There was a subdued mood in the markets yesterday. 

The update from the European Central Bank was uneventful, but then again the meeting in June had a lot going on, so it was always going to be a tough act to follow.

The refinancing rate and the deposit rate were kept on hold at 0.0% and -0.5% respectively, in line with market expectations. The Pandemic Emergency Purchasing Programme (PEPP) was kept at €1.35 trillion – no surprises there. The pace of the bond buying has slowed down a little. Some traders think that could be a sign the central bank are looking to put the brakes on it, but Christine Lagarde, the head of the ECB, said the full stimulus scheme will be used, unless the recovery happens at a much faster pace than expected. A few hours after the press conference, there was talk that ECB officials didn’t agree to use up all the bond fund. The central bank has a track record of being generous in terms of easing, so they are unlikely to derail the gravy train.

The EU summit will be in focus today as divisions over the $750 billion rescue fund will be on traders’ minds. Funds will be deployed to countries that have been hardest hit. The current proposal is that €500 billion will be handed out as grants, while the remaining €250 billion will be dispensed as loans. The ‘frugal four’, The Netherlands, Sweden, Denmark and Austria, oppose such a large percentage of the funds being allocated as grants without conditions. The likes of Spain and Italy would benefit from the current proposal, so the old north-south divide pops up again. There is no doubt the region needs a financial boost, but nothing is likely to be agreed upon soon.    

Data from China typically has a big impact on the markets, but that wasn’t the case yesterday. According to the Beijing administration, the economy grew by 11.5% in the second quarter, on a quarterly basis. That was a remarkable rebound from the 9.8% decline that was posted in the first quarter. The retail sales and the fixed asset investment reports for June were -1.8% and -3.1% respectively. All through the second quarter, the two indicators experienced negative growth. Some people questioned the GDP figure in light of the retail sales and fixed asset investments readings.

Volatility was low yesterday and the FTSE 100, DAX 30 and the CAC 40 finished down 0.67%, 0.43% and 0.46% respectively. The indices recouped some of the losses in the afternoon, and they all finished off the lows of the session.

The greenback gained last night as US stocks drifted lower. The dollar has been a common safe haven trade recently. It is worth noting the currency was starting from a relatively low base as it fell to its lowest level in over three weeks on Wednesday. The positive move in the dollar put pressure on gold and silver as the inverse relationship between the metals and the currency kicked in.    

For several weeks the tech sector seemed to be bulletproof as the NASDAQ 100 continued to post record highs while the S&P 500 couldn’t even re-test its June highs. This week has been a different story, as the tech-focused index underperformed against the broader equity benchmark. Netflix shares sold off in post-market trading last night as the second quarter EPS missed estimates, as did the third-quarter forecast for paid customers.

Stocks in the Far East are mixed. Yesterday, the CSI 300 lost over 4%, its largest daily fall in five months. Today, the China Securities Journal, a state run publication, tried to reassure traders by claiming Thursday’s sharp decline was a ‘normal adjustment’. The CSI 300 was higher in this session, but it is back in the red, which suggests that sentiment remains weak.   

There was no shortage of economic indicators yesterday. Last month, the UK claimant count dropped by 28,100, but that was counteracted by the upward revision to the May report – which was raised to 566,400 from 528,900. As the UK economy slowly reopened, that prompted a relatively small number of people back to work. According to the ONS, there are roughly 650,000 fewer people on the payroll in the UK since the lockdown was imposed – this is a good reflection of the jobs market.

The US posted labour data too. The continuing claims report measures the number of people who have already signed up for unemployment benefit, and they are continuing to claim the benefits. The reading fell to 17.33 million from 17.76 million, so it would seem that over 400,000 went back to work. The initial jobless claims update captures the number of new people to sign up to unemployment benefit. The reading dropped to 1.3 million, and it was the fifteenth consecutive week that it declined. The US and the UK labour markets are ever so slowly turning around, but the rate of progress is likely to be painfully slow.

There was further evidence of the US economy rebounding. The retail sales report for June was 7.5%, and that easily topped the 5% forecast that economists were expecting. The May reading of 17.7% was a record, but it was revised higher to 18.2%. The Philly Fed manufacturing reading for July was 24, which was a slight dip from the June reading of 27. 5 – its highest in four months. Some US states have been pausing the reopening of their economies, while others have been re-imposing restrictions, so that could dampen the recovery.     

The oil market declined yesterday as OPEC+ will row back on the record production cuts, a reduction of 9.7 million barrels per day (bpd), that were introduced in May. The deep cuts were announced in April as the major oil producers wanted to stop the commodity falling through the floor. The energy has recovered in recent months, and it hit a three-month high in June. As of next month, OPEC+ will ease up on the output cuts to a decline of 7.7 million bpd. The energy market has been a bit lacklustre recently and that was probably because the changes in output were in the pipeline since the cuts were initially agreed upon. 

The final reading of eurozone CPI will be posted at 10am (UK time) and economists are expecting it to remain unchanged from the preliminary reading of 0.3%. The May update was 0.1%. The core reading is anticipated to be 0.8%, and that would be unchanged from the preliminary report. Keep in mind the May level was 0.9%.

Andrew Bailey, the governor of the Bank of England, will be taking part in the Citizens Panel Open Forum at 11am (UK time). 

US building permits are tipped to increase from 1.22 million in May to 1.29 million in June. The housing starts in June are anticipated to be 1.16 million, and that would be a rise from the 974,000 posted in May. The figures will be released at 1.30pm (UK time).

At 3pm (UK time), the preliminary reading of the University of Michigan consumer sentiment report is expected to be 79.      

EUR/USD – since late June it has been in an uptrend, and if the positive move continues, 1.1495 should be on the radar. A break below the 1.1168 area might pave the way for 1.1056, the 200-day moving average, to be targeted.

GBP/USD – has been trading sideways in the past few sessions. A move higher might run into resistance at 1.2696, the 200-day moving average. A move through that level should put 1.2813 on the radar. Should it move lower, it might find support at 1.2421, the 100 day moving average.

EUR/GBP – Monday’s candle has the potential to be a bullish reversal, and if it moves higher it could target 0.9239. A break below the 50-day moving average at 0.8976, could put the 0.8800 zone on the radar.

USD/JPY – has been drifting lower for over one month and support could come into play at 106.00. A rebound might run into resistance at 108.37, the 200-day moving average. 

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