ISM manufacturing survey

Fed set to hold rates again with Powell press conference to set the tone 

By Michael Hewson (Chief Market Analyst at CMC Markets UK)

 
European stocks underwent their 3rd successive monthly decline yesterday, despite ending the month on a positive note, with the DAX falling 3.75%, with the FTSE100 also losing 3.75%, and posting its weakest monthly close since October last year
US markets also finished lower for the third month in a row, despite a similarly positive finish yesterday, with the S&P500 and Nasdaq 100 both losing more than 2% on concerns about future earnings growth and a possible economic slowdown at a time when rates are expected to remain higher for longer, even as US economic data continues to show little sign of slowing markedly.
 
 
It's a different story altogether when it comes to the economic numbers in Europe, where yesterday we saw EU GDP in Q3 slide into contraction territory having seen little to no growth at all in Q1 and Q2. 
 
Inflation acros

Pound Sterling: Short-Term Repricing Complete, But Further Uncertainty Looms

European Markets React to US Rating Downgrade and Economic Concerns

Michael Hewson Michael Hewson 02.08.2023 08:22
European markets set to open lower after US rating downgrade     We saw a negative start to August for European markets with the DAX leading the way lower, having only put in a new record high the day before, after poor manufacturing PMIs and disappointing earnings prompted profit taking.   Yesterday's weakness appears to have been prompted by concern that the economy is a little bit weaker than perhaps people would like, raising concern for earnings growth heading into the second half of the year. US markets also finished the day lower, although closing well off the lows of the day with the Dow managing to eke out a gain. US yields also finished the day higher, on the rising realisation that rates may well have to stay at current levels for quite a while yet.     This profit taking has continued overnight after Fitch downgraded the US credit rating to AA+ from AAA, while simultaneously boosting demand for haven assets, with Asia markets falling sharply, and which looks set to translate into a sharply lower European open.   The increase in crude oil prices over the past 4 weeks is also raising concern that the falls in input prices that we've seen over the last few months might start to hit a floor and start rising again. Yesterday we got another snapshot of the US labour market as US job openings (JOLTS) fell to their lowest levels since April 2021, although they are still well above the levels, they were pre-pandemic. The latest employment component in the July ISM manufacturing survey also slowed to its lowest level since July 2020.     Today we get the latest insight into private sector hiring with the ADP employment report for July which is unlikely to repeat the bumper 497k seen in the June numbers. We should also be prepared for a downward revision to that report with July expected to see a more moderate 190k, as we look towards Friday's more important non-farm payrolls numbers. While stocks slipped back yesterday the US dollar rose to a 3-week high, gaining ground across the board on the grounds of the broader resilience of the US economy.     EUR/USD – still finding support at the 1.0940 lows from last week with further support at the 50-day SMA as well as the 1.0850 area. Resistance currently at last week's high at 1.1150.     GBP/USD – has continued to slide lower towards trend line support from the March lows at 1.2710, and the 50-day SMA at 1.2700. While above this key support the uptrend from the March lows remains intact. Resistance at the 1.3000 area.         EUR/GBP – popped briefly above the resistance at the 0.8600 area, before slipping back again, with the risk of a return to the recent lows at 0.8500/10. We need to see a concerted move above 0.8620 to target the July highs at 0.8700/10.     USD/JPY – continues to move through the 142.00 area, with the next target at the previous peaks at 145.00. Support comes in at this week's lows at 140.70.     FTSE100 is expected to open 30 points lower at 7,636     DAX is expected to open 88 points lower at 16,152     CAC40 is expected to open 36 points lower at 7,370   By Michael Hewson (Chief Market Analyst at CMC Markets UK)  
Pound Sterling: Short-Term Repricing Complete, But Further Uncertainty Looms

