European equity markets were quiet yesterday as the US celebrated Martin Luther King Jr Day.
The mood in Europe was downbeat as disappointing growth figures from China overnight prompted dealers to lock in some of the gains made at the back end of last week.
In 2018, China’s economy grew by 6.6% – its slowest rate since 1990. The report underlines the economic slowdown. The cooling comes at a time when Beijing and Washington DC are locked in a trade dispute. On Friday, it was revealed that China offered to readdress the trade imbalance with the US, but now some investors feel that was unrealistic. Optimism in regarding US-China relations has faded a little. The IMF lowered its growth forecast for 2019 and 2020, and the organisation cited weakness in the German auto sector and deteriorating demand in Italy for the trimmed forecast.
Stock markets in Asia traders lower overnight after Xi Jinping, the Chinese President, warned against ‘black swan’ and ‘grey rhino’ events, and this eroded investor confidence.
Prime Minister May outlined her Plan B yesterday, and to be honest it didn’t seem that different from her first plan. Mrs May said she would be more flexible and open, and she would make commitments to Northern Ireland that the Commons could accept. The pound was lifted by her comments, but the situation hasn’t really unchanged.
German PPI in December fell by 0.4% on the month, and that was worse than the 0.2% decline that economists were expecting. The November report showed a 0.1% increase in growth. The fall in PPI indicates that demand is weak, and that ties in with the other disappointing economic indicators that Germany has produced recently. The drop in PPI might bring about lower CPI in the medium-term as weaker producer prices might led to consumer prices. German ZEW economic sentiment will be released at 10am (UK time) and the consensus estimate is -18.4, and that would be a fall from the December reading of -17.5.
At 9.30am (UK time) the UK will release the latest unemployment and wage growth data. Average earnings for the three months until November on a yearly basis is tipped to hold steady at 3.3%. The average earnings excluding bonuses report is expected also to hold steady at 3.3% – the highest reading since November 2008. Keep in mind, the inflation rate in the UK is 2.1% so any wage growth reading above that level is deemed to be a real increase in wages. The unemployment rate is expected to remain at 4.1%. At the same time, the latest public sector net borrowing figure will be released and the budget deficit is expected to fall to £1.2 billion from £6.34 billion in November.
At 1.30pm (UK time) US existing home sales are expected to be 5.25 million, down from 5.32 million in November.
EUR/USD – despite the recent pullback, it has been broadly been pushing higher since mid-November, it might retest the 1.1570 area. Trend line support from the November lows might come into play at the 1.1330 region.
GBP/USD – has been pushing higher for over one month, and a break above 1.3000, might bring 1.3174 into play. Support might be found in the 1.2815 region.
EUR/GBP – has been pushing lower since the start of the month, and support might come into play at 0.8700. The 200-day moving average at 0.8862 might act as resistance.
USD/JPY – if it manages to hold above the 109.20 area, it might target 110.00 or 111.17 – 200-day moving average. 108.00 might provide support.