While US markets appear to be finding a level of support quite near their all-time highs, European markets continue to show much less resilience, weighed down by concerns about a slowdown in China
, as well as worries about where the current uncertain situation in Ukraine is going to lead, and the possibility of tit-for-tat sanctions with Russia as attitudes harden on both sides.
The decision by EU leaders not to recognise the legality of the weekend referendum in Crimea, endorsed by US President Obama being the latest escalation, in a very fluid situation.
Add a little Turkey unrest to the mix
and the geopolitical backdrop has all the ingredients to get a little uglier, which may not bode well for stocks in the event of further trouble.
Since the 24th of February the German DAX has fallen over 5%,
not too much of surprise given that two of Germany’s export markets are to China and Russia. Contrast that with the S&P500, which over the same period is actually 0.9% higher.
With concerns about the health of the Chinese economy weighing on sentiment
, as well as the copper price, which hit its lowest levels since mid-2010 yesterday, this morning’s Chinese economic data could either reinforce the concerns of the past few days, or alleviate them slightly.
In any event they did the former with industrial production for February coming in at 8.6%, well down from the previous 9.7%,
and the lowest number since August 2009. This drop isn’t altogether surprising, given reports about strikes and industrial unrest in Chinese factories in the past month.
Even allowing for this you have to question why the number isn’t an even lower number given that one of the reasons cited for last weekend’s poor exports number was that most Chinese factories would have been closed for Lunar New Year.
If that were the case then surely industrial production data would have been similarly much lower?
Retail sales numbers for February
also showed a worrying slowdown, rising 11.8% well below expectations of 13.5% suggesting that, despite attempts to rebalance the economy towards internal consumption, there was no Chinese New Year spending boost.
Despite these weak numbers today’s European open looks likely to be on the slightly stronger side,
probably a brief respite after yesterday’s strong declines.
Later today we have US retail sales for February,
which are expected to show a small rebound.
Since October last year US retail sales have been on a steady downward track raising doubts about the durability and strength of the US economic recovery. We’ve heard an awful lot of chatter about how the adverse weather in the US has affected the US economy.
The weather has certainly played a part but it isn’t the only reason as the slowdown in US consumer spending was flagged up as early as late last summer by big US retailers Wal-Mart, Target and Costco when they warned on their outlooks into year end, and it wasn’t because they had 20-20 foresight as to what the weather was going to do in the coming months.
Ever since the October retail sales numbers came in at 0.5%
, the trend has been lower, 0.3% in November, -0.1% in December, and -0.4% in January, hardly the end product of a thriving economy, and as such giving the lie to the theory that the recent drop off in economic activity has been largely as a result of the inclement weather. That being said February could well have seen some kind of rebound, with expectations of a rise of 0.2%.
Weekly jobless claims
are expected to increase slightly to 330k from last weeks three month low of 323k.
Later on in the day we have the latest Senate hearings seeking to ratify the nominations of Stanley Fischer as vice chair of the Federal Reserve
as well as Lael Brainard and Jerome Powell to the board of the Federal Reserve.
– the move towards 1.4000 remains on track while above 1.3810, despite a weak follow through above 1.3900 yesterday. Back below 1.3800 retargets a move back towards trend line support at 1.3735, from the February lows.
– the pound managed to rebound from the 1.6570 area after failing to push convincingly below the 1.6580 level. The failure could suggest a rebound back to the highs last month at 1.6820.
A concerted break below 1.6570 could well see further losses towards 1.6480 and even 1.6300.
We need to get back above the highs last month at 1.6820 to suggest a stronger move towards 1.7000. Only a close above 1.7000 could have huge significance in the coming weeks for the future direction of the pound.
– yesterday’s break above 0.8350 to the highest levels this year could well be the first sign of a potential double bottom reversal and a move towards the 200 day MA at 0.8430. Support now comes in around the 0.8270/80 area.
– yesterday’s fall below 102.80 suggests we could well see a slow drift lower towards the March lows around the 101.40 area, and trend line support from the February lows at 100.75.
A move back above 103.30 retargets the 104.00 level.
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