Concerns about over-reach by Chinese regulators saw equity markets get off to a cautious start yesterday. The clampdown on various sectors within the Chinese economy that rely on overseas investment has seen a flight of capital out of Chinese stocks, particularly those with overseas listings, raising concerns as to what other sectors might be next. This caution has continued in Asia markets this morning with the Hang Seng sinking to a 9 month low.
European markets started the week very much on the cautious side with the DAX feeling the weight from a rather downbeat IFO business survey, and concerns over rising Delta infection rates. Rising inflation, shortages of workers, as well as raw materials is prompting worries about a significant slowdown heading into year end, and this softer tone looks set to continue in this morning’s open.
The performance of the FTSE100 was a little better, buoyed by resilience in basic resources while the FTSE250 also had a strong session coming within touching distance of the 23k level, and its record highs in June, as UK delta variant infections continued to fall, down for the sixth day in a row.
US markets continue to be a class apart, despite a softish start, with weakness in real yields helping to support the case for stock markets continuing to find support, with the S&P500 and Nasdaq once again setting new record highs, despite US new home sales for June, declining for the third month in succession.
With Microsoft and Apple expected to post some bullish earnings numbers later today, expectations are high that even with today’s decent results already priced in, and there's little doubt that they are, in the absence of other alternatives, any dips are likely to be bought into.
On the data front, as the Fed meeting gets underway in Washington DC, we have the latest US consumer confidence numbers for July, which are expected to soften a bit after they hit a post pandemic peak in June of 127.3, as the US economy continued on its path to recovery.
Consumer confidence still remains quite fickle if recent retail sales numbers have been any guide, and the latest personal spending data would also suggest that a lot of US consumers are in no rush to spend their stimulus payments over concern about rising cases of the Delta variant.
June retail sales saw a decent rebound in retail activity, however as has been the case for most of this year US consumer spending has been very much an on-off affair, which suggests the scope for a slight slowdown in this week’s consumer confidence numbers is highly likely with expectations of a fall back to 123.9.
Durable goods for June are also expected to rise modestly by 0.8%.
Overnight bitcoin managed to rise back above the $40k level for the first time in over a month, probably as a result of a short squeeze of positions that were betting on a move towards $25k.
EURUSD – so far held above the 1.1750 level with a break above 1.1850 potentially targeting a move back to the 1.1975 area. A break lower has the potential to target the March lows at 1.1710, with last November’s low at 1.1610 the next key support.
GBPUSD – feels like we could have seen a bit of a base, with yesterday’s move above 1.3800 targeting a potential move towards 1.3900. We still have decent support above the 1.3570 level last week, which was also the February lows.
EURGBP – struggling to rebound again however the potential for a short squeeze is ever present. We now need to see whether the recent lows at 0.8520 hold for signs of further weakness, towards 0.8480.
USDJPY – currently has resistance at the recent highs at 110.65. We need to see a move through 110.75 to target the previous peaks at 111.65. Interim support currently at the 110.00 level, and then below that at 109.10.
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