A third negative close on Wall Street and data from China that signals further malaise in the country’s manufacturing base are setting European markets up for a lower open on Friday. This comes before a spate of European service and manufacturing data is reported.
The China manufacturing PMI saw a surprise drop further into contraction to 48.2 when a rise to 49.8 was expected. Recent data, including GDP at 7%, has been more encouraging from China so this shock result just goes to show the country is not out of the woods yet.
Following the data from China, Gold dropped right back towards the levels reached on Monday after the heavy sell-off that saw it reach the lowest in five years. Strength of the Dollar and weakness in China continue to be a headwind for precious and base metals.
Weekly US unemployment claims dropped to lowest in 41 years on Thursday prompting fear across equity markets that such strong data signals a rate hike this year. However, the reaction in currencies was not so clear with the euro bouncing off its lows and the yen edging higher. The British pound declined but this was as a result of a surprise drop in UK retail sales in June that put into question whether the British consumer can maintain a high level of spending.
Nikkei 225 buying the FT from Pearson (LONDON:PSON) demonstrates confidence by Japanese companies to do M&A, helped in no small part by the raging Japanese bull market off the back of central bank quantitative easing.
France is expected to see an improvement in its manufacturing offset by a slowdown in services while Germany is expected so see slight improvements for both, leaving ‘composite’ PMIs steady in July. Given the crisis in Greece and the threat to the currency-area; a level state of industry confidence shows the underlying recovery in the European economy is intact.
EURUSD – The euro has rallied reaching over 1.10 intraday, after failing to close beneath the long term range set by the May 27 low. The current choppy market could lead to a run higher back towards 1.12, the July 10 peak.
GBPUSD – The pound slumped down from the top of its recent tight trading range at 1.5675 all the way down through the bottom of the range at 1.5530, Tuesday’s low. The resulting bearish engulfing candlestick pattern could trigger a move back to 1.54.
EURGBP – The euro-sterling cross is retracing higher within its volatile bearish trend. There is scope for the retracement to extend up to around 0.72 and the July 10 peak.
USDJPY – The dollar-yen’s bearish engulfing pattern from Tuesday has seen minimal follow-through and has been followed by two days with long bottom wicks suggesting a desire to push prices back to the multi-year highs at 125.85.
Equity market calls
FTSE100 is expected to open 30 points lower at 6,625
DAX is expected to open 61 points lower at 11,451
CAC40 is expected to open 22 points lower at 5,064
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