Stock markets in Europe largely traded higher yesterday as traders reacted well to the largely positive economic announcements from China. The second-largest economy in the world grew by 6.2% in the second-quarter, which was in line with dealers’ expectations, but it was a decline from the 6.4% reading in the first-quarter. The quarterly reading was the weakest in 27 years, but China’s slowdown has been well documented. The Beijing authorities are aiming to grow between 6% and 6.5% this year, so the economy is in track to hit their forecast.
The Chinese fixed asset investment report, the retail sales report and the industrial output update all topped economists’ expectations, all showed growth the on previous reports. Some aspects of the Chinese economy are bucking the broader downward trend. In the past year, the Chinese government have introduced polices to assist the economy, such as tax cuts, and loosening lending restrictions, and it seems to have paid off.
The trade dispute with the US is still ongoing. Dealers appear to have the attitude that no new negative news is positive. The US are deeply concerned about intellectual property protection, and for that reason the trade spat is likely to run for some time.
The New York Fed manufacturing index came in at 4.3, and it was a major improvement on the -8.6 reading in June, which was the lowest in three years. Dealers are watching US economic indictors as there is speculation the Fed will cut rates later this month.
US equity markets started out strong, but drifted lower, and managed to close fractionally higher, as some traders decided to square up their positions before reporting season get fully underway. Citigroup (NYSE:C) posted broadly well received quarterly figures yesterday, and it was the first of the major banks to reveal their numbers. Seeing as much of the equity market rally was driven by the slight improvement in US-China relations, and the perception the Fed will lower rates, so the reporting season might prompt some dealers to take money off the table. The reporting season has a lot to measure up to seeing as it began essentially at record-highs in the major equity indices.
At 9.30am (UK time) the UK will release the unemployment rate and the earnings report. The jobless rate is tipped to remain at 3.8%, while the average earnings excluding bonus is expected to be 3.5%, which would be an increase from 3.4%. Should the wages rate tick up it should bode well for the British economy as workers who earn more usually spend more.
Italian inflation will be released at 10am (UK time) and economists are expecting it hold steady at 0.8%.
Mark Carney will be speaking in France later today, and traders will be listening out for clues about potential changes to monetary policy.
US industrial production will be posted at 2.15pm (UK time), and traders are expecting 0.1%.
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 region. The 1.2800 area might act as resistance.
EUR/GBP – has rallied for over two months, and if it holds above 0.8872, it might bring 0.9062 into play. A move to the downside might bring the 200-day moving average at 0.8786 into play.
USD/JPY – has been in a down trend since late April, and if the bearish move continues it might target the 106.00 mark. Resistance might be found at the 50-day moving average at 108.73.
FTSE 100 is expected to open 3 points lower at 7,528
DAX is expected to open 8 points higher at 12,395
CAC 40 is expected to open 3 points lower at 5,575
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