We’ve talked about the recent dislocation between US and European markets in recent days with US markets continuing to make new all-time highs, while Europe’s markets have struggled due to rising concerns about a growth slowdown, as well as rising geopolitical risk on its borders, due to rising tensions with respect to Russia’s attitude towards Ukraine.
That dislocation could well be starting to afflict US markets
, with the Nasdaq finishing the week in positive territory, with the Dow, and Russell 2000 posting a decline, and the S&P500 finishing flat.
Friday’s declines largely stemmed from reports that EU leaders were finally starting to realise that their cautious response to Russia’s policy towards Ukraine
could well store more problems up for the future, unless they started to deliver some real pain to Russia’s economy.
Reports that new “tier three” sanctions on the financial, energy and defence industries could be agreed as soon as tomorrow
saw a significant amount of profit taking with the German DAX
closing at its lowest levels since April.
The key question remains as to whether these new measures, if agreed, will be enough to give President Putin any pause
. This seems doubtful given that they won’t affect existing deals like the French deal to supply military hardware to the Russians, as once again national self-interest prevents a co-ordinated effective response to Russia’s actions.
While geopolitical concerns once again seem set to define the week’s trading
we also have a big week of economic data coming up, culminating on Friday with the latest US employment report for July.
The US economy continues to give mixed signals
as to its resilience with the jobs market looking increasingly buoyant, however a lot of other data continues to point to a US consumer who remains very reluctant to spend, despite improvements across the manufacturing sector.
Last week’s durable goods numbers, were disappointing
and followed on from retail sales numbers which suggested that this week’s US Q2 GDP number will struggle to reverse the 2.9% contraction seen in Q1, furthermore the new home sales data rebound in May, that had investors all optimistic over a month ago, was pretty much revised away in last week’s disappointing numbers, with June also missing expectations.
The fear is that today’s pending home sales data for June will go in a similar direction
, with a decline of 0.2% expected. The key question now is whether the 6% rebound in May will get revised away in a similar fashion to the 18% rise seen in May new home sales last week.
It is also worth keeping an eye on this week’s FOMC meeting which is expected to further reduce the monthly stimulus being administered
to the US economy, by another $10bn on Wednesday, to $25bn.
In Europe the main focus this week
will be on the latest unemployment numbers from Germany, Italy and the wider EU
, as well as further updates to July manufacturing PMI numbers from Germany, France. Italy and Spain.
– the euro continues to look weak pushing below the previous lows this year at 1.3477. This failing momentum suggests we could well see a slow drift lower towards 1.3300, and the November lows. We need to see a move back through 1.3500 to retarget the 1.3570 level and then on to 1.3640.
– eight successive down days in a row have brought the pound towards the 50 day MA and support at 1.6950. A break through 1.6950 could well trigger a sharp roll over towards 1.6845 and the 100 day MA. We need to see a rebound back through 1.7030 to stabilise in the short term and argue for a retest of 1.7100.
– having found some support the 0.7870/75 area the euro needs to overcome last week’s high at 0.7940 and then trend line resistance at from the highs in March at 0.7990, to stabilise.
The pressure remains for a move towards 0.7780, with any rebound needing to overcome the 0.8000 level to stabilise in the short term.
– the current rebound is running into resistance at 102.00 where we have cloud resistance. Even if we move through here we also have trend line resistance at 102.45, from the 105.50 highs, posted at the beginning of this year.
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