European markets found it difficult to build on their multi month highs of earlier this week yesterday, slipping back from their peaks on a combination of weak economic data, and disappointing corporate earnings.
US markets had a similarly lacklustre session, closing lower despite optimism that the ongoing China, US trade talks would deliver a solution that pushes out the prospect of a delay to the 1st March tariff deadline.
Today’s final Q4 GDP number from Germany is likely to confirm that the German economy stagnated in the second half of 2018, against a backdrop of a slowing global economy, and a weakening European economy.
All of Germany’s key export markets face challenges with tensions over US trade, a China slowdown and of course the ongoing Brexit negotiations. A dislocation in any one of these markets would be worrying, however Germany is facing the prospect of trade dislocations in all three, in what would be a pretty catastrophic outcome for its industrial heartland.
US President Trump is in the process of pondering whether to slap tariffs on German automakers on rather dubious national security grounds, while global demand has slowed for motor vehicles due to emissions changes, while the ongoing Brexit uncertainty is prompting consumers on both sides of the Channel to be more circumspect about spending.
Today’s release of the latest German IFO Business survey for February is likely to reinforce the pessimism surrounding German business, after yesterday’s sharp drop in manufacturing PMI saw new orders drop to a six-year low.
Expectations are for a modest decline to 99, from 99.1, however given yesterday’s awful PMI numbers it wouldn’t be a surprise to see an even bigger drop.
The European Central Bank in its latest set of minutes yesterday appears to have changed its tune from how ECB President Mario Draghi sees the economy. For over a year now ECB officials have insisted that the slowdown was temporary in nature, however the latest minutes appear to show some officials fear that the slowdown might be deeper and broader based than previously suspected.
The surprise is that it’s taken so long for some on the governing council to acknowledge this given it’s been pretty obvious for quite some time now, particularly given continued lacklustre demand, as well as weak inflationary pressures.
The final EU CPI reading for January is expected to show that headline inflation fell further from 1.6% to 1.4%, with core prices set to stay unchanged at 1.1%.
It’s also a big day for Fed speakers today in the wake of this week’s release of the latest January FOMC minutes which showed that while Fed officials were comfortable with how the US economy was looking, they were comfortable with where rates currently are given the lack of inflationary pressure, and appeared in no hurry to move rates in either direction any time soon.
Since then some of the US data has been less than robust so it will be interesting to see if anyone’s views have softened with respect to how well the US economy is currently doing and whether they feel the US government shutdown has had significant adverse effects in the longer term.
We’ll get to hear from Fed vice chair Richard Clarida as well as the new head of the New York Fed John Williams (NYSE:WMB), with input from St. Louis Fed President James Bullard as well as Fed governor Randall Quarles.
EURUSD – the rebound off the lows this month at 1.1234, appears to be struggling below the 1.1400 level. The lack of any rebound does suggest further weakness is on its way. A fall below 1.1200 opens up the 1.1000 level. A move back above 1.1400 opens up a move towards 1.1500.
GBPUSD – the rebound from last week’s lows at 1.2770 needs to push above the 1.3220 area to gain any sort of traction, otherwise we appear to be rangebound for the moment.
EURGBP – having failed to move above the 200-day MA last week at 0.8840 we look set for a retest of the 0.8620 area which has been support for the last two years or so. A move below 0.8600 opens up the prospect of a move down to the 0.8480 area.
USDJPY – fell short of the 200-day MA at 111.30, making a high of 111.11, before slipping back. A break of the 200-day MA opens up the 112.30 area. Support now lies back near the 110.20 level, last week’s breakout level.
FTSE100 is expected to open 10 points higher at 7,177
DAX is expected to open 10 points lower at 11,413
CAC40 is expected to open 8 points lower at 5,188
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