European markets had another positive session yesterday with the German DAX hitting a new record high, while the FTSE100 fulfilled its role as perennial party pooper with another disappointing session, closing lower for the second day in a row. This was largely due to weakness in metals and energy prices, with Brent crude prices closing at a 5-month low.
US markets also struggled for gains with the Nasdaq 100 closing higher on a strong performance from the Magnificent 7 led by Apple and Nvidia, while the Russell 2000 ended the day down over 1% and the S&P500 and Dow closed little changed.
The indifferent finish in the U.S. was shrugged off by Asian markets, which had a strong session after the Bank of Japan‘s latest Tankan survey showed a sharp improvement in manufacturing sentiment, with the auto sector rising for the second month in a row as chip shortages eased.
This rebound in the Asian markets looks set to carry over into this morning’s European open, with the DAX set to open at a new record high.
Yesterday’s European economic data pointed to a modest improvement in service sector activity, while the latest US ISM service sector numbers were a mixed bag, with the headline number coming in above forecast at 52.7. Prices paid slowed but by less than expected, coming in at 58.3, pointing to stickier than expected inflation, while the employment index edged higher to 50.7.
Today we get a look at the latest ADP payrolls report for November as an appetizer for Friday’s Non-Farm Payrolls report. We are starting to see increasing evidence that the US labor market is starting to slow, with vacancies falling to their lowest level since March 2021 and with the last two ADP reports adding a combined 202k jobs as private sector hiring slows.
October saw 113k jobs added, an improvement on September, and November is expected to see an improvement on that to 130k, as a lot of additional hiring takes place in the weeks leading up to Thanksgiving and the Christmas period, so we’re unlikely to see any signs of a crack in the US labor market this side of 2024.
We also have the latest interest rate decision from the Bank of Canada, where we don’t expect any changes to monetary policy, with the central bank expected to keep rates unchanged at 5%.
The last 3 months have seen no growth in the economy at all while the October jobs report saw an increase of 17.5k jobs, all of which were part time positions. In full time employment we saw the first decline in job growth since May with a drop of -3.3k, while unemployment rose from 5.5% to 5.7% and the highest level since January 2021. We’re also starting to see inflationary pressures continue to ease with the median core CPI falling from 3.9% to 3.6% in October.
EUR/USD – Has fallen below the 200-day SMA at 1.0825, with a break below the 1.0800 level raising the prospect of a move towards the 50-day SMA just below the 1.0700 area. Resistance now stands at 1.0940, and beyond that at last week’s highs at 1.1015/20.
GBP/USD – Failure to break above the 1.2720/30 level has seen the Pound slip back towards support in the 1.2580/90 area. A break below 1.2570 signals a deeper pullback towards the 1.2460 area and the 200-day SMA. A move through the 1.2740 area signals a move towards 1.2820.
EUR/GBP – Has found support at the 0.8555 level and is currently looking to rally through the 0.8600 level. While below the 0.8615/20 area, the risk remains for a move towards the September lows at 0.8520 and possibly further towards the August lows at 0.8490.
USD/JPY – Currently trying to bounce off the recent lows in the 146.20 area, with resistance now in the 148.10 area. Looks vulnerable to further losses while below this cloud resistance with next support at the 144.50 area.
The FTSE100 is expected to open 25 points higher at 7,514.
DAX is expected to open 56 points higher at 16,589.
CAC40 is expected to open 20 points higher at 7,407.