European Markets React to US Rating Downgrade and Economic Concerns - 02.08.2023

Michael Hewson Michael Hewson 02.08.2023 08:22
European markets set to open lower after US rating downgrade     We saw a negative start to August for European markets with the DAX leading the way lower, having only put in a new record high the day before, after poor manufacturing PMIs and disappointing earnings prompted profit taking.   Yesterday's weakness appears to have been prompted by concern that the economy is a little bit weaker than perhaps people would like, raising concern for earnings growth heading into the second half of the year. US markets also finished the day lower, although closing well off the lows of the day with the Dow managing to eke out a gain. US yields also finished the day higher, on the rising realisation that rates may well have to stay at current levels for quite a while yet.     This profit taking has continued overnight after Fitch downgraded the US credit rating to AA+ from AAA, while simultaneously boosting demand for haven assets, with Asia markets falling sharply, and which looks set to translate into a sharply lower European open.   The increase in crude oil prices over the past 4 weeks is also raising concern that the falls in input prices that we've seen over the last few months might start to hit a floor and start rising again. Yesterday we got another snapshot of the US labour market as US job openings (JOLTS) fell to their lowest levels since April 2021, although they are still well above the levels, they were pre-pandemic. The latest employment component in the July ISM manufacturing survey also slowed to its lowest level since July 2020.     Today we get the latest insight into private sector hiring with the ADP employment report for July which is unlikely to repeat the bumper 497k seen in the June numbers. We should also be prepared for a downward revision to that report with July expected to see a more moderate 190k, as we look towards Friday's more important non-farm payrolls numbers. While stocks slipped back yesterday the US dollar rose to a 3-week high, gaining ground across the board on the grounds of the broader resilience of the US economy.     EUR/USD – still finding support at the 1.0940 lows from last week with further support at the 50-day SMA as well as the 1.0850 area. Resistance currently at last week's high at 1.1150.     GBP/USD – has continued to slide lower towards trend line support from the March lows at 1.2710, and the 50-day SMA at 1.2700. While above this key support the uptrend from the March lows remains intact. Resistance at the 1.3000 area.         EUR/GBP – popped briefly above the resistance at the 0.8600 area, before slipping back again, with the risk of a return to the recent lows at 0.8500/10. We need to see a concerted move above 0.8620 to target the July highs at 0.8700/10.     USD/JPY – continues to move through the 142.00 area, with the next target at the previous peaks at 145.00. Support comes in at this week's lows at 140.70.     FTSE100 is expected to open 30 points lower at 7,636     DAX is expected to open 88 points lower at 16,152     CAC40 is expected to open 36 points lower at 7,370   By Michael Hewson (Chief Market Analyst at CMC Markets UK)  
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Yield Pressure Weighs on Markets: European and Asian Markets Slip as US Economy Remains in Focus

Michael Hewson Michael Hewson 05.10.2023 08:28
Yield pressure continues to drag on equity markets By Michael Hewson (Chief Market Analyst at CMC Markets UK)     European markets got off to a poor start to the new quarter and the week yesterday, as higher yields and a stronger US dollar helped to keep investors on the back foot. The FTSE100 had a particularly disappointing day, slipping below last week's low to its lowest level since 13th September, with all sectors sinking into negative territory. We've seen similar price action in Asia markets which have also come under pressure with the Nikkei 225 slipping to 4-month lows, while the RBA kept rates unchanged at 4.1%. This weakness looks set to see markets in Europe continue the negative theme of yesterday and open lower.     The weekend agreement by US lawmakers to fund the government until 17th November, while kicking that problem into the long grass, has merely served to refocus investor attention on the resilience of the US economy. The agreement also shifted the odds towards another rate hike from the Federal Reserve in just under a months' time given that economic activity in the manufacturing sector appears to have bottomed out in the short term.     Yields in US treasuries, as well as UK gilts rose sharply on the day helping to act as a drag on equity markets, with the long end of the curve rising much more sharply as markets looked to price in the prospect of at least one more rate hike from both the Federal Reserve and the Bank of England, as well as the prospect that rates are likely to stay at current levels for some time to come. The rise in the US 10-year yield saw it finish at its highest level in 16 years, while the 30-year yield closed at a 13-year high, as fresh comments from various Fed officials made the case for additional rate hikes, with Fed governor Michelle Bowman remaining hawkish in comments made at a banking conference in Banff yesterday. Cleveland Fed President Loretta Mester adopted a similar view at a local business event. US markets also underwent what can only be described as a choppy session with the Nasdaq 100 managing to put in a strong session driven mainly by strong gains in the big cap giants of Nvidia, Alphabet, Microsoft and Meta Platforms, even as over half the index constituents finished the day in negative territory, while the Russell 2000 finished at a 4-month low, suggesting that for all the bullishness around the other major US indices, confidence at the small business level is slightly more fragile.     This divergence could well become even more apparent if yields as well as the US dollar continue their relentless climb, and the inversion continues to unwind in the most painful of fashions, as long term yields rise sharply.    This was a message that Fed chairman Jay Powell received loud and clear from small business leaders at a roundtable in Pennsylvania yesterday, when he was assailed from all sides over the impact that inflation, high interest rates, and labour shortages were having on their businesses, as well as other challenges facing the US economy, as interest rates reset to more normal levels.     Yesterday's ISM manufacturing survey for September appeared to show that these challenges might be abating, with prices paid slowing and hiring picking up, with this week's various jobs data hoping to reinforce this trend. Today's JOLTS report for August is expected to show that vacancy rates remained steady at 8.83m, unchanged from July as the US labour market continued to show its resilience.          EUR/USD – slipped back towards the 1.0480 lows of last week. A move below 1.0480 has the potential to retarget parity. The main resistance remains back at the 1.0740 area, which we need to get above to stabilise and minimise the risk of further weakness.       GBP/USD – slipped below the lows of last week at 1.2110 keeping the risk very much tilted towards the 1.2000 area, while below resistance at the 1.2300 area in the short term. Only a move back above the 1.2430 area and 200-day SMA stabilises and argues for a return to the 1.2600 area.         EUR/GBP – bias remains lower while below the 0.8700 area and resistance at the 200-day SMA at 0.8720, which is capping the upside. A break of 0.8720 targets the 0.8800 area, however while below the bias remains for a move back to the 0.8620 area.     USD/JPY – bias remains for a move towards the 150.00 area, with a move above the 150.20 area targeting the potential for a move towards last year's peak at 152.00.   FTSE100 is expected to open 24 points lower at 7,486     DAX is expected to open 120 points lower at 15,127   CAC40 is expected to open 50 points lower at 7,018  
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Federal Reserve to Maintain Rates Amid Global Economic Concerns: Market Analysis by Michael Hewson

