After the big gains of last week European markets spent yesterday taking a bit of a pause, with the FTSE100 finishing the day unchanged, while the FTSE 250, DAX, and CAC 40 all slipped back.
US markets also spent most of yesterday treading water with the upside tempered by a sharp rebound in bond yields as some of the Fed induced and jobs report euphoria from last week faded.
The jury remains out on whether the US economy is facing a hard or soft landing after the Fed senior loan officers survey showed that demand for loans in the economy was weakening, while markets were also looking ahead to a $48bn 3-year note auction. Today’s auction is set to be followed by a $40bn 10-year note auction tomorrow, and $24bn of 30-year bonds on Thursday, which could exert further upward pressure on yields.
We’re also set to hear from several Fed speakers in the wake of last week’s decision to hold rates including Minneapolis Fed president Neel Kashkari who has been one of the more vocal hawks on the FOMC in recent months, so his thoughts on last week’s decision could be particularly instructive in the context of whether he thinks monetary policy is restrictive enough, or whether we could see another hike in the coming weeks.
Today’s Asia session has had to absorb today’s China trade numbers for October, as well as the latest monetary policy decision from the Reserve Bank of Australia, with markets there sliding sharply, which is expected to translate into a lower European open.
In recent comments RBA governor Bullock said that the Australian central bank had a very low tolerance for any deterioration in the inflation outlook after the recent inflation number saw a slight overshoot.
At the last meeting in October, rates were left unchanged at 4.1%, with it being made clear that further rate hikes might be necessary due to sticky services inflation, although the economic outlook remained very uncertain.
There was an expectation that we might see another hike of 25bps, due to the stickiness in services inflation, and given those concerns this morning the RBA acted on them, raising the cash rate to 4.35%, after 5 months of keeping it at 4.10%. In a sign that this could well be the last hike the guidance was tweaked from “further monetary tightening may be required” to “whether monetary tightening may be required” with the Australian dollar falling sharply.
Of course, with the weakness in the Chinese economy, and Australia’s exposure to it there is a risk that the RBA may be overcompensating.
While the most recent Chinese Q3 GDP numbers showed a pickup in economic activity, today’s trade numbers for October showed little sign that economic activity was picking up.
Today’s Chinese import data broke a run of 10 consecutive negative months by rising 3% in a sign that perhaps domestic demand is returning, beating forecasts of a 5% decline. Slightly more worrying however was a bigger than expected decline in exports which fell -6.4%, the 6th month on a row they’ve been lower, and a worrying portend that global demand remains weak, and unlikely to pick up soon.
EUR/USD – quiet session yesterday with the main resistance at the 1.0800 area and 200-day SMA, which is likely to be a tough nut to crack. Support likely to come in at the 1.0670 area. Below 1.0520 targets the 1.0450 level.
GBP/USD – pushed up to the 200-day SMA at 1.2430 before retreating. We need to push above 1.2450 to signal further gains. Any pullbacks should find support at the 1.2270/80 area.
EUR/GBP – dropped through the 0.8680 area rebounding from the 0.8650 area. We could see a move up to the 0.8720 area but are still on course for move towards the 0.8620 area.
USD/JPY – rebounded off support at the 148.75 area and could extend back to 150.30. We also have resistance at 151.95, and the highs of last week.
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