Despite a strong US payrolls report on Friday, European markets look set for an anxious and lower open this morning
, after Chinese trade data showed a sharp drop in imports for January, while events in Greece look set to continue to give investors sleepless nights.
China’s trade surplus exploded to $60bn in January, with imports cratering 19.9%
as the slowing economy hit domestic demand as well as the manufacturing sector. Exports were also weak, sliding 3.3%, missing expectations of a rise of 5.8%. This unexpected weakness is likely to increase the pressure on Chinese officials to implement further measures
to ease policy further after last week’s triple R cut.
After last week’s whistle stop tour of European capitals by new Greek Prime Minister Alexis Tsipras and finance minister Yanis Varoufakis, yielded a sympathetic ear in some capitals, and an unyielding one in the German capital
, attention shifted to the first sitting of Greece’s new parliament yesterday, particularly after an S&P downgrade further into junk territory on Friday.
If investors were hoping for a more emollient tone from the new Greek government in light of last week’s events, and the ECB’s intervention in removing its collateral waiver, they were in for a rude awakening as PM Tsipras reinforced his determination to end the bailout at the end of this month
, insisting on some form of bridging finance, as well as a determination to “honour and fully implement our pre-election policy commitments, fully respecting the will of the people”
It would appear that last week’s actions by the ECB in upping the ante may well have backfired spectacularly
, cutting as they have the time for coming to an agreement, which should make this week’s G20 and EU meetings quite tense affairs, as policymakers scramble for some form of compromise, with neither side showing any inclination to blink.
As both sides become more and more entrenched it’s only going to become more and more difficult to imagine a happy outcome, while this stand-off continues, with the likelihood of a Greece exit increasing by the day
Friday’s US employment report confounded expectations
with not only a positive January jobs number, but also strongly positive revisions to the November and December numbers. This strong performance in the last quarter has reignited speculation about a summer rate hike by the US Federal Reserve, particularly given we also saw a strong rise in average hourly earnings data for January, from 1.9% to 2.2%. on an annual basis and at the fastest rate since August.
All in all the data was unambiguously good
and while the wages data was positive and the US dollar rallied sharply, US stock markets weren’t anywhere near as enthusiastic, slipping back on the day, though finishing up on the week.
While the increase in wages in particular was well above market expectations,
and saw US bond yields rise sharply in expectation of a possible summer tightening, it is probably important to note that some of the reason for the sharp increase in wages in January was due to at least 23 US states increasing their minimum wage rates from January 1st, with 11 of them raising it by more than 10%.
Fed officials are likely to want to see further evidence, beyond one month’s data
, of a trickle through effect before changing the language at their next meeting, which suggests that the dial may not have moved that much with respect to a policy tightening of policy.
– Friday’s decline saw the euro slide back again but while we stay above the lows of last week at 1.1290 then we could still see a rebound. The main support remains down at the 1.1205 level, while the main resistance remains back at last week’s high at 1.1535.
– Friday’s decline below 1.5270 found some support at 1.5210, undermining the inverse head and shoulders breakout and could well herald some further sterling weakness. We need to push back through the 1.5280 level to keep the prospect of a move towards the 1.5500 level. A move below 1.5200 could well see a retest of the 1.5000 lows last week.
– after failing at the 0.7590 level we appear to be heading back towards the lows at 0.7400. Only a move below 0.7400 suggests a move towards 0.7255, which had originally been the peaks seen in 2003.
– the broad range between 117.00 and 119.00, remains intact despite overspills either side to 116.55 and 119.22 which book ended either side of last week, with the odds now evenly split between a move lower or higher. The key support remains just above the 115.60 level as well as 116.20, which is also potential neckline support for a forming head and shoulders pattern. On the top side the key resistance sits at 119.25.
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