More all-time highs for US markets yesterday but we still only managed a mixed finish ahead of the start of this weeks Fed meeting, which starts today and concludes tomorrow.
This is likely to translate into an equally cautious start today here in Europe as the remainder of London traders return to their desks after yesterday’s storm enforced absence.
We also continue our data catch up today with the latest US retail sales numbers for September which are expected to come in flat, down from a rise of 0.2% in August.
These numbers shouldn’t elicit too much of a reaction given that occurred before this month’s government shutdown, but as a directional indicator for the October numbers they could go some way to raising concerns about the strength of that as well as the Q3 GDP number, and a possible downward revision next week.
Yesterday’s sharp fall in pending home sales by 5.6%, was the fourth monthly decline in a row and would appear to suggest a tailing off in confidence in the US housing recovery, a fact that consumer confidence numbers finally appear to be catching up with.
While we’ve seen the DAX continue to make new all-time highs it has struggled to maintain traction above the 9,000 level and the resilience hasn’t extended to broader European markets with both the FTSEMib and IBEX posting some sharp falls in recent days as concerns rise about the resilience of the recovery in Europe’s third and fourth largest economies.
It would appear that given some of the recent gains questions are being asked as to what the catalyst will be to justify further advances, given the strong performances seen so far this year.
In the UK these same questions are being asked particularly after the recent strong gains in the housing market and the recovery in the services sector above pre crisis peaks in last week’s GDP numbers.
Yesterday’s CBI retail sales numbers for October posted a sharp drop to 2 from September’s 34 reading suggesting a sharp pullback in consumer spending behaviour at the beginning of Q4.
Today’s latest lending numbers could reinforce those concerns with the latest mortgage approvals and consumer credit numbers for September.
Since March these numbers have risen sharply with mortgage approvals expected to come in at 66k, up from 52k in March, while net lending to individuals has nearly doubled in the same period, with expectations of £2.5bn for September, and up from £1.6bn in August.
The recent recovery in the German economy suffered a bit of a reality check last week when IFO numbers came in below expectations, and injecting a small dose of reality to the euro-phoria surrounding the recent recovery in the German economy.
Today’s German consumer confidence numbers could well act in a similar way, though economists apparently don’t think so, with expectations of another increase to 7.3 from last month’s six year high of 7.1.
With a decision about a new German government still to be settled and slight rise in the unemployment rate there is a chance that we could see a plateau effect here, or even a small decline.
EURUSD – another new 2 year high at 1.3830 Friday as the euro edges towards trend line resistance at 1.3980 from the 1.6040 highs in 2008, which remains a key obstacle to a move above 1.4000.
For this to unfold we need to hold above the 1.3710 level and February high, though we could get a dip to 1.3650 the lows last week without undermining bullish sentiment.
GBPUSD – even though we continue to struggle above 1.6220 dips continue to be well sought after. Only a move below 1.6110 could signal a deeper correction towards 1.6000 and undermine the prospect of a move towards 1.6300 and the 1.6320 trend line from the 2009 highs at 1.7045. This remains the key level with respect to further sterling gains.
EURGBP – the euro continues its resilient push higher closing around the 200 day MA at the end of last week. A move above last week’s high at 0.8555 could see a move towards the 0.8600 area. While the euro is unable to close conclusively beyond the 200 day MA the bias remains for a move back towards the 0.8420 area in the short term. A move back below the 0.8520 area retargets the 0.8420 level.
USDJPY – the US dollar briefly pushed below the 200 day MA at 97.20 but once again failed to close below it, and while it continues to do so the prospect of a rebound remains. A move and close below the 200 day MA retargets the August lows at 95.80. The US dollar needs to regain 98.20 to retarget the 99.40 area.
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