Interesting close to the week on Friday with US markets doing better on the back of the good US data compared with the poor and moribund data out of Europe. But events subsequently over the weekend could make for an interesting start to the week.
First cab off the rank are comments from Beppe Grillo to a German weekly newspaper in which he said that Italy both might eventually leave the euro and that at the very least it would need to re-negotiate the terms of its massive debt. Clearly with his party and Berlusconi’s party combining to have more than 50% of the Italian vote the chances of a cohesive, stable or sustainable Italian government are not very high. This will keep the reality of the European problem simmering in the back ground even if for the moment the markets are preferring to focus on Fed Chairman Bernanke’s soothing words about the removal of the stimulus.
Indeed the US dollar made further headway on Friday and then this morning because the very European recovery that the political class is focusing on was one of markets and fear of Eurozone collapse not one of economics. You can’t keep the economic malaise in Europe down and the Markit PMI data on Friday showed that all too starkly. Italy, France, UK, Greece and Eurozone were all still under the 50 contraction zone with Italy in particular actually going backwards from last month’s 47.8 to print 45.8. Showing the growing chasm in the EU was the German PMI which printed at 50.3 up from last months 49.8. This chart by Markit that we picked up via Business Insider says it all about the growing tensions that will emerge in Europe and the folly of those in the political class who think the Euro crisis is behind them.
As a result the euro and the pound were both under pressure again with the euro finding some support from the old March 2012 to September 2012 trendline and also coincides with our slow moving average on the weekly charts. But euro looks to be headed back toward 1.2650ish but has some solid support at 1.2710/20 on the way as well as the 200 day moving average at 1.2830 today. A close below 1.2994 will open the way lower although as we saw Friday night where the low was 1.2966 just trading through this level may not be enough.
The Aussie dollar is also under pressure and while its weakness is not as acute as either the pound or the euro, it seems the market is falling out of a little love with it. We thing 1.01 is in the frame this week and that this is a critical juncture with a break signalling a deeper retracement.
1.0091/95 is the key level to watch and likely pretty good support will be found in that zone.
Looking forward to today’s start the data out of China over the weekend which showed that non-manufacturing PMI fell to 54.5 in February from 56.2 last month is hardly shocking but it is disappointing and when added to the new curbs on property speculation that the Chinese authorities put in place on Friday night is just another indication that the global recovery seems to be faltering a little as we saw in last weeks PMI’s in Europe and China.
On Friday night as we noted above the early European indices weakness gave way in the US to the better than expected ISM Manufacturing PMI which printed 54.2 v 52.5 expected and 53.1 last. This together with the Michigan consumer sentiment drags US equities out of the doldrums.
At the close the Dow was up 36 points or 0.25%, the Nasdaq up 0.31% and the S&P rose 0.22% to 1518. In Europe it was red across the Continental board with the FTSE somehow the only market to rally up 0.29%. The Dax fell 0.44%, the CAC dropped 0.62%, Spanish stocks fell 0.53% and the FTSEMIB in Milan dropped 1.55%.
Looking at the chart of the S&P 500 we reckon this is still a topping pattern and while it may still make a marginal new high we see it chart wise as going sideways for a while.
On commodity markets Nymex crude fell another 1.49% to $91.02 Bbl. Gold dipped 0.37 and closed right on support at $1575 oz. Silver was up 0.2% to $28.52 but Dr Copper dropped 1.30%.
In Australia today we get the TD inflation data . ANZ Job ads, Building Permits and Q4 Company gross operating profits. Tonight we get Portugeuse unemployment, UK Construction PMI, New York ISM and Fed Vice-Chair Janet Yellen will be giving a speech likely to reinforce the Fed will stay the path.
Twitter: Greg McKenna
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