All the major European equity markets finished higher yesterday, even though they all spent some time in the red during the session. The IBEX 35 was hit by political uncertainty after the Socialist Party won the general election, but the party fell well short of getting a majority. It looks like the Socialists will have to seek out a deal, and that will probably involve weeks of political wrangling. Investors tend to have more confidence in majority party governments, and the political of Spain is likely to remain on hold in the near-term. The IBEX 35 spent nearly all of yesterday in the red, but it managed to eke out a small gain by the close.
The bull run in the US continues as the S&P 500 racked up an all-time high, and keep in mind the NASDAQ 100 notched up record highs last week. The dip in the core PCE reading to 1.6% from 1.8% actually assisted equities, as some traders felt it was a sign the Federal Reserve are unlikely to hike rates. The US central bank have an inflation target of 2%, and now the core PCE reading has dropped to its lowest level since January 2018. A cooling of inflation might just be a case of demand slipping, but should the trend continue, it might spell problems for the US economy. After the closing bell, Google’s parent, Alphabet (NASDAQ:GOOGL) posted their first-quarter figures last the closing bell last night. The stock fell, as sales for the first three months came in at $36.3 billion, missing the $37.33 billion forecast, and sales growth for the period was 17%, and that compares with 26% growth in the same period last year.
In relation to the US-China trade situation, it’s the same old story, where we hear broadly positive soundbites, but not much detail. US Treasury Secretary, Steven Mnuchin believes the talks could be wrapped up in weeks, while Whitehouse economic advisor, Larry Kudlow, is cautiously optimistic that an agreement will be reached.
The metals market had tough time yesterday, as gold and silver lost ground, as the commodities continued in their bearish trends. Palladium endured a severe sell-off after hitting a one-month on Friday.
Overnight, China announced the latest manufacturing PMI report and the non-manufacturing PMI report. The manufacturing reading was 50.1, and the consensus estimate was 50.7, and the March report was 50.5. The non-manufacturing reading was 54.3, and traders were expecting 55, and keep in mind the March update was 54.8. The Caixin survey of Chinese manufacturing was 50.2, and the economists were anticipating 51. The private survey is deemed to be more reliable. Stocks in Asia were largely a little lower on the back of the disappointing Chinese numbers.
At 7am (UK time), German GfK consumer sentiment will be announced and dealers are predicting a reading of 10.3. The latest import prices report will be revealed at the same time, and on an annual basis, the reading is tipped to be 2%, which would be a big jump on the 1.6% registered last year.
French and German CPI will be reported at 7.45am (UK time) and 1pm (UK time) respectively. The French inflation rate is expected to increase from 1.3% to 1.4%, while the German inflation reading is expected to be 1.7%, and that would be an improvement on the 1.4% in March. Italian CPI is due out at 10am (UK time), and the consensus estimate is 1.2%, while the previous reading was 1.1%. At 10am (UK time), the eurozone GDP and unemployment reports will be posted. GDP for the first three months of the year is expected to hold steady at 1.1% - on a yearly basis. The jobless rate is anticipated to remain at 7.8%.
German and Italian unemployment rates will be announced at 8.55am (UK time) and 9am (UK time), and respectively, and the readings are tipped to hold steady at 4.9% and 10.7% respectively.
Demand has been soft in the eurozone recently, and weak reading might increase chatter that the European Central Bank will launch an aggressive targeted liquidity scheme in September.
Canadian monthly GDP will be released at 1.30pm (UK time) dealers are expecting it to slow to 0.0% from 0.3%.
The US will release housing data later in the session. The CaseSchiller house price report will be revealed at 2pm (UK time) and the report is expected to show a slowing of the growth rate from 3.6% to 3.2%. Pending home sales will be posted at 3pm (UK time) and a 1.1% increase is expected.
EUR/USD – has been broadly pushing lower since early January, and if the negative move continues it might target the 1.1000 area. Resistance might be found at 1.3220.
GBP/USD – has been driving higher since early December, but has recently slipped below the 200-day moving average at 1.2965, and if it holds below that metric, it might retest the 1.2775 region. A rally might target the 1.3200 area.
EUR/GBP – while its holds below the 200-day moving average at 0.8822, its outlook is likely to be negative. 0.8471 might act as support. A rally might encounter resistance at 0.8800.
USD/JPY – has been largely been pushing higher throughout 2019, and a break above the 112.00 area, might bring 113.70 into play. 111.33 – 50-day moving average, might provide support.
FTSE 100 is expected to open 5 points higher at 7,445
DAX is expected to open 16 points lower at 12,312
CAC 40 is expected to open 10 points lower at 5,570
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