The gap between European and US equity markets widened last week, when the major indices on this side of the Atlantic broadly lost ground, while the Dow Jones, S&P 500 and the NASDAQ 100 hit record-highs. The highlight of the week was when Jerome Powell, the Federal Reserve chief, spoke in front of US lawmakers on Wednesday and Thursday.
The central banker commented on the strength of the US jobs market, but he also cautioned about ‘crosscurrents,’ and he warned that trade tensions put pressure on the global economy. Mr. Powell hinted that interest rates could come down, and that lifted US equities. When it comes to when interest rates will be lowered, and how deep the cut, or cuts, will be, traders are the dividend.
The trading relationship between the US and China is on the mend. Discussions were held over the phone, and they ‘went well.’ Face-to-face trade talks were mentioned, and the groundwork was laid for future meetings. The lack of negative news and the slight sense of optimism was also a factor the rally in US stocks. Given the US concerns about intellectual property protection, so the trade dispute is unlikely to be sorted out any time soon.
The US dollar suffered last week on the back of the comments from Jerome Powell as some traders believe the Fed will trim rates at some point in 2019. Sterling also suffered last week as concerns about Brexit and poor UK retail data weighed on the pound. The British retail consortium said that retail sales fell to its lowest level since the records began in 1995.
Oil rallied last week as US oil inventories took another large drop. The Energy Information Administration report showed that stockpiles dropped by over 9 million barrels. Political tensions surrounding Iran also added to the bullish move in oil.
Overnight, China released a raft of economic indicators. In the second quarter, the economy grew by 6.2% on an annual basis, meeting forecasts. The growth rate was slowest in 27 years. The fixed asset investment was 5.8%, while economists were expecting 5.5%, and the May report was 5.6%. Industrial output came in at 6.3%, and the consensus was 5.2%. The retail sales report was 9.8%, and dealers were anticipating 8.3%, and the previous report was 8.6%.
The New York Fed manufacturing index will be released at 1.30pm (UK time), and traders are expecting a reading of 0.5, which would be an improvement on the -8.6 reading in June.
EUR/USD – has fallen back into the wider downtrend and a move back below 1.1200 might pave the way for the 1.1110 area to be retested. 1.1400 might act as resistance.
GBP/USD – has been driving lower since mid-March, and if the bearish move continues, it might encounter support at 1.2365 regions. The 1.2800 area might act as resistance.
EUR/GBP – has rallied for over two months, and if it holds above 0.8800, it might bring 0.9000 into play. A move to the downside might bring the 200-day moving average at 0.8785 into play.
USD/JPY – has been in a downtrend since late April, and if the bearish move continues, it might target the 106.00 marks. Resistance might be found at the 50-day moving average at 108.80.
FTSE 100 is expected to open 2 points higher at 7,507
DAX is expected to open 29 points higher at 12,352
CAC 40 is expected to open 13 points higher at 5,585
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