profit taking

Weekly jobless claims set to tee up tomorrow's US payrolls report

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

 
European markets stabilised somewhat yesterday, although the FTSE100 slid for the third day in succession due to a sharp slide in commodity prices, which weighed on the big caps of basic resources and energy.
There was a respite in the big surge we've seen in bond yields, which retreated from intraday and multiyear highs after the September ADP jobs report saw its weakest monthly job gain since January 2021, of 89k.
This stabilisation in yields helped temper the downside for US markets, with the S&P500 rebounding from its 200-day SMA, which has acted as a key support area in the past couple of trading days.
The retreat in yields also helped US markets rebound and close higher on the day, breaking a 3-day losing streak, with the biggest decline coming with a 10-point fall in the 2-year yield.
 
 
This rebound in US markets has translated into a rebou

Waves of Profit and Resistance: Gold and Silver Analysis - 31/05/2023

Waves of Profit and Resistance: Gold and Silver Analysis - 31/05/2023

Jason Sen Jason Sen 31.05.2023 10:21
  Gold shorts certainly worked perfectly on Friday with a $19 drop from the high of the day. Longs at strong support at 1938/34 worked perfectly yesterday as we held above 1930. We wrote: ''Gold remains oversold on the daily chart so a good chance of another bounce from this strong support at 1938/34 to target 1945/47, perhaps as far as first resistance at 1952/57. Take profits on any remaining longs here if you do manage to buy at 1938/34.''   An easy profit of up to 15 points on our longs. However shorts here were stopped above 1960. Note the bullish engulfing candle after we bounced from the 100 day moving average in severely oversold conditions.   Strong resistance at 1963/66 today. Shorts need stops above 1971. A break higher see 1966/63 act as strong support so try to reverse & buy in to a long with stop below 1960, targeting 1975, perhaps as far as strong resistance at 1984/88 for profit taking. Try shorts with stop above 1992.   Silver longs at my buying opportunity at the 38.2% Fibonacci, 100 week & 500 day moving average support at 2280/65 worked perfectly on Friday, after I gave the signal on Thursday, so there was no excuse for missing this trade!   Targets for our longs of 2315 & 2330 were both hit to add to our profits for the week.   I expect strong resistance at 2340/50 again today. Shorts need stops above 2365.   We can try longs again this week at 2280/65 with stops below 2250. However a break below 2250 would be an important longer term sell signal. First target would be 2200/2190.
Rising Chances of a Sharp Repricing in Hungarian Markets

Hawkish ECB Raises Rates Amidst Slowing Eurozone Growth and Surging Inflation Forecasts

Ipek Ozkardeskaya Ipek Ozkardeskaya 16.06.2023 09:34
It was mostly a good day for the global markets, except for Europe, which saw the European Central Bank (ECB) expectedly raise interest rates by 25bp, but unexpectedly raised inflation forecast, as well.   European policymakers now expect core inflation to average past the 5% mark, while in March projection this forecast was only at around 4.6%. This could sound a bit counterintuitive, because we have been seeing slower inflation and slower activity across the Eurozone countries, with the latest growth numbers even pointing at a mild recession. Yet the strength of the jobs market, and the stickiness of services and housing prices keep ECB officials alert and prepared for a further rate hike in July... and maybe another one in September.       Euro rallies  At the wake of the ECB meeting, the implied probability of a July hike jumped from 50% to 80%, sending the EURUSD rallying. The pair rallied well past its 50-DMA and hit 1.0950, and is up by more than 3% since the beginning of this month. The medium-term outlook remains bullish for the EURUSD due to divergence between a decidedly hawkish ECB, and exhausting Federal Reserve (Fed). The next bullish target stands at 1.12.  The US dollar sank below its 50-DMA, impacted by softening retail sales, rising jobless claims, slowing industrial production and perhaps by a broadly stronger euro following the ECB's higher inflation forecasts, as well.   Elsewhere, rally in EURJPY gained momentum above the 150 mark, as the Bank of Japan (BoJ) decided to do nothing about its abnormally low interest rates today, which seem even more anomalous when you think that the rest of the major central banks are either hiking, or say they will hike. The dollar yen is back above the 140 mark, as traders see little reason to buy the yen when the BoJ outlook remains blurred. Note that some investors expected at least a wider YCC policy to 1% mark, but the BoJ didn't even bother to make a change on that front.       Japanese stocks overbought near 33-year highs  Good news is, Japanese stocks benefit from softer yen and ample BoJ policy, and consolidate gains near 33-year highs. The overbought market conditions, and the idea that Japan will, one day in our lifetime, normalize rates could lead to some profit taking, but it's also true that companies in geopolitically sensitive sectors like defense and semiconductors have been major drivers of the rally this year, and there is no reason for that appetite to change when the geopolitical landscape remains this tense. The former US Secretary of State just said he believes that a conflict between China and Taiwan is likely if tensions continue their current course.   By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank    
AUD/USD slips after rally as China's Services PMI eases; Australian retail sales jump - 06.07.2023

