It was another disappointing week for US equities closing lower for the second week in succession, raising the prospect that we may well have seen a short term peak, as investors continue to mull over the likelihood that the Trump presidency will be able to deliver on any of the expectations that were on the agenda at the beginning of the year.
We did see a late rebound off the lows late on Friday when it was announced that Steve Bannon, one of President Trump’s closest advisors had left the administration. It was well known that there was tension amongst him and some other members of the President’s top team, including Chief Economic advisor Gary Cohn.
There had been some uncertainty surrounding the future of Cohn, in the wake of recent events in Charlottesville, and the President’s failure to unequivocally condemn the violence of the far right, particularly given Cohn’s own Jewish ancestry.
The departure of Cohn would have been a hammer blow to the President, on top of all the other recent resignations, which suggests there may well have been a hint of political calculation behind Friday’s events.
Bannon’s departure buys Trump time when he is starting to look isolated and even a little beleaguered. The big question is how we move on from here and whether the President still has the authority to move forward on any key policy areas, such as tax reform.
This morning’s Asia session has been subdued with North Korea tensions never too far away and with the US and South Korea conducting their annual military exercises this week, the potential for a further ratcheting back up of the recent tension should not be underestimated.
While US markets slid back for the second week in succession, European markets have fared little better given that they have been trending lower for the past few weeks, though they did manage to finish the week slightly higher.
This week’s key events are likely to be focussed towards the end of the week and the annual Jackson Hole symposium, though the scope for surprises was diminished somewhat by ECB sources at the end of last week when it was reported the ECB President Mario Draghi would not be making any comment on monetary policy when he speaks later this week.
This reticence to comment may also have something to do with the fact that there appears to some concern on the governing council about an overshoot to the upside for the euro, particularly given the recent weakness of the US dollar.
A steadier political environment in the US may well offer the catalyst that lends some support to the greenback, as well as stock markets in general, and eases some of the concern about a higher euro.
Other elements to watch include the latest August flash manufacturing and services PMI’s from Germany and France, as well as an update to UK Q2 GDP.
EURUSD – the rebounds off the 1.1680 area continue to get shallower, with trend line resistance at 1.1790. While below here the risk remains for a move to the 1.1620 area, and possibly lower. While above 1.1620 the uptrend remains intact for a move towards the 1.2000 area.
GBPUSD – currently finding it difficult to move beyond the 1.2940 area running the risk of a move down towards the 1.2810 area and even the 200 day MA at 1.2600. We need to move above the 1.2940 area to retarget the 1.3040 level.
EURGBP – continues to edge higher as it looks to head towards the November 2016 peaks at 0.9300. Support remains down near the 0.9040 area and below that at the 0.8980 area.
USDJPY – the failure to move above the 111.30 area keeps the focus on the downside and a move towards the 108.70 area, and possibly lower towards 107.50.