European equity markets continued their slide last week, closing lower for the sixth week in a row, with most of the negativity coming from disappointing earnings and guidance downgrades as we head into the final quarter of the year.
U.S. markets also struggled, closing lower for the second week in a row and closing at their lowest level since May, a sign that the resilience seen in the first half of the year is beginning to fade.
We also saw a late surge in oil and gold prices on Friday after reports that the Israeli ground invasion of Gaza had begun, pushing the yellow metal back above $2,000 an ounce for the first time since May.
Crude oil prices also shot higher, with Brent crude back above $90 a barrel, although it still ended the week lower.
As more modest incursions into Gaza began over the weekend, the hope is that this incremental approach will increase the pressure on Hamas while not provoking another front on Israel’s northern border with Lebanon and Hezbollah.
Despite the fact that the Gaza incursions took place after European markets had closed on Friday, markets in Europe look set to open slightly firmer given the limited nature of the military action so far.
It’s easy to blame last week’s declines in equity markets on the unpredictable nature of events in the Middle East, and while that’s part of it, we also saw disappointment on several fronts with poor corporate updates and guidance downgrades that led to some outsized moves lower.
This trend of outsized moves for companies that don’t meet expectations on guidance is likely to continue this week, with more important corporate updates set to draw attention from the likes of HSBC today, as well as BP, Shell and Apple later in the week.
Meanwhile, economic data from Europe and the UK continued to show little sign of improvement, while in the US we saw the opposite with markets looking to this week’s central bank meetings for signs that policymakers might start to shift on their higher for longer narrative that has driven yields higher in recent weeks.
Given the strength of recent US economic data, the likelihood of a dovish shift from the Federal Reserve in the short term seems unlikely, with the prospect of another rate hike before the end of the year still very much on the table, although we don’t expect them to move on rates this week.
The Bank of England, on the other hand, appears to be done on the rate hike front, if market pricing is to be believed, and markets are now looking ahead to when we might see the first rate cut in 2024.
Today’s mortgage approvals and other consumer credit data for September is expected to show a further reluctance by UK consumers to open their wallets.
Mortgage approvals are expected to slow to 44.5k from 45.4k, while net consumer credit may slow to £1.4bn from £1.6bn.
In Europe, following the ECB‘s decision to keep interest rates on hold last week, German inflation is expected to slow further to 3.3% in October, down sharply from 4.3% in August.
The German economy is also expected to have contracted by -0.2% in Q3, compared to 0% in Q2, marking the fourth consecutive quarter that it hasn’t been able to show positive growth.
EUR/USD – The pair found support at the 1.0520 level last week, with next support at the recent lows at 1.0450. Resistance at 1.0700 and the 50-day SMA.
GBP/USD – Found support last week at the 1.2070 level. Major support remains at the October lows just above 1.2030. Below 1.2000 targets 1.1800 area. Resistance at 1.2300.
EUR/GBP – Failed again last week at 0.8740, with a break above 0.8750 targeting 0.8800. A break below 0.8680 and the 200-day SMA targets the 0.8620 area.
USD/JPY – The pair retreated from the 150.78 level late last week, but still hit a new high for the year. Still on track for a potential move towards 152.20, while above the 148.75 area.
FTSE100 is expected to open 20 points higher at 7,311.
DAX is expected to open 7 points higher at 14,694.
CAC40 is expected to open flat at 6,795.