Tesco Reports Strong Q1 Sales Growth and Maintains Full-Year Guidance

Michael Hewson Michael Hewson 16.06.2023 10:05
Tesco maintains full year guidance   Since pushing up to 12-month highs back in May the Tesco share price has slipped back a touch, as the rally from the October lows ran into a little bit of profit taking.   The UK's number one supermarket, along with the rest of the sector has come under some criticism in recent weeks for a reluctance to cut prices amidst accusations of price gouging from politicians keen to divert criticism from their roles in the current crisis.   Even if some of these criticisms were valid, looking a little closer they don't stand up to any sort of scrutiny, but these sorts of details don't always resonate as they should in this post truth environment.   Talk of price caps on certain products from politicians keen to be seen to be doing something about the cost-of-living has only served to muddy the waters further as if somehow these will make things better. As with any problem, there's never a situation where a political intervention can't somehow make it worse.     Like most retailers Tesco has had to deal with rising costs, as have its suppliers at a time when food price inflation is trending at levels close to 20%, and headline inflation has only just dropped below 10%. Last year profits fell by 50% as Tesco was forced to absorb increased costs as well as looking to price match thousands of everyday products, with its nimbler competitors Aldi and Lidl.     When Tesco announced its full year numbers back in April the supermarket announced it was locking in the price of 1,000 other everyday products until July 5th, as it continues to increase the pressure on its competitors. Lower Clubcard prices are also available on over 8,000 lines.     Today's Q1 trading update has seen like-for-like sales in UK stores increase by 9% to £10.8bn with group retail revenues increasing by 8.2% to £14.83bn.   Its Booker business also continues to perform well with like for like sales increasing by 8% to £2.27bn.   Fuel was the only area which saw like for like sales decrease to the tune of 15.7% to £1.7bn.   On a positive note for consumers, Tesco did say that there were signs that inflation is starting to ease across the market.   On guidance Tesco remained optimistic that it would be able to deliver the same level of adjusted operating profit, as last year, despite the ongoing pressure on its margins, while keeping retail free cash flow in the region of £1.4bn to £1.8bn.        
Pound Slides as Market Reacts Dovishly to Wage Developments

