Despite a rebound in yields as well as the US dollar, European markets managed to start the week on a positive note, diverging from what would eventually be a negative US session, which rolled over in the last 2 hours of trading with the Nasdaq 100 and S&P500 leading the way lower.

We heard from several Fed speakers yesterday, the most notable being Fed vice chair Lael Brainard who said it probably be appropriate to slow the pace of rate hikes, although there was still much to be done, echoing previous Fed speakers at the end of last week.  

The S&P500 at one point managed to put in a fresh two month high, however the lack of momentum over 4,000 soon petered out, while the US dollar retreated from its highs of the day, which looks set to see markets in Europe open mixed this morning.

Asia markets have undergone a broadly positive session with the focus on the latest China retail sales numbers for October, which fell back to their lowest levels since May.

There were low expectations around this morning’s latest China retail sales and industrial production numbers, considering last week’s poor trade numbers for October which showed that imports and exports fell into negative territory.

The Chinese consumer has been on the receiving end of rolling lockdowns as well as various restrictions for the most part of this year, and while we saw a decent number in August of 5.4%, this appeared to be driven by pent-up demand being released. This improvement wasn’t sustained into September, as sales fell back to 2.5%, and today’s October numbers were even worse, declining -0.5%. Industrial production came in at 5%

China’s zero-covid policy will continue to drive the numbers here, and while we’ve heard that the Chinese government is wargaming some re-opening scenarios, prompting some optimism that this might happen soon, this comes across as wishful thinking.

With the weather starting to get colder and heading into winter, infections can only go one way, and that’s not lower. That fact will make any sort of reopening impossible unless China changes tack.

This seems unlikely; therefore, we can expect to see many months of poor retail sales numbers as we head into 2023.    

With inflation in the UK set to hit 10.5% tomorrow, and another record high, if there was a silver lining with respect to the bleak economic outlook, then it’s in the form of a low unemployment rate, which fell to a 48 year low of 3.5% in the 3 months to August, and looks set to stay there for the 3 months to September, in data due out later this morning

Wage growth including bonuses also edged higher to 6%, over the same period, and looks set to remain unchanged, but once again the focus is set to be on the economic activity rate which rose to a record high of 21.7%.

The number of long-term sick rose to 2.5m, while job vacancies fell by a modest 46k, to 1.25m.

This remains the elephant in the room when it comes to the wider unemployment numbers, however vacancy rates still remain at elevated levels which means that there’s unlikely to be a spike in unemployment levels in the short term.

In Germany, the rebound from the recent lows in the DAX, alongside the decline in energy prices is set to see the ZEW survey for November improve modestly on the deeply negative numbers seen in October.

In the US, particular attention will be on today’s PPI numbers in the wake of last week’s positive reaction to the lower-than-expected CPI. In recent months PPI has tended to act as a leading indicator, although there was a spike in June, the general trend has been a gradual decline in prices since the end of Q1. Final demand PPI is expected to slip back to 8.3% from 8.5%, while core PPI excluding food and energy is expected to remain steady at 7.2%.

EUR/USD – failed to push above the August highs at 1.0370, with the 200-day SMA the next key resistance at 1.0430. The uptrend from the September lows remains intact with support also at the 50-day SMA at 0.9900.   

GBP/USD – slipped back from the 1.1855 area but still remains in the uptrend from the September lows. While above the 50-day SMA the trend remains for a move back towards the 1.1980 area after breaking above the September highs. Found support at 1.1710 with a break below 1.1700 retargeting the 1.1580 area.

EUR/GBP – failed at the 0.8820/30 area yesterday, with support still at or around the 0.8690 area.

USD/JPY – squeezed all the way back to 140.80 yesterday, after finding support at the 138.40/50 area. We have cloud support at the 138.15 area, with a break below 138.00 targeting a move towards 136.00.

FTSE100 is expected to open 10 points lower at 7,375

DAX is expected to open 3 points higher at 14,316

CAC40 is expected to open 7 points higher at 6,616