It was a relatively subdued session in Europe yesterday. The FTSE 100 finished firmly higher, but that was largely on account of the dip in the pound. The DAX and CAC40 both drifted into the red in the middle of the day but managed to eke out small gains. An absence of major political or economic news yesterday led to a quiet trading day.
US markets ended the day slightly lower. Mike Pompeo, the US secretary of state, announced that Washington DC and Beijing are ‘on the cusp’’ of reaching a deal. Both sides will meet in Florida later this month to discuss trade. Stock markets in Asia were mixed as some dealers are sitting on their hands until we hear further details about the US-China trade situation.
The eurozone showed some positive signs yesterday when the Spanish and German service PMI reports came in at 54.5 and 55.3 respectively, but the Italian and French service reports were 50.4 and 50.2 respectively. The fact that the service sectors of two major eurozone economies are barely growing is worrying.
The services sector accounts for roughly 75% of British economic output, and the reading came in at 51.3, while economists were predicting 49.9. A reading above 50.0 indicates expansion, and it is encouraging that the sector registered small growth in February given the lack of clarity surrounding Brexit.
John McDonnell, the Shadow Chancellor, announced that few Labour party MP’s would vote for Theresa May’s withdrawal deal, and the announcement put pressure on the pound. Sterling hit a seven month high last week and the comments from Mr McDonnell prompted profit taking.
Mark Carney, the Governor of the Bank of England (BoE) testified before the House of Lords economic affairs committee yesterday. The central banker said real wages are now growing, and there is a degree of slack opening up in the UK economy. Jon Cunliffe of the BoE is due to speak at 12:15pm (UK time). UK central banker, Michael Saunders, will be speaking at 5:30pm (UK time).
The US posted some solid economic indicators yesterday. The ISM non-manufacturing rose to 59.7 in February, up from 56.7 in January, and the consensus estimate was 57.3. It would seem the US economy bounced back from the government shutdown at the beginning of the year. Total house sales in December were 621,000, which topped the consensus estimate of 600,000.
Gold lost ground again as the firmer US dollar weighed on the commodity. The inverse relationship between the two markets continues to play out. The popularity of the greenback is partially driven by robust economic reports from the US, and also the relative weakness of other currencies.
At 1.15pm (UK time) the US ADP (NASDAQ:ADP) employment report will be released at 190,000, and that would be a drop from the 213,000 added in January.
At 3pm (UK time), the Bank of Canada will announce the interest rate decision, and the consensus estimate is for rates to be kept on hold at 1.75%. Given that the Fed has taken a softer stance in recent months, and moved to a more neutral position, the Canadian central bank are likely to do the same.
The oil market will be in play today as the Energy Information Administration will report the latest oil and gasoline inventories ,and the consensus estimate is 388,000 barrels and -1.97 million barrels respectively.
John C. Williams (NYSE:WMB), the head of the New York Fed will be speaking at 5pm (UK time).
EUR/USD – has been broadly pushing lower since early January, and if the negative move continues it might retest the 1.1216 area. Resistance might be found at 1.1400 or 1.1500.
GBP/USD – has been driving higher since early December, and if it holds above the 200-day moving average at 1.3000, it might retest the 1.3472 area. The 1.2775 area region might act as support.
EUR/GBP – while its holds below the 200-day moving average at 0.8855, its outlook is likely to be negative. 0.8500 might act as support. A rally might encounter resistance at 0.8700.
USD/JPY – has been on the rise since early January, and if the bullish move continues it might target the 113.70 area. A break below 109.55, might bring 108.50 into play.
FTSE 100 is expected to open 12 points lower at 7,171
DAX is expected to open 12 points lower at 11,608
CAC 40 is expected to open 7 points lower at 5,290
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