Mixed Markets as UK Gilt Yields Surge and China Cuts Lending Rates

Michael Hewson Michael Hewson 20.06.2023 07:44
With US markets closed, markets in Europe underwent a weak and subdued session at the start of the new week with yesterday's declines predominantly on the back of the late Friday sell-off in the US, which saw markets there close off their highs of the week. The lack of any further details on a China stimulus plan, along with additional upward pressure on interest rates over uncertainty about further rate rises, and a slowing global economy, saw European investors engage with some modest profit taking.     Asia markets were mixed this morning, even as the People's Bank of China cut its 1 and 5 year lending rates by a modest 10 bps.     The UK gilt market was the main source of movement in the bond market, with 2-year yields pushing up to their highest level in 15 years, while 5- and 10-year yields came close to the highs we saw at the end of September last year, after the Kwarteng budget.       There is growing anxiety about the effect the recent rise in UK gilt yields is already having on the mortgage market, a concern that was played out in the form of weakness in house building and real estate shares yesterday, as 2-year mortgage deals pushed above 6%.     It is also feeding into a wider concern that economic activity in the second half of the year will be constrained by increased mortgage costs, which in turn will push up rents as well as shrinking disposable income.     All eyes will be on tomorrow's inflation numbers with Bank of England policymakers praying that we start to see rapid slowdowns in how fast prices are rising before the end of the summer.     While prices have been slowing here in the UK they have been slowing more rapidly in the US as well as in Europe, although in Europe they also fell from much higher levels.     Today we get the latest Germany PPI numbers for May which have been slowing sharply from peaks of 45.8% back in August, and had come down to 17.6% by January this year. In today's numbers for May it is expected to see annualised price growth slow further to 1.7%, while seeing a -0.7% decline month on month.     Another monthly decline in today's numbers would be the 7th monthly decline in the last 8 months, in a sign that disinflation is working its way through the system, and could also manifest itself in this week's UK PPI numbers as well.     The puzzle is why it is taking so long to bleed into the headline CPI and core CPI numbers, though it could start to by the beginning of Q3. The Bank of England will certainly be praying it does. As we look towards today's European open its likely to be a modestly higher one.          EUR/USD – have slipped back from the 1.0970 area having broken above the 50-day SMA at 1.0880 which now acts as support. We still remain on course for a move towards the April highs at the 1.1095 area.     GBP/USD – slipped back from 1.2845/50 area with support now at 1.2750 which was the 61.8% retracement of the 1.4250/1.0344 down move. If we slip below 1.2750, we could see further weakness towards 1.2680. Still on course for a move towards the 1.3000 area.      EUR/GBP – remains under pressure and on course for further losses toward the 0.8470/80 area. Currently have resistance at 0.8580 area and behind that at 0.8620.     USD/JPY – still on course for a move towards the next resistance at 142.50 which is 61.8% retracement of the 151.95/127.20 down move. Above 142.50 targets the 145.00 area. Support now comes in at 140.20/30      FTSE100 is expected to open unchanged at 7,588     DAX is expected to open unchanged at 16,201     CAC40 is expected to open 7 points lower at 7,307
USD/JPY Weekly Review: Strong Dollar and Yen's Resilience in G10 Currencies

Central Banks, Mortgage Rates, and Market Volatility: Challenges Ahead

Ipek Ozkardeskaya Ipek Ozkardeskaya 20.06.2023 07:46
Asian stocks were moody, European indices traded lower, and US futures were under pressure on Monday. The rest of the week will likely prove to be challenging both in the US and elsewhere, as central bankers continue pressing economies like lemons, while signs of pain are just before their eyes. It's not because the stock markets are driven higher by the AI-speculation that the underlying fundamentals are doing well. Average mortgage rates in the US are at the highest levels since the subprime crisis whereas mortgage rates in the UK are again above 6%. The last time we saw these levels was back during Liz Truss mini-budget crisis.   The UK 2-year yield spiked above 5% and has more to rally given the expectation of at least another 125bp hike from the Bank of England (BoE) before the end of this year, the first 25bp being due this Thursday.    What's funny is that the Reserve Bank of Australia (RBA) minutes released earlier today showed that the RBA rate hike – which was the first hawkish shock in a series of hawkish central bank decisions this month – showed that the decision to hike rates by a surprise 25bp was 'finely balanced' and further decisions will depend on inflation outlook and home market. The minutes softened the RBA expectations but will likely undo the pledges of more policy action from the other central banks.    The central-bank-induced stress has been well visible in the sovereign bond yields. Besides the sharp rise in UK yields, the US 2-year yield pushes decidedly toward the 5% mark, and the German 2-year yield tops at around 3.20%, the highest levels since the March banking stress. The Stoxx 600 fell more than 1% yesterday and slipped below the 50-DMA. It's yet too early to call for a peak in equities, both in Europe and across the Atlantic, but there are all the reasons to believe that the rally could not carry on given the morose economic outlook and the aggressive central bank stances.     In China, the People's Bank of China (PBoC) cut its one- and five-year LPR rates for the first time in ten months in hope to bolster economy, boost inflation and reverse the property crisis. But a targeted fiscal support is most probably needed because slashing rates when investment and consumption weaken due to a confidence crisis may not do much alone. Chinese stocks are under pressure since yesterday as investors were expecting stimulus measures last Friday, and they got nothing instead, as a proof that Xi remains against the Chinese kind of stimulus that we got used to. But that could be the only way to post the kind of Chinese growth numbers that we used to.       European nat gas prices correct, but...  The European nat gas prices fell nearly 15% on Monday, after they almost doubled since the start of the month on the back of hot weather and a series of outages. The beginning of this summer reminds us of last summer, when the water levels in European rivers and dams fell alarmingly, causing drought and risk of energy shortage.    Pricewise, we are at about a tenth of last summer's peak levels, but the extreme weather conditions will likely keep the pressure to the upside, which in return keep inflation worries alive, the European Central Bank (ECB) hawks alert, and the euro bid.    We see the EURUSD's positive momentum post the ECB meeting gently fade into the 1.10 mark, and we could see some more profit taking before Jerome Powell's testimony this week, but the medium-term outlook remains positive for the EURUSD. 
Assessing the Path: Goods and Shelter Inflation and the Fed's Pause Decision

