Stock markets in Europe and the US finished higher at the back end of last week on account of the US non-farm payrolls report.
There was major volatility in global markets last week as traders were worried for the health of the worldwide economy due to a string of disappointing services manufacturing and services reports. The UK services sector slipped back into contraction territory, the German manufacturing reading was the lowest reading in 10 years as was the US ISM manufacturing update. It is clear the German as well as the US economy is slowing down, hence why there was a sharp decline in global stocks in middle of last week.
Trading was cautious on the run up to the US jobs report as dealers were fearful that a soft jobs report could spark another round of selling. The headline number showed that 136,000 jobs were added in September, but the consensus estimate was 145,000. The August report was revised higher by 38,000 to 168,000. The unemployment rate dropped to 3.5%, a fifty year low. Average earnings cooled to 2.9%, from 3.2%. Overall it was a good jobs report, which prompted traders to buy back into equity markets. The announcement took away some of the fear about the health of the US economy.
There are pockets of weakness in the US economy, but there are also pockets of strength. There is still talk the Fed will cut interest rates later this month, but seeing as the unemployment rate is at a multi-decade low, there is a good argument for the Fed to hold fire.
US-China trade talks will resume this week, so traders will be paying close attention, as the trade spat between the two largest economies in the world has been a major source of volatility in the past year. Stocks in Asia largely traded lower overnight as traders aren’t overly hopeful of a deal being struck. It was reported that China have narrowed the number of topics they are willing to discuss, which has supressed investment sentiment. It is believed that China aren’t willing to compromise on things like government subsidies or industrial policy – areas the US team are keen for them to reform.
Brexit negotiations will be in focus this week, and French President Emmanuel Macron said the UK will have until the end of the week to update its proposals for leaving the EU. Prime Minister Johnson reiterated his view that the UK will be leaving the EU at end of the month, even though a law has been introduced to force Mr Johnson to request an extension to avoid a no-deal scenario.
President Trump is likely to remain under pressure in relation to the impeachment inquiry as a second whistleblower has come for forward. The individual allegedly has information about Trump’s controversial dealings with Ukraine.
German industrial orders will be posted at 7am (UK time), and economists are expecting a decline of -0.3%. This will be closely watched in light of the dreadful manufacturing figures from Germany last week.
The Halifax survey of UK house prices will be revealed at 8.30am (UK time). The report is tipped to show a 0.1% increase on a monthly basis, which would be cool down from the 0.3% posted in August.
EUR/USD – remains in the wider bearish trend, and if the negative move continues it might target 1.0800. A snap back might encounter resistance in the 1.1100 area.
GBP/USD – has been pushing lower for over one week, but if it holds the 50-day moving average at 1.2251 could pave the way for 1.2600 to be retested. A move to the downside might bring 1.2200 into play.
EUR/GBP – while it holds above the 200-day moving average at 0.8833 the outlook should remain bullish, and 0.9000 might act as resistance. A break below 0.8786, might put 0.8724 on the radar.
USD/JPY – since mid-September it has turned lower, and while it holds below the 50-day moving average at 106.99, the bearish move might continue, which could pave the way for 106.00 to be retested. 108.47 might act as resistance to a positive move.
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