Michael Hewson Michael Hewson 02.11.2023 12:24
Fed set to hold rates again with Powell press conference to set the tone  By Michael Hewson (Chief Market Analyst at CMC Markets UK)   European stocks underwent their 3rd successive monthly decline yesterday, despite ending the month on a positive note, with the DAX falling 3.75%, with the FTSE100 also losing 3.75%, and posting its weakest monthly close since October last year US markets also finished lower for the third month in a row, despite a similarly positive finish yesterday, with the S&P500 and Nasdaq 100 both losing more than 2% on concerns about future earnings growth and a possible economic slowdown at a time when rates are expected to remain higher for longer, even as US economic data continues to show little sign of slowing markedly.     It's a different story altogether when it comes to the economic numbers in Europe, where yesterday we saw EU GDP in Q3 slide into contraction territory having seen little to no growth at all in Q1 and Q2.    Inflation across the entire euro area is also showing increasing signs of slowing sharply, calling into question the decision by the ECB to hike rates by 25bps in September in the face of warnings that they could well be overdoing it when it comes to raising rates.   Today's focus shifts back to the US with the penultimate Federal Reserve rate meeting for 2023, as well as the latest ADP payrolls report for October, September job openings numbers, and the latest ISM manufacturing survey.   While the US labour market has held up well this year, we've seen this come against a backdrop of a global manufacturing recession. The last time the ISM manufacturing survey posted a positive reading above 50, was October last year, with expectations that we'll see an unchanged reading of 49. Prices paid is expected to edge higher to 45, from 43.8, while employment is set to slow from 51.2 to 50.9.     Before that we have the latest ADP employment for October which is expected to improve on the surprisingly weak 89k we saw in September, with 150k new positions. Vacancies have been falling over the last few months and are expected to slow again given the rise in the participation rate seen in recent months, with today's JOLTs numbers expected to slow from 9610k to 9400k. Against such a resilient labour market attention will then shift to tonight's Fed meeting.   Having overseen a pause in September the US Federal Reserve looks set to undertake a similar decision today, although they still have one more rate hike in their guidance for this year, which markets now appear to be pricing for December.     Fed chair Jay Powell, in comments made just before the blackout, appeared to indicate that a status quo hold is the most likely outcome at today's meeting, with the key message continuing to be higher for longer. This is certainly being reflected in market pricing especially in the longer dated part of the treasury curve, as the yield curve continues to un-invert.     Most policymakers appear to be of the mind that more time is needed to assess the effects that previous rate hikes have had on the US economy which seems eminently sensible. While the unemployment rate has remained stubbornly low, US consumption patterns have remained resilient while the US economy grew strongly in Q3, however there is this nagging doubt that it could be on the cusp of a sharp slowdown in Q4, and recent payrolls data has shown a large proportion of part time jobs being added.   With US mortgage rates already at 8% there comes a point when further rate increases could destabilise the housing market, as well as increase the pressure further when it comes to tightening financial conditions.   The pound will also be in focus today with the latest house price data from Nationwide expected to show further weakness in house prices in October, with a decline of -0.4% expected.     The latest UK manufacturing PMIs for October is expected to improve from 44.3 to 45.2.               EUR/USD – ran out of steam at the 1.0680 area and 50-day SMA, with support back at the lows of last week at 1.0520, with the next support at the recent lows at 1.0450. Resistance at the 1.0700 area and 50-day SMA.  GBP/USD – rallied to 1.2200 before slipping back with support at the lows of last week at the 1.2070 area last week. Major support remains at the October lows just above 1.2030. Below 1.2000 targets the 1.1800 area. Resistance at 1.2300. EUR/GBP – squeezed up to 0.8755 in a classic bull trap before sliding sharply back. A move below 0.8680 and the 200-day SMA targets the 0.8620 area. USD/JPY – rallied hard from the support at 148.75 and the lows from 2-weeks ago and looks set to retest the highs from last year at 151.95, and the longer term target at 152.20. FTSE100 is expected to open 11 points higher at 7,332 DAX is expected to open 32 points higher at 14,842 CAC40 is expected to open 17 points higher at 6,902

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