The Resilience of Equities and Bond Correlation: Fed Testimony, Inflation Pressures, and Housing Market Surprises

Ipek Ozkardeskaya Ipek Ozkardeskaya 21.06.2023 08:33
Risk takers are not out dancing on the Wall Street this week before the Federal Reserve (Fed) President Powell's semiannual congressional testimony scheduled for today and tomorrow. Equities are down, oil is down, sovereign bonds are up. And the rally in equities versus a selloff in sovereign bonds is a pattern that we have been seeing since the rebound following the mini banking crisis, and the correlation between stocks and sovereign bonds are reestablished, again, after last year's visit to the positive territory.   This – the return of negative equity-bond correlation - is what we expected to happen this year, but for the exact opposite reason. We were expecting the sovereign bonds to recover, as the US was supposed to be in recession by now, whereas the sovereign bonds were supposed to find buyers as a result of softening, and even reversing Fed policy. But none of it happened. Equities rallied, the Fed became more aggressive on tightening its monetary policy, and now the American housing market starts printing surprisingly positive data, with housing starts and building permits flashing strong figures for May, defying the rising mortgage rates in the US due to the rising Fed rates. I mean housing starts jumped more than 20% in May, but loans for residential real estate slumped. We no longer know what to do with this data, and that's a cause for concern per se... not understanding the data.     What we know and understand very well, however, is, a strong housing market and tight jobs market will encourage Fed to hike more, and encourage other central banks to do more, as well. But not everyone is as lucky as Powell, because in Britain, the skyrocketing mortgage rates are turning into a serious headache that no one can solve for now. The UK home-loan approvals have been dropping after a post-pandemic peak, the refinancing costs took a lift, and political dispute is gaining momentum with Liberal Democrats asking for a £3 billion mortgage protection package to help people keep their homes, and their mortgages, while Jeremy Hunt says there is no money in the coffers for such fiscal support. The 2-year gilt yield slid below 5% yesterday, as a result of a broad-based flight to safer sovereign bonds, but the relief will likely remain short-lived and the outlook for Gilt market will likely remain negative with further, and significant rate hikes seen on the BoE's horizon.   Released this morning, the British inflation was expected to ease from 8.7% to 8.4% but did not ease... while core inflation unexpectedly jumped past the 7% mark again. These numbers warn that inflationary pressures in the UK are not under control and call for further rate hikes which will further squeeze the British households, without a guarantee of easing inflation. We will see what the BoE will do and say tomorrow, but we know that they now have a few doubts regarding the reliability of their inflation model which was pointing at a steep fall in H2 this year – a scenario that is unlikely to happen.   Cable jumped past the 1.28 mark following the inflation data, then rapidly fell back to the pre-data levels. The short-term direction will depend on a broad US dollar appetite, yet the medium-term outlook for the pound-dollar remains positive on the back of more hawkish BoE expectations, compared to the Fed's, and an advance toward the 1.30 is well possible, especially if the dollar appetite remains soft.     In the US, profit taking and flight to safety before Powell's testimony sent the S&P500 and Nasdaq stocks lower yesterday. The S&P500 slipped below the 4400 mark, while Nasdaq 100 tipped a toe below the 15000 mark but closed above this level.    The US dollar index traded higher for the 3rd session and is now testing the 50-DMA to the upside, while gold pushed below the 100-DMA as rising US yields and stronger dollar weigh on appetite for non-interest-bearing gold.    Yet, any hawkishness from Powell's testimony will likely be tempered by counter-expectation that the Fed may be going too fast too far, and could stop hiking before materializing the two rate hikes they revealed last week in their dot plot. It's true that the surprising data on housing and jobs front don't give a respite to the Fed, but a part of it is still believed to be the post-pandemic effect. For housing for example, insufficient number of homes due to the rising WFH demand, the retreat in material costs that exploded during the pandemic and the fading supply chain pressures help to explain why the market is not responding to the skyrocketing mortgage rates.   But the risk is there – it's not even hidden, and the meltdowns tend to happen without telling.   I mean, no one could tell that the US regional banks would go bankrupt a week before they did! Anyway, the risks are there, but the resilient eco data hints that Jerome Powell will confidently remain hawkish, and that could lead to some further downside correction in US big stocks which are now in overbought market. 
Stocks Rebound Amid Rising Volatility: Analysis and Outlook

