Markets take a break with the US out, await ECB tonight.
While the United States celebrated its 236th birthday, markets in Europe were under pressure from some more grim economic news which continues to paint a picture of a slow growth future and most probably a looming European recession. The Eurozone PMI’s were released overnight and while they give a sense of a bottoming process they also speak of an enduring European contraction in economic activity. The Markit Eurozone composite PMI printed 46.4 and was still below the important 50 level where it has been for 9 of the past 10 months. Equally important was the fact that Germany is clearly slowing with the Services sector PMI falling to its lowest level since September last year.
On this note my own proprietory indicators of German growth have been signaling a weaker outlook for some time now – Reuters reported:
“Germany looks to have fallen into a renewed decline, though only a very modest drop in output is signalled. The pace of downturns in other major euro member states is far more worrying,” said Chris Williamson, chief economist at PMI provider Markit.
The internals of the PMI’s were worrying for EU workers with companies cutting jobs for the 6th month in a row. But there is always a silver lining somewhere and retail sales data for the EU rose more than expected even if the reduction in price pressures shown by the PMI’s and other data recently must give the ECB room to cut rates to 0.75% at a minimum tonight.
But markets didn’t really care today about this aspect with European share markets marginally lower across the board. The FTSE was off slightly by 0.06%, the CAC of 0.11% and the DAX off 0.2%. Clearly after a decent 3 day run higher there was less room to push with the event risk of the ECB tonight and no lead from the US markets.
On commodity markets the weaker EU data, or simply lack of players – you be the judge – saw crude off about 0.7%. Gold held onto the gains but was off ever so slightly to around 1614 oz. Interesting from a technical standpoint – at least looking at my candlesticks – Dr Copper probably needs to consolidate lower in coming days. Fundamentally the economic data certainly isn’t supportive of higher commodity prices but then again its hasn’t been about the data over the past week, it’s been about the relief from Europe and the chance of more stimulus.
On currency markets it wasn’t so quiet – at least for the Euro which came under pressure from the weaker PMI’s falling to the low 1.25 region from the low 1.26 region a day ago. EUR on the daily charts doesn’t look good and is perhaps biased back toward last week’s lows on the short term charts. On the Aussie, it has been one of the narrowest week’s trade that I can remember – a tightening in the range is usually a precursor to some sort of break out but we’ll see. One thing to note is that the Aussie is being well supported against Sterling and the Euro and gained again overnight. On that note Sterling was under pressure on the back of its own weak data and outlook with the services sector in the UK falling to an 8 month low, still above the 50 line, but enough to knock Sterling significantly lower in trade last night and it sits at 1.5592 this morning.
Just briefly in other news:
- I’ve written a piece about my experiences with BBSW in Australia and what I reckon on the Libor scandal in the UK so it was interesting that one of the points I made about others being involved might be right given Barclay’s Ex-CEO Diamonds comments overnight. We’ll see.
- Tonight Ireland comes back to market to borrow €500 million in short term notes – hope it goes well for them.
- Delusional Economics has alerted me to a story in the AFR which says Australia is trying to get convertiblity with the Yuan which is good long term news for our market. Impact on the Aussie though I’m not to sure.
- Blue Sky amongst the global economic clouds – Sweden has upgraded its growth forecast for 2012 from 0.4% to 1.1%. But it did cut 2013.
Lets have a look at some of the markets we follow – please note with some markets closed we’ll cover a little less this morning.
EUR/USD: The EUR has turned south over the course of the week in contrast to the price action in the equity market. Currency markets are the ultimate macro market and clearly the weaker data is weighing on EUR at present. Equally it’s inability to break the top of the range has seen it turn lower and it is now looking to find the “real” level of support. This one now looks focussed toward 1.2430/40.
AUD/USD: My trend following systems are still long the AUD but is struggling to get through the old trendline I talked about yesterday. Yesterday’s candlestick looks ominous but we wont know until we see how the AUD trades over the next 24 hours. I don’t want to see the AUD below 1.02 as that would signal a deeper retracement.
ASX 200: Back toward the top of the range but unlikely to break out today. If the ASX can kick through the range it has substantial upside – but as I always say, respect the range until it breaks.
Data today has the Trade Balance for Australia and then Factory Orders in Germany and the BoE and ECB meetings where the market is expecting more accommodation. If we don’t get it then markets will have a very bad night. Then it is over to the US for jobless claims and the ADP jobs survey.
Here is today’s data and you can click here for the full week’s calendar.
And here is how the markets closed at 6 am this morning.
Have a great day.
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Macrobusiness Morning is the daily market wrap and personal view of Greg McKenna. It is offered as an example of the process he has been following for more than 20 years each morning. When referring to his trading systems, he means his own, not those of Macro Investor.
Please remember these are not recommendations for you to trade these are my views and I have my risk management tools and risk parameters that you do not have access to. Thus, this blog is for information only and does not constitute advice. Neither Greg McKenna nor MacroAssociates has taken your personal circumstances, objectives or financial situation into account. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.