Traders were broadly bearish on stocks yesterday as concerns that the Federal Reserve might not be as dovish as the dealers were predicting has been hanging over markets for days.
Much of the rally in global stocks that lasted until late June/early July was build on the prediction the Fed would cut interest rates in July, and possibly again later in the year ,and in light of the latest non-farm payrolls report, some traders are less hopeful about the prospect of two rate cuts. There is a sense that some investors got ahead of themselves when it come Fed predictions.
All eyes will be on Jerome Powell, the head of the Fed, today at 3pm (UK time), as he will testify before the US House Committee on Financial Services ,and traders will be listening out for any clues about future monetary policy.
The US job openings and labour turnover (JOLTS) report for May was 7.32 million. The April figure was revised from 7.44 million to 7.37 million. When the report was at a record high in late 2018, the reading was in excess of 7.62 million, so it has clearly cooled, but keep in mind in was sub 6.6 million in early 2018, so the labour market is in good health.
The DAX underperformed yesterday. BASF issued a profit warning and it predicated a slowdown in the auto sector. The announcement wasn’t a total shock seeing as the German manufacturing sector has been in contraction territory throughout 2019. US-China trade tensions, and Brexit uncertainty are weighing on the industry.
Sterling took a knock yesterday as the greenback reasserted itself as the more dominant of the major currencies. The British Retail Consortium said that the UK retail sales figures for the year, were the weakest since their records began. Brexit uncertainty has been cited as a reason for the fragile consumer environment, and the possibility of a no-deal Brexit is weighing on the pound too.
Overnight, Chinese CPI came in at 2.7% and economists were expecting it to hold steady at 2.7%. The PPI reading was 0.0% and the consensus estimate was 0.3%, and keep in mind the previous reading was 0.6%.
Copper can often be a gauge of how strong the Chinese, or even the globe economy is performing, and the red metal fell to a three week low, as dealers appear to be cautious about the state of the world economy. US-China trade talks resumed but that didn’t boost sentiment.
At 9.30am (UK time), the UK GDP estimate will be released and on a yearly basis, the economy is tipped to have grown by 1.3%. At the same time, the industrial output, manufacturing output and construction output reports will be released, and on a month-on-month basis, economists are expecting 1.5%, 2.1%, and 0.5% respectively.
The bank of Canada will release its interest decision at 3pm (UK time), and traders are expecting it to hold steady at 1.75%.
The Energy Information Administration report will be posted at 3.30pm (UK time) and oil and gasoline stockpiles are tipped to be fall by 3.56 million barrels and 1.23 million barrels respectively.
At 7pm (UK time), the minutes from the Fed meeting last month will be released, and the update might provide an idea as to what central banker are thinking in regards to interest rates.
EUR/USD – has fallen back into the wider downtrend and a move back below 1.1200 might pave the way for the 1.1110 area to be retested. 1.1400 might act as resistance.
GBP/USD – has been driving lower since mid-March, and if the bearish move continues it might encounter support at 1.2365 region. The 1.2800 area might act as resistance.
EUR/GBP – has rallied for over two months, and if it holds above 0.8800, it might bring 0.9000 into play. A move to the downside might bring the 200-day moving average at 0.8784 into play.
USD/JPY – has been in a down trend since late April, and if the bearish move continues it might target the 106.00 mark. Resistance might be found at the 50-day moving average at 109.02.