Global Stocks Slide on Fears of Recession Triggered by Monetary Tightening

Ed Moya Ed Moya 26.06.2023 08:13
Stocks tumble on fears monetary tightening will trigger a recession Fed rate hike bets still only pricing in one last rate increase European bond yields plunge on downbeat global sentiment   US stocks are sliding as the global growth outlook continues to deteriorate following soft global PMI readings.  The risk of a sharper economic downturn is greater for Europe than it is for the US, so that could keep the dollar supported over the short-term.  This has been an ugly week for stocks and that is starting to unravel a lot of the mega-cap tech trades. The Nasdaq is getting pummeled as the AI trade is seeing significant profit taking.      Europe Brief: European stocks got rattled after France posted a surprise contraction with their Services PMI.  Almost all the European PMI readings disappointed and that is bursting the euro trade. Stubborn UK inflation is forcing the BOE to become a lot more aggressive with their rate hiking campaign, which will pile on significantly more pain on people with mortgages. UK Chancellor Hunt needed to do something for homeowners and this year-long break before repossessions is a step in the right direction. Over 2 million UK mortgage holders are going to see skyrocketing monthly mortgage bills and right now it seems it will steadily get worse.     Bostic The Fed’s Bostic delivered a dovish message today after favoring no more rate hikes for the rest of the year. Bostic is optimistic that the Fed will bring down inflation without tanking the job market.  Bostic is in the minority as other members will need to see a significant deterioration in the data.  Today, the service sector PMI declined not as much as expected and is still trading near pre-pandemic levels. The June preliminary Services PMI fell from 54.9 to 54.1, a tick higher that 54.0 consensus estimate. The economic resilience for the US will likely keep the majority of Fed officials with a hawkish stance.       
US Inflation Rises but Core Inflation Falls to Two-Year Low, All Eyes on ECB Rate Decision on Thursday

