European markets underwent a little bit of China syndrome yesterday, as a combination of concerns about an Evergrande default this weekend, and China targeting the restructuring of the steel, primary aluminium, flat glass and other energy intensive sectors, prompted a little bit of weakness in commodity prices, as copper prices hit a one week low.

US markets, however, had no such concerns with the S&P500 making a new record high and close, as earnings numbers continued to beat expectations, following on from the Dow the day before, however some big misses after hours took some of the gloss off, as Snap plunged after missing on revenues blaming Apple privacy changes, with Facebook also taking a dive, ahead of its numbers next week. Intel was also sharply lower after downgrading their outlook.

As we look towards today’s European open, we can expect to see a positive open after reports in Asia that Evergrande would be paying the $83m interest due on its US dollar bond.  

The last few months haven’t been great ones for retail sales growth, with three of the last four months showing quite sharp falls in consumer spending. Since the 9.2% rise we saw in April we’ve seen declines of -1.3%, -2.8% and -0.9%, with only a pitiful gain of 0.2% in June.

It’s all the more confusing given that in those summer months UK consumers haven’t been able to really go anywhere but stay at home due to the various overseas travel restrictions. Anecdotally, domestic leisure businesses, particularly in seaside resort areas have had their best season in years, while restaurants have seen similarly strong performances.

In August we also saw credit card spending surge on items like cinema tickets, outdoor events, and restaurants, which suggests the official numbers aren’t capturing anywhere close to the full picture of UK economy spending patterns.

As we look towards today’s September numbers, we should be well overdue a big rebound, notwithstanding UK consumers sucking petrol station forecourts dry due to misplaced concerns about fuel shortages, and where demand is likely to remain fairly high for some time to come, as drivers keep their fuel tanks at higher-than-average levels than normal. Expectations are for a gain of 0.3% excluding fuel and 0.6% including fuel, though one can’t help thinking that the fuel number is a little on the conservative side.

In the past few months, it has become increasingly apparent that we’ve seen peak PMI, when it comes to Germany and France, as well as the UK, although the slowdown has been more marked in Germany where we have seen a big fall from levels in the low 60’s to the mid to high 50’s. France manufacturing flash PMI is expected to come in at 53.9, and services 55.6.

In Germany September manufacturing activity fell to its lowest level since January, while services slipped to a three-month low, with both expected to weaken further to 56.5 and 55.2 respectively in October.  

UK manufacturing and services activity has also seen moderate weakness in the past few months, but has shown some evidence of stabilisation, although rising power prices are now starting to become a headwind, not only in the UK but across the world. UK manufacturing is expected to slow to 56.1, and services to 54.5.   

Business confidence has been declining in recent months across Europe, and it is highly likely in Germany that this could well continue for a few more months as politicians try and work out what type of government will emerge from the various coalition talks.       

EURUSD – Slipping back towards support at 1.1610, a break of which could see a move towards 1.1560. We need to break above 1.1680 to crack on towards 1.1760. Below 1.1520 targets the 1.1450 area.

GBPUSD – Struggling to break above the 200-day MA at 1.3840, and has since slipped back. The bias remains for a move towards the 1.3900 area on a move through 1.3850, with support down back at the 1.3720 level and 1.3670.

EURGBP – Still finding support at the 0.8420 area, but the lack of rebound suggests we could see a break below 0.8400, towards 0.8280, and the 2020 lows. We have resistance at the 0.8470 level, and the highs this week, as well as the 0.8520 area.   

USDJPY – slipped back to 113.65, after failing at the November 2017 peaks at 114.75. A break-through at this level opens the potential for a move toward 115.50.  A break below 113.60 targets a move towards the 112.40 level. 

FTSE100 is expected to open 23 points higher at 7,213.

DAX is expected to open 60 points higher at 15,532.

CAC40 is expected to open 37 points higher at 6,723.

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