While European markets enjoyed a positive end to what was a predominantly negative week, there was no such happy ending for US markets which reversed their early gains, after European markets had closed and finished the week sharply lower.

The end of week lift to sentiment was a US payrolls report which was solid but not spectacular, although the unemployment rate did see an increase from 3.5% to 3.7%. This wasn’t as bad as it looked given that the participation rate rose from 62.1% to 62.4% which suggests that people are returning to the workforce due to the rising cost of living.

The late day reversal in US markets didn’t appear to have any obvious catalyst, although the reports that Russia was suspending gas deliveries via the Nord Stream 1 pipeline indefinitely could have played a part, given that the announcement came after the European close on Friday.

This late US weakness looks set to translate into a sharply lower European open as we look ahead to a big week for the European Central Bank, as they look to navigate a way through a crisis that could put the finances, as well as the borrowing costs of some of the weaker members of the currency bloc under huge strain.

Russia’s actions on Friday in indefinitely closing the pipeline could also see renewed upward pressure on European and UK natural gas prices when markets reopen today, after seeing big falls in prices last week as UK natural gas prices fell 39%, while European prices fell 33%.

Today’s other economic focus is set to be in the latest services PMI numbers for August.

A couple of months ago the likes of Italy, Spain and France were seeing a decent tourism boost through the services channel of their economies, however the recent hot weather has proved to be somewhat of a double-edged sword with the forest fires across Europe along with reports of widespread travel disruption starting to act as a drag.

In June Italian services sector activity was at 53.7 but has cratered since then, dropping to 48.4 in July, and could fall further in August, while in Germany the picture is even worse with a drop to 48.2 in July, and which is expected to remain at this level in August.

France has managed to come across as more resilient at 51.6 but even here we are seeing evidence of a slowdown, with expectations of a modest slowdown to 51.

The UK services sector is also feeling the strain but is still showing some signs of resilience at 52.5, although the weakness in the currency is making inflationary pressures across the sector that much worse.

Hopefully this weakness could well be close to ending now that the conservative leadership contest is finally over, as later today we get to find out who the next Prime Minister is likely to be, with all of the betting money expected to see the UK end up with its third female Prime Minister in Liz Truss, when the results are announced at 12:30pm today.

With the pound now below 1.1500 against the US dollar the new PM and the cabinet will need to set out how they intend to deal with the sharp rises in energy prices that are set to kick in next month, and without some form of government intervention to help with gas and electricity costs could see hundreds of businesses go to the wall.

We probably won’t find out any of the details today, but we could see VAT reductions, as well as possible reductions in business rates, as well as targeted measures for the most vulnerable members of society where energy makes up a much higher percentage of their monthly bills.  

EUR/USD – the euro has slipped below the 0.9900 area, opening the prospect of a move towards 0.9620. In the absence of a move through the recent peaks at the 1.0120 area, the risk remains for lower levels as we head towards the 0.9000 area. 

GBP/USD – remains under pressure, slipping below with the March 2020 lows at the 1.1410/15 area the next key support. A break below here opens up the 1.1000 area. For the moment there has been little evidence of a rebound, with resistance at the 1.1750/60 area.  

EUR/GBP – currently has resistance at the June highs at 0.8720. Support remains back at the 0.8580 area.  

USD/JPY – pushed up to the 140.80 area last week on the break above the 139.40 area. This now becomes support, along with the 138.00 area. This now opens the potential for a move towards 145.00, and the 1998 highs at 147.70. 

FTSE100 is expected to open 70 points lower at 7,211

DAX is expected to open 400 points lower at 12,650

CAC40 is expected to open 157 points lower at 6,010