Rolls-Royce Shares Soar to 3-Year Highs After Raising Guidance

Michael Hewson Michael Hewson 26.07.2023 10:18
Rolls-Royce share price surges to 3-year highs after raising guidance By Michael Hewson (Chief Market Analyst at CMC Markets UK)   Even before today's trading update the Rolls-Royce share price has been one of the best performers on the FTSE100 so far year to date.   When Rolls-Royce reported its Q1 numbers back in May there was disappointment that management appeared reluctant to raise their full year guidance, with the shares falling victim to some mild profit taking.Since then, the shares had traded sideways struggling to move above the March peaks at 160p, which had served to cap the gains.     The turnaround in the shares since the start of the year has been remarkable, even more so given the comments from new CEO Tufan Erginbilgic at the end of last year when he labelled the company as a "burning platform".   Despite this description investors have ploughed back into the company after seeing a modest return to full year profit before tax of £206m, at the end of last year, after the £1.5bn losses of the previous year.   The optimism over the company's prospects was well merited given that its main revenue earner was and still is maintenance revenue from the civil aviation industry and the return to normal post Covid has seen a big turnaround in its cash flow as well as revenue prospects.     Today's trading update, ahead of next week's H1 presentation, has seen the shares soar above 160p and to their highest levels since March 2020, after the company raised its full year underlying profits guidance from between £800m and £1bn, to between £1.2bn and £1.4bn.     Rolls-Royce also raised its free cash flow estimates of between £600m and £800m to between £900m and £1.1bn.   The improvement on margins has been led by civil aviation and defence with H1 underlying profit expected to be between £660m and £680m.   Large engine flying hours are expected to come in at between 80% and 90% of 2019 levels. At the end of Q1 they were currently at 65% of 2019 levels. 
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)  
Eurozone Producer Prices Send Signals of Concern: Impact on Consumer Inflation and ECB's Vigilance - 03.08.2023

Bank of England Poised to Raise Rates to a 15-Year High Amid Economic Concerns

ING Economics ING Economics 03.08.2023 10:13
Bank of England set to raises rates to a new 15 year high European markets underwent another negative session yesterday, clobbered by concerns over weaker than expected economic activity, which in turn is raising concern for earnings growth heading into the second half of the year. Throw in a US credit rating downgrade from Fitch and the catalyst for further profit taking after recent record highs for the DAX completed the circle of negativity.     US markets also underwent a negative session, with the Nasdaq 100 undergoing its worst session since February, while the US dollar acted as a haven and the yield curve steepened. As a result of the continued sell-off in the US, and weakness in Asia markets, European markets look set to open lower later today, and while the Fitch downgrade doesn't tell us anything about the US political governance that we don't already know investors appear to be looking to test the extent of the downside in the market.     Earlier this week we saw some poor manufacturing PMI numbers which showed that the European economy was very much in recession, with disinflation very much front and centre. This has raised questions as to whether the services sector will eventually succumb to similar weakness. There has been some evidence of that in recent readings but by and large services activity has been reasonably robust. In Spain services activity is expected to remain steady at 53.4, along with Italy at 52.2. The recent flash numbers from France saw further weakness to 47.4, while in Germany we can expect to see a resilient 52, down from 54.1.         EU PPI for June is expected to slip further into deflation to -3.2% year on year. In the UK services activity is expected to slow to 51.5 from 53.7. With inflation unexpectedly slowing more than expected in June to 7.9% it could be argued that the pressure on the Bank of England to hike by another 50bps has eased somewhat, especially since the Fed and the ECB both hiked by 25bps last week.     Having seen core CPI slow by more than expected to 6.9% forward rate expectations have eased quite markedly in the past few weeks. Forward market expectations of where the terminal rate is likely to be, have slipped from 6.5%, to below 6%. It's also likely that inflation for July will slow even more markedly as the effects of the energy price cap get adjusted lower which might suggest there is an argument that we might be close to the end of the current rate hiking cycle.     The fly in the ointment for the Bank of England is the rather thorny issue of wage growth which has moved above core CPI, and could prompt the MPC to err towards the hawkish side of monetary policy and raise rates by 50bps, with a view to suggesting that this could signal a pause over the coming weeks as the central bank gets set to consider how quickly inflation falls back over the course of Q3. Such an aggressive move would be a mistake given that a lot of the pass-through effects of previous rate increases haven't fully filtered down with some suggesting that the Bank of England should pause. In the current environment this seems unlikely given a 25bps is priced in already.       In a nutshell we can expect to see a hawkish 25bps as a bare minimum, and we could also see a split with some pushing for 50bps. We could also get an insight into how new MPC member Megan Greene views the current situation when it comes to casting her vote. One thing seems certain, she is unlikely to be dovish as Tenreyro whom she replaced on the MPC.     We'll also get a further insight into the US labour market after another bumper ADP payrolls report yesterday which saw another 324k jobs added in July. Weekly jobless claims are expected to come in at 225k, while we'll also get an insight into the services sector with the ISM services index for July which is expected to come in at 53. The employment component will be of particular interest, coming in at 53.1 in June, having jumped from 49.2 in May.       EUR/USD – managed to hold above the 50-day SMA for the time being, with a break below targeting further losses towards 1.0830. Resistance currently at last week's high at 1.1150.     GBP/USD – also flirting with the 50-day SMA with a clean break targeting a move towards the 1.2600 area.  Resistance at the 1.2830 area as well as 1.3000.         EUR/GBP – continues to edge higher drifting up to the 0.8630 level before slipping back, although it is now finding some support at the 0.8580 area. We need to see a concerted move above 0.8620 to target the July highs at 0.8700/10.     USD/JPY – continues to look well supported above 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 10 points lower at 7,551     DAX is expected to open 22 points lower at 15,998     CAC40 is expected to open 15 points lower at 7,297   By Michael Hewson (Chief Market Analyst at CMC Markets UK)  
EUR: Persistent Pressure from Back-End Yield Premium

