whether the momentum can be maintained over the next month or two.

The US services reports were largely positive. The services PMI metric for August was 55, up from 50 in July. The ISM non-manufacturing cooled from 58.1 to 56.9, fractionally below estimates. The internals of the ISM update were mixed as new orders fell to 56.9 from 67.7, but the employment component increased from 42.1 to 47.9 – which is still low.

Gold, silver, and copper lost ground yesterday on account of the firmer US dollar – it pushed higher for the third day in a row. It is worth noting the dollar index finished off the highs of the session, so perhaps the bullish move might be fizzling out already.

At 9.30am (UK time) the UK construction PMI report will be posted and the consensus estimate is 58.5, which would be a slight increase from the 58.1 registered in July. 

At 1.30pm (UK time) the Canadian jobs data will be released. The unemployment rate is expected to cool to 10.1% from 10.9%. The employment change level is expected to show that 275,000 jobs were added, while in July 418,500 were created.           

EUR/USD – has been in an uptrend since April and if the bullish run continues it should target 1.2000 or 1.2140. A pullback might find support at 1.1696 or at the 1.1600 zone. 

GBP/USD – while it holds above the 1.3000 mark, the bullish trend that has been in place since late June should continue, and it might target 1.3515. A move back below 1.3000, could see it target the 1.2800 zone. 

EUR/GBP – yesterday’s daily candle has the potential to be a bullish engulfing and should it move higher, it might retest the 50-day moving average at 0.9022. A break below 0.8864 should put 0.8800 on the radar.  

USD/JPY – while it holds below the 100-day moving average at 106.92, the broader bearish move is likely to remain intact. A move through 105.10 could see it target 104.18. A break above 107.00, should bring 107.92, the 200-day moving average, into sight.  


Disclaimer: 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. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.