Despite a very strong session on Friday European equity markets still finished the week lower as investors digested last week’s “clarification” by Fed chief Janet Yellen about the potential timing of a US rate rise.
US markets on the other hand were more mixed with concerns about biotech valuations weighing on the S&P500 and Nasdaq, pulling them off their highs.
This late weakness is likely to see a weaker European open this morning as investors gear up for a busy week of data culminating in Friday’s US payrolls report.
By putting the prospect of a rate rise back on the table by the end of this year, her comments appear to have reassured some nervous investors that despite not acting in September
, the Fed remains cautiously upbeat by the strength of the US economy, and that there appears to be a growing quorum within the FOMC for a move by the end of the year.
We will discover later today how comprehensive that quorum is when both the Chicago Fed’s Charles Evans, an avowed dove, and William Dudley of the New York Fed are due to speak on monetary policy
Concerns do remain though, not least with respect to the Chinese economy
and the continued weakness seen there, along with the slide in the oil price which is starting to clobber the US manufacturing sector. With Fed officials seemingly intent on raising rates this year come what may, there is a fear that the Fed might be on the cusp of making a big mistake
It still remains far from clear how weak or otherwise economic conditions in China are,
with Nike’s quarterly results showing some decent numbers in the China region, however concerns remain about the weakness of the manufacturing sector, where we will get further insight later this week, with the latest Caixin manufacturing and services PMI, numbers for September, alongside the official numbers.
Last week’s US Q2 GDP revision was positively received
by investors with personal consumption driving most of the upward revision.
Today’s personal income and spending numbers for August will give a more up to date look
at the US consumer and their willingness to spend. Despite the strength of the Q2 GDP numbers consumer spending has been one of the US economy’s weaker points and is expected to show a rise of 0.3%, with personal income set to show a similar rise.
In the manufacturing sector, the latest Dallas Fed manufacturing index
is expected to show a contraction of -9.5 in September, following the Empire, Philadelphia, and Richmond Fed readings this month.
With month end and quarter end also approaching it seems probable that markets are likely to remain choppy this week
and sentiment certainly won’t be helped by the disclosure that SAMA, Saudi Arabia’s investment fund has seen its reserves fall by $73bn as it pulls money out of global markets to offset the declines in oil revenues caused by the low oil price. Given this it seems likely other cash strapped Arab governments have done or could do the same.
Having put the uncertainty of events in Greece temporarily to one side, Europe appears to have got itself another political headache
at the weekend with the election of pro Catalan independents to the Catalan parliament. In the lead up to the vote Catalan politicians made it clear that the vote was as much about a mandate for independence from Spain than anything else.
With a turnout in excess of 70% the ruling party of Spanish PM Mariano Rajoy
looks set to win less than 10% of the vote, and while the result isn’t likely to cause too many ripples in the short term, in the longer term it makes it much more difficult for Madrid to ignore the popular push for a referendum on the issue.
One thing is certain Spanish politics got that little bit more interesting and Brussels got itself another headache.
– while the euro remains above the 50 day MA at 1.1140 the potential for a move back towards 1.1400 remains. Only a move below the lows this month at 1.1080 suggests a move back towards 1.0820.
– six successive daily declines have seen the pound break below trend line support from the April lows and the lows this month at 1.5170, which opens up the prospect of further losses towards the 1.5000 area. We need to recover back through the 1.5330 area to stabilise and suggest a return to the 1.5400 area.
– we need to break above the resistance at the 0.7420 area and August highs, or the support at the 0.7320 area to determine the next move here. A move through 0.7420 suggests a move back to the May highs at 0.7485. Below the 0.7320 area retargets a move towards 0.7240.
– the failure to break beyond the 121.30 area prompted a sharp move lower as the recent range trading price action continues to compress the price action. Trend line support now comes in at the 119.20 area. The US dollar still looks vulnerable to a return to the 116.20 area seen a few weeks ago.
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