lunging oil prices, weak earnings reports as well as increasing evidence that the economic recovery was starting to run out of steam, had already seen European markets under pressure at the end of last week
, posting their biggest weekly decline since the China induced August volatility a few weeks ago.
With US stocks following suit with similarly sharp falls, against an increasing belief that the Federal Reserve seems intent on raising interest rates for the first time in nine years, the prospect of a positive start to markets in Europe at the start of this week had already been a remote one, even before last Friday nights horrific events
Against such a fragile backdrop markets generally take the line of least resistance and given this vulnerability,
European trading looks set to follow in Asia’s footsteps, and open sharply lower at the beginning of this new week, as uncertainty about the effect last week’s atrocity could have on a very fragile European economy.
While not wanting to second guess the effect of the events of the weekend the closure of France’s borders, along with other security measures, the impact on consumer confidence could well be considerable
in the coming days and weeks.
This in itself is likely to be significant for not only politicians but central bankers as well, and anything that causes European consumers to retrench further is likely to be a significant concern for a European Central Bank already concerned about deflation and a lack of demand.
Given that the ECB was already considering additional measures at its December meeting, even before Friday’s tragic events,
the likelihood of further action may well be pretty much inevitable in the coming weeks, which in turn could provide the US Federal Reserve the opportunity or perfect excuse to delay any decision to raise its own benchmark rate next month as well.
Today’s EU CPI data for October is set to show zero pricing pressures,
while later this morning we get to hear from ECB President Mario Draghi, and given his dovish comments last week about the possibility of extending the current asset purchase agreement beyond its September 2016 expiry date, his comments in the aftermath of Friday’s events could well be even more illuminating.
Despite what looks like a fairly robust jobs market, US economic data continues to look rather weak almost everywhere else, with prices looking particularly weak.
With Federal Reserve officials continuing to float the prospect of a rate rise next month
there was a sense that the FOMC are somewhat overconfident about the resilience of the US economy, at a time when the data is showing increasing signs of rolling over.
At its last meeting the FOMC dropped the now infamous line about “international and financial developments”
from the statement. In light of last Friday’s events this line could well take on an even greater resonance in the coming weeks.
PPI numbers last week slid 1.6%,
while retail sales for October were also weak,
despite claims that consumer spending is robust. Today’s Empire manufacturing data for November is expected to contract for the fourth month in a row, with a reading of -5.3, albeit a slight improvement on Octobers -11.4.
– the inability to push back above 1.0820 at the end of last week keeps the possibility of a retest of the March lows at 1.0460. If we do manage to get back above 1.0830 we could see a run at the 1.0980 area.
– the pound continues to look a little soggy despite a rebound to 1.5270 late last week. A move back below 1.5160 suggests a retest of the lows last week at 1.5027, with major support at the 1.4980 area. Above the 1.5300 area retargets 1.5360.
– after last week’s dead cat bounce to the 0.7160 area, we have so far remained above the 0.7040 area, but momentum continues to look weak. If we slip below 0.7040 then we could well be set for a move back towards the 0.6935 area and July lows. As long as stay above the 0.7040 level then we could well still see a move back towards the 0.7160 area.
– we may have peaked with last week’s push to 123.60, and could slip back all the way to 122.00. As long as we don’t slip below 121.80 then a move to 124.00 remains a possibility as well as a move through to the August highs at 125.30. Only a move below the 121.80 area would delay the prospect of this scenario unfolding.
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