European markets are expected to open somewhat cautiously, futures pointing towards marginal losses. This comes despite a largely positive Asian session where the likes of Hong Kong and Chinese markets seeing substantial upside.
The inability of European markets to rise this morning points to a possible pullback of sorts following Thursday’s ECB driven upside. Thus European markets are expecting to see a negative open, with the FTSE 100 -12, CAC 40 -1 and DAX -7 points.
A pretty quiet day ahead in the markets, where the UK manufacturing production figure represents the only major event of note in the European session. As such, we have seen moves to counterbalance the markets following last week’s major shocks in the form of the ECB’s decision to implement a plethora of policy changes, along with the US jobs report impact.
On the whole these two events taken in totality amount to a boost for the stock markets, alongside a mixed euro reaction. Given that Mario Draghi was clearly targeting a weakening of the euro, it is safe to say that the markets have somewhat disappointed given the extent to which Draghi went to ensure he saw a strong reaction.
The overnight session saw the Chinese inflation data post a larger than expected rise in CPI to 2.5% year on year. Delivered less than a day after the PBoC delivered yet another stimulative step in the form of a reduction in the RRR rate, today’s inflation figure remained well below the 3.5% target set out by the Chinese government.
With governments the world over worrying about falling prices and the threat of deflation, today’s number represents a somewhat ‘sweet spot’ for China, allaying fears of a disinflationary environment but also remaining low enough to allow for future stimulus measures.
Yesterday’s decision from the PBoC to cut the reserve requirement for some select banks has the potential to free up capital and raise liquidity in the business sector. However, given the lack of details regarding size, there is little way of knowing exactly by what degree it could change the economy’s fortunes given recent weaknesses.
This afternoon’s release of the UK manufacturing and industrial production figures bring the spotlight back onto the manufacturing sector following last week’s somewhat disappointing manufacturing PMI figure. The little ugly sister of the services sector, manufacturing is often seen as a bonus should we see a major push in growth.
However, with the issues associated with an overreliance upon a set of similar and interconnected services sectors, the development of a healthy manufacturing sector is beneficial from a stability, growth and a balance of payments viewpoint.
Typically the requirement for a substantial market move is a month on month figure around 1%. However, with today’s manufacturing production growth expected around 0.4%, we could be some way from this figure.