Market Insights: Weekly Jobless Claims Set the Stage for Tomorrow's US Payrolls Report

8 eightcap 8 eightcap 05.10.2023 08:20
Weekly jobless claims set to tee up tomorrow's US payrolls report By Michael Hewson (Chief Market Analyst at CMC Markets UK)   European markets stabilised somewhat yesterday, although the FTSE100 slid for the third day in succession due to a sharp slide in commodity prices, which weighed on the big caps of basic resources and energy. There was a respite in the big surge we've seen in bond yields, which retreated from intraday and multiyear highs after the September ADP jobs report saw its weakest monthly job gain since January 2021, of 89k. This stabilisation in yields helped temper the downside for US markets, with the S&P500 rebounding from its 200-day SMA, which has acted as a key support area in the past couple of trading days. The retreat in yields also helped US markets rebound and close higher on the day, breaking a 3-day losing streak, with the biggest decline coming with a 10-point fall in the 2-year yield.     This rebound in US markets has translated into a rebound in Asia markets and looks set to translate into a positive start for European markets this morning as we look ahead to the latest German trade import and export data for August, as well as French industrial and manufacturing production data, all of which are forecast to show weak economic performance for both. German exports are forecast to decline by -0.6%, with imports expected to rise by 0.5%, while in France manufacturing output is expected to decline by 0.4%.     The US dollar fell victim to some modest profit taking, slipping back from 10-month highs as yields declined across the board. The US labour market is set to remain in the spotlight today, as well as tomorrow when we get the September non-farm payrolls report, which after yesterday's slowdown in the ADP numbers, could set the seal on another rate hike in November, or keep markets guessing ahead of next week's CPI report.     Before that, later today we get the latest weekly jobless claims numbers which are expected to show that claims increased slightly from 204k to 210k. Continuing claims are forecast to remain steady at 1.67m.       EUR/USD – the next support remains at the 1.0400 level which is 50% pullback of the 0.9535/1.1275 up move, followed by 1.0200. To stabilise we need to move through 1.0620 for a retest of the 1.0740 area.       GBP/USD – strong rebound yesterday from the 1.2030/40 area with support below that at the 1.1835 area which equates to a 50% retracement of the move from the record lows at 1.0330 to the recent peaks at 1.3145. We need to overcome the 1.2300 area to signal a move back the 1.2430 area and 200-day SMA.        EUR/GBP – still range bound with resistance at 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 – made a 12-month high of 150.16 earlier this week before plunging to 147.35 on the back of possible intervention from the Bank of Japan. With no confirmation that intervention took place, any further moves higher could be choppy. Below 147.30 signals the top is in.     FTSE100 is expected to open 32 points higher at 7,444     DAX is expected to open 62 points higher at 15,162     CAC40 is expected to open 30 points higher at 7,026  

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