The records have continued to tumble in the US over the long weekend with the S&P500 trading through the 2,000 level for the first time ever
as investors shrugged off any concerns they might have had over a more hawkish set of Federal Reserve minutes and a less dovish than expected speech by Janet Yellen, from last week’s Jackson Hole proceedings.
Geopolitical concerns remain in the background for now, but are likely to remain a worry as Ukraine President Poroshenko meets Russian President Putin in Minsk today
for talks aimed at bringing to end the conflict between the separatists and the Ukraine government. Expectations remain low as to any successful outcome here.
While the focus was on a less dovish than expected speech from Janet Yellen, which helped to push the US dollar higher, it was the President of the European Central Bank, Mario Draghi who stole the limelight and the headlines with a speech that appeared to hint at the prospect of some form of quantitative easing in the coming months.
Draghi expressed concern that inflation expectations were declining, and called for more flexibility with respect to fiscal policy.
These words could well find added weight at the end of this week when the latest EU CPI figures are expected to show a further decline to 0.3% for August
, from 0.4%.
Draghi’s speech has been construed as a significant departure from the usual rhetoric
usually used by ECB heads, in that he has ventured into areas normally reserved for politicians and is particularly notable at a time when the political temperature in Europe looks set to rise further
in the wake of the collapse of the French government, which is under increasing pressure from Brussels and Berlin to get its spending under control.
Despite these political concerns and yet another poor German IFO business confidence survey
yesterday European stock markets rose sharply on Monday as markets looked to price in the prospect of further policy easing by the ECB in an attempt to try and boost economic growth in the euro area.
In this context the FTSE100 is expected to open higher this morning as it plays catch up with Europe’s advance from yesterday,
though the German Dax and France CAC40 are expected to open below yesterday’s strong closes.
While US markets continue to go from strength to strength
the disconnect between the performance of the stock markets and some of the economic data remains a worry. Yesterday’s new home sales data showed an unexpected decline in July of 2.4%, while the latest services PMI data from Markit dropped from 60.8 in July to 58.5 in August.
Today’s durable goods data is expected to show a sharp rise in July of 7.1%
, up from June’s 1.7%, but a lot of that number is likely to be padded out by aircraft orders from the Farnborough air show. When that number is stripped out the likelihood is that we could well see a decline from June’s 1.9% rise to 0.5%, as consumers continue to defer purchasing large ticket items.
Consumer confidence for August
is also expected to show a small decline from 90.9 in July to 88.5.
– the euro has continued to probe new lows pushing below 1.3200 and could well be on its way towards the 1.3000 level, which would be a 50% retracement of the move from the 2012 lows at 1.2042 to the 1.3993 highs earlier this year.
Any pullbacks are likely to find resistance around the 1.3330 area which were the 6th August lows.
– the pound had a strong day yesterday despite pushing below the April lows at 1.6555, but it did manage to stay above the 1.6520 level which remains a key support. Having declined for seven weeks in a row the 200 day MA at 1.6675 remains a key resistance and we need a close back above it to diminish the downside risk.
– the euro slid sharply yesterday but has so far managed to stay above 0.7950, trend line support from the recent lows. A move through here is likely to see a retest of the previous lows at 0.7880. Above 0.8030 retargets the 0.8085 level last seen in June.
– the US dollar broke above the April highs at 104.10 peaking at 104.28 before slipping back. The next resistance sits in the 105.50 area which remains a huge level given it was the recent high from the end of last year, as well as the 61.8% Fibonacci retracement of the decline from the 2007 highs at 124.13 to the lows 75.58 in 2011. Pullbacks are likely to find support around 102.80/103.00 area where we saw the May and June highs.
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