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European markets saw another positive day yesterday, with the DAX posting another record high, while the FTSE100 broke 2 days of declines to close higher as well.

The outperformance on European markets appears to be being driven by the increasing belief that the European Central Bank may well be forced into cutting rates sharply in the early part of 2024 in response to sharply slowing inflation and a sclerotic economy.

The last few days has seen a sharp decline in bond yields reflecting an increasing belief on the part of investors that rather than higher for longer, central banks will start cutting rates as soon as Q2 next year.

The shift in tone has been most notable from several ECB policymakers who have indicated that rate hikes are done.

US markets also appear to have started to run out of steam after their big November rally, as traders take stock of how resilient the US economy is.

Asia markets on the other hand have struggled with the latest set of Chinese trade numbers pointing to an economy that is still struggling, and a downgrade by Moody’s on China’s credit outlook, along with downgrades to banks, and other small companies which looks set to weigh in the European open this morning, in the wake of weakness in Asia markets.

In October Chinese import data broke a run of 10 consecutive negative months by rising 3% in a sign that perhaps domestic demand is returning, beating forecasts of a 5% decline.

Slightly more worrying was a bigger than expected decline in exports which fell -6.4%, the 6th month in a row they’ve been lower, and a worrying portend that global demand remains weak, and unlikely to pick up soon. Today’s November numbers have seen imports decline by -0.6%, against an expectation of a rise to 3.9% in a sign that domestic demand is still very weak, while exports improved, rising by 0.5% a solid pick up from the -6.4% decline in October.

Yesterday’s US ADP payrolls report saw jobs growth in November slow to 103k, in a further sign that the labour market is slowing, with the last 3 months showing significant evidence that hiring is slowing.

This trend was also reflected in this week’s fall in October job openings to 8.7m the lowest level since March 2021.

For the time being weekly jobless claims have shown little signs of increasing, trending in the low 210k for the last couple of months.

Continuing claims on the other hand have been edging higher rising to a 2-year high last week 1.93m.

Today’s claims numbers are expected to come in at 220k, with continuing claims set to also remain steady, ahead of tomorrow’s eagerly anticipated non-farm payrolls report.

EUR/USD – Continues to slip lower raising the prospect of a move towards the 50-day SMA just below the 1.0700 area. Resistance now at the 1.0825 and 200-day SMA, while above that at the 1.0940 area.

GBP/USD – Remains under pressure as it continues to slip away from the 1.2720/30 area. A break below 1.2570 signals a deeper pullback towards the 1.2460 area and 200-day SMA. A move through the 1.2740 area signals a move towards 1.2820. 

EUR/GBP – While below the 0.8615/20 area, the risk remains for a move towards the September lows at 0.8520, and potentially further towards the August lows at 0.8490.

USD/JPY – Currently trying to rally off the recent lows at the 146.20 area, with resistance now at the 148.10 area. Looks vulnerable to further losses while below this cloud resistance with the next support at the 144.50 area.

FTSE100 is expected to open 29 points lower at 7,486.

DAX is expected to open 52 points lower at 16,604.

CAC40 is expected to open 24 points lower at 7,412.

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