Another negative finish on Wall Street last night has seen US markets wipe out all of its July gains
and looks set to see European markets open lower once again this morning as concerns about a military strike in Syria pushes oil prices to multi month highs, and equity markets lower.
While equity markets continue to feel the pressure of uncertainty, with the S&P500 looking particularly vulnerable,
UK markets will be scrutinising the contents of Bank of England governor Mark Carney speech later today
on what is to be expected the Bank of England's new forward guidance program.
This speech in Nottingham will be the ideal opportunity to reinforce the Bank of England's message on forward guidance
; however recent improving economic data is likely to make that difficult. There has been talk of more QE in a bid to keep rates lower but that would be enormously hard to justify given the current recovery and runs the risk of undermining the pound as well as the Bank's mandate to target inflation, which was one of the reasons Martin Weale gave for his dissent on the guidance criteria.
He could well need the help of the Federal Reserve if he is to achieve his goal, especially if the US central bank does indeed start to taper its asset purchase program later this year.
As if to illustrate the bank's problem, the sterling futures strip is currently showing the likelihood of a rate rise of 25 basis points by September 2014
. Last week's upward revision of UK Q2 GDP has raised expectations that the UK recovery is starting to gain traction.
The improvement in manufacturing and construction sectors
has been heralded as a sign that the UK economy is rebalancing away from consumer spending. That seems premature to say the least but it is welcome nonetheless, and the latest Q3 data is reinforcing that perception.
the main focus of attention is likely to be on the Dutch government's decision to implement a further €6bn of budget cuts
at a time when unemployment continues to rise and growth continues to fall. It takes self-flagellation to a new level at a time when governments across Europe have been allowed extra time to bring their deficits down to the EU accepted level of 3% of GDP.
the politics of electioneering is building up with Angela Merkel blaming previous Chancellor Schroeder for allowing Greece into the euro, saying that they should never been allowed. What she fails to mention is that you could make the same argument for Portugal, Spain and Italy as well.
Despite a much better than expected consumer confidence number for August
US markets tumbled sharply yesterday following in the footsteps of European markets, as the lack of positive drivers saw investors embark on a watching brief.
Given the recent run of poor economic data investors had been hoping that US consumer confidence would give markets a positive shot in the arm, in spite of last week's downbeat comments from US retailers that a difficult retail outlook
suggested the potential for a positive surprise was unlikely, yet that is precisely what we got with US consumer confidence rising to 81.5 from a revised higher July figure of 81.
Markets didn't buy this though, with concerns about Syria outweighing any positive sentiment arising from the confidence numbers
. The fact is consumers may well be confident but they don't seem to be buying anything which suggests that the confidence numbers are meaningless.
In the wake of last week's shocking US new home sales data for July which showed a 13.4% drop we have the latest US pending home sales data for July
, which is expected to show a flat reading after a 0.4% fall the previous month. Given Friday's numbers it wouldn't be too much of a surprise to see a correspondingly poor number here as well, given the recent rise in mortgage rates.
- the euro continues to be capped just above the 1.3400 level but is also finding support just above the 1.3300 area. To delay a move towards the 1.3710 area we need to see a move back below 1.3310. To reopen the downside we need to break below the 1.3150 area and the low four weeks ago at 1.3135 to achieve this.
- despite peaking at 1.5715 last week the pound continues to hold above the 200 day MA at 1.5515, despite a brief dip to 1.5480 yesterday, and while it does so another test of last weeks levels and the 200 week MA at 1.5750 cannot be ruled out. A concerted move below 1.5500 has the potential to retarget the 1.5410 low of two weeks ago.
- the euro appears to be finding some support above the 200 week MA and trend line support at 0.8506 from the 2012 lows at 0.7705. This remains the key level for the primary uptrend. A concerted move through the 0.8620 level and two week highs could well see a retest of the 0.8700 area. Only a break of the primary up trend line targets a return to the May lows at 0.8405.
- while the cloud resistance at the 98.80 level and the 99.10 trend line resistance from the May highs at 103.75 caps the upside, the bias remains towards the downside. The triangular consolidation continues to unfold and we could well see a return to the base of the consolidation at the 95.80 trend line from the February lows at 91.05.
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