European markets fell sharply yesterday, posting their worst one-day losses in four weeks, on the back of concerns that the economic recovery that we’ve seen in the past few weeks could be on the cusp of running out of road.
In the US, we also saw another modest rise in week on week jobless claims, as well as the first week on week rise in continuing claims in two months, an increase of 900,000 to just over 17m.
This has increased market concerns that the May and June rebound in US economic data may well have been the high point as far as the economic bounce back that we’ve seen since the lockdowns first started to get lifted back in April.
This rising uncertainty about the US economy, heading into the upcoming November election also appears to be weighing heavily on the US dollar which has continued to fall heavily in Asia trading, falling to a fresh three year low, against the euro as well as a basket of currencies.
President Trump’s talk of an election delay probably hasn’t gone down too well either, and while the President has no legal power to change the date of the election, only Congress does, the fact he floated the idea, as well as the lack of progress on a new stimulus deal between Democrats and Republicans, suggests that the US dollar could have further to fall, as the political bickering gets more rancorous.
We’re also continuing to hear reports of rising Covid-19 infection rates across Europe, in Spain, France and Luxembourg, while in the UK some areas of northern England, including Greater Manchester, and parts of West Yorkshire have had restrictions re-imposed due to a sharp rise in cases there.
There is an argument that the record contractions reported in Germany GDP and US GDP of -10.1% and -32.9, haven’t helped sentiment, and that is certainly true, however these numbers weren’t that far from market expectations, and certainly not unexpected.
What is probably more worrying for investors appears to be the realisation that the negative headlines with respect to a possible second wave will only make it that much more difficult to achieve any sort of prospect of a v-shaped recovery, particularly since the US labour market rebound appears to have come to a halt.
Despite the bleak economic data yesterday, the Nasdaq still managed to finish the day higher even if the S&P500 and Dow finished the day lower.
This Nasdaq optimism turned out to be well founded as after the bell, Apple, Amazon and Facebook all smashed expectations on their latest quarterly numbers. Apple also announced a 4 for 1 stock split, while posting its best ever Q3 performance.
These impressive results will only serve to widen the divide between these huge tech behemoths and the rest of the underlying US market; however, they look set to ensure that US markets start the last day of the week and the month higher, when they open later today.
The same can’t be said for today’s Asia session which has seen a big fall in the Nikkei 225, which appears to have taken its cues from the weaker than expected US jobless claims data, amidst concerns over a second wave. The latest China manufacturing and services PMI numbers for July were a mixed bag, with a modest increase in manufacturing PMI to 51.1, however services softened a little to 54.2.
European markets certainly don’t look like they will see much of a benefit from last night’s blow out US tech earnings, after yesterday’s sharp falls, with today’s main focus set to be on the release of the first iterations of France Q2 GDP, which is expected to see a contraction of -15.2%, Italy Q2 GDP, a -15.5% contraction, Spain a -16.6% contraction and EU Q2 GDP -12.1%.
None of these numbers should be viewed with too much surprise, but they will still be viewed through a lens of how much of this lost activity can be pulled back by the end of the year. Given the concerns about rising infection rates, travel bans, lockdowns and quarantines that are being imposed there is a concern that we could see further economic downside to some of the annualised GDP estimates, unless these virus spikes are stamped out.
The latest German retail sales numbers for June ought to give a decent indication into consumer sentiment in the German economy. After a record high of 13.9% in May, the June numbers are expected to see a 3% decline, which more than reversed the collective 10.5 decline seen in April and May.
US personal spending for June is expected to rise by 5.2% in June, slightly down from the 8.2% gain in May, which won’t quite be enough to wipe out the -13.6% plunge we saw in April.
EUR/USD – has continued to move higher, breaking above the 1.1825 level, potentially putting it on course for the 1.2000 area, and May 2018 highs. Any dips should find support at the 1.1680 level, and below that the 1.1590 level.
GBP/USD – has moved beyond the 1.3020 level putting it on course towards the 1.3200 area and March highs. Pullbacks should find support at 1.2920, while below that the 1.2770 area.
EUR/GBP – continues to look a little on the soft side while below the 0.9140 area. Currently holding above the 50 day MA but looks susceptible to a slide below the 0.9000 area support. A move through the 0.9000 level is needed to confirm such a scenario and open up a return the 0.8920 area,
USD/JPY – the 104.50 level has also given way with the next support at the 104.00 area. A move below 104.00 opens up the March lows at 102.00. We now have resistance at the 105.70 area and behind that at 106.50.
FTSE100 is expected to open 18 points higher at 6,008.
DAX is expected to open 6 points lower at 12,373.
CAC40 is expected to open 5 points higher at 4,857.
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