It was broadly a positive session in Europe yesterday as the US-China trading relationship became a little less tense.  

Peter Navarro, a trade advisor to the White House, rubbished the idea that the US were considering delisting Chinese companies from US stock exchanges. Mr Navarro described the prospect of such a move a ‘fake news’, hence why we saw a largely positive end to the European trading session.  

Trade talks between the two sides are set to take place next week, so the comments from the trade advisor helped lay the foundation for trade negotiations. The tit-for-tat tariff spat is basically at the worst it has been, but the fact that both side are due to meet next week has helped lift sentiment, which led to a positive finish to US stocks last night.

Stocks in Hong Kong are higher, while equities in mainland China are lower. Overnight, President Xi Jinping said that ‘no force can stop the Chinese people and the Chinese nation’. The statement was made during an event marking the 70th anniversary of communist rule in China.      

Yesterday the Chicago PMI report fell back 47.1, from 50.4 in August. Not only was it a swing to negative growth it was also a sizeable miss on the 50.2 expectation. When you take into account the official Chinese manufacturing PMI survey is in contraction, it is clear the trade dispute is impacting both sides. Neither the US nor China want to seem too keen to strike a deal as it would be construed by the other as weakness, but at the same time, both parties would benefit from a deal.  

Soft CPI numbers from Germany drove the euro to its lowest level against the US dollar in over two years, and the firmer greenback hit the gold market. The inverse relationship gold has with the US dollar kicked in yesterday, which pushed the metal into the red. The risk-on strategy of traders caused problems for gold as well as silver too.

It was reported that Saudi Arabia’s oil production has returned to pre-attack levels, which put huge pressure on the energy market as traders are no longer worried about supply levels. If anything, the previous worries about demand, on account of a fragile global manufacturing sector, have returned.                 

Overnight, the Reserve Bank of Australia (RBA) cut interest rates to 0.75% from 1%, meeting forecasts. The RBA said they would ease monetary policy further if it is needed to support growth as well as meet inflation targets. The central bank said the housing market has stabilised, but cautioned the outlook for domestic demand looks uncertain.

A string of European countries will reveal their final readings of their manufacturing PMI reports for September between 8.15am (UK time) and 9.30am (UK time). Spain, Italy, France, Germany in addition to the UK will reveal their reports, and economists are expecting 48.2, 48, 50.3, 41.4 and 47 respectively. The German report will be in focus as the flash reading was the weakest in over ten years. The UK update will be of interest too as last reading was the weakest since late 2012.

At 10am (UK time) eurozone CPI will be announced, and the headline CPI reading is tipped to be 1%, while the core CPI reading is also expected to be 1%. Yesterday we saw that German CPI dropped to 0.9%, a level last seen in late 2016, which highlights the decline in demand.

Between 1.50pm (UK time) and 2.30pm (UK time) a number of Fed members will be speaking. The policy makers include, Richard Clarida, James Bullard as well as Michelle Bowman.     

The final reading of the US ISM manufacturing PMI reading will be revealed at 2.45pm (UK time), and economists are expecting it to be 50.1. The prices paid component is tipped to be 48.5. Be mindful of yesterday’s poor Chicago PMI update.              

EUR/USD – remains in the wider bearish trend, and if the negative move continues it might target 1.0800. A snap back might encounter resistance in the 1.1100 area.   

GBP/USD – has been pushing lower for over one week, and a break below the 50-day moving average at 1.2261 could pave the way for 1.2200 to be retested. A move to the upside might bring 1.2400 into play.    

EUR/GBP – while it holds above the 200-day moving average at 0.8835 the outlook should remain bullish, and 0.9000 might act as resistance. A break below 0.8786, might put 0.8724 on the radar.  

USD/JPY – rebounded in last August, and if it holds above the 107.08 area – 50-day moving average, it might bring 109.31 into play. Should the wider downtrend continue it might retest the 106.00 area.  

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