After four successive weeks of declines European markets look set to put on their best weekly showing since late August, though after yesterday’s gains we could well see a slightly lower open this morning, after a late paring of gains in in the US
on the back of reports of a potential Ebola case in New York City, which was confirmed early this morning.
It has still been a choppy week but the rebound in Europe has been largely as a consequence of expectations that the European Central Bank might be compelled to take further measures
in addition to the ones already announced. The suggestion that the central bank may well look at purchasing corporate bonds helped underpin the markets, and though there were subsequent denials that such a policy was being considered at this time, it wasn’t ruled out entirely.
Yesterday’s strong gains were also helped by a much better than expected manufacturing PMI number from Germany and the Euro area for September
, which suggested that the recent weakness in the German economy could well be overstated.
Unfortunately that brings with it its own set of problems in that it could make much less likely that Germany will agree to further stimulus measures
to help the French economy which slipped further into the mire, with its latest manufacturing and services numbers.
As things stand the politics are set to remain difficult particularly given that both the French and Italian budgets have yet to be approved by the EU,
but we have also seen a bit of a rebound in some of the European banks this week ahead of the results of this weekend’s stress tests, with investors not wanting to be the wrong side of the Sunday’s announcements.
In the UK
concern about a slowdown in the economic recovery seen so far this year rose yesterday after retail sales for September decline 0.3%, more than the 0.1% expected.
Given that a large part of the decline was in clothing sales this wasn’t too much of a surprise, and we could well see that decline pulled back in the October numbers
given the slightly wetter and colder weather seen in the last few weeks, and it could well just be a case of spending deferred here.
Today’s Q3 GDP numbers are expected to show that we’ve probably seen the high water mark on the recent recovery
after the revision higher to the Q2 numbers to 0.9%. The problems in Europe will have inevitably had a cooling effect here in the UK and we can expect to see initial Q3 growth of 0.7%.
These concerns about Europe, as well as China, have also prompted speculation that interest rates may well have to stay low for some time to com
e, with Deputy Governor of the Bank of England Ben Broadbent the latest in a long line of central bankers to suggest that a rate rise was now becoming less likely in the next few months than was previously the case.
– despite the break below channel support at 1.2700 the euro appears to be finding somewhat of a base just above the 1.2600 level. We also have support at 1.2570. This suggests we could well be heading for a short squeeze higher back towards 1.2720. We need to get back above the 1.2720 area to suggest a recovery back towards 1.2800.
– despite brief dip below 1.6000 yesterday we remain in the broad wedge formation keeping alive the prospect of a test of 1.6120 and a break trend line resistance from the highs at 1.7145. The 1.6130 area needs to break to help mitigate the recent downside momentum, and suggest a move towards 1.6300.
– while we stay below the 0.7940 area then the risk remains for a move back towards the low last week at 0.7855. Below the 0.7855 area argues for a move back towards the September lows at 0.7760.
– the break above 107.60 yesterday now argues for a test of the 108.50 level, which is the next barrier to a test of the 110.00 highs. Support should now come in between 107.50/60 yesterday’s break out level.
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