European equity markets have started the trading week with a degree of uncertainty. The FTSE EURO TOP 100 index was in negative territory after the markets opened, but by mid-session it was trading up on the day. Weekend reports of renewed political unrest in Hong Kong are proving to be a regular occurrence and a reminder of the geopolitical risks facing the global economy. The European markets understandably made a fitful start as the headlines from Hong Kong formed much of the morning news flow.
The first five minute’s trading was negative, with price moving from 2,909.72 to 2,906.55. The low over the first five minutes being 2,905.52, formed a support level when after 15 more minutes trading, the price action signalled an ‘upside break out’ from the opening range.
FTSE 100 EURO TOP 100 index (Euronext:E100) Intraday five minute candle — 7th October:
The US-China trade talks commence later in the week when trade negotiators meet face-to-face in Washington. The summit in Washington is already a major driver of the markets and could explain the markets sliding by 3.10% last week. While it’s hard to ascertain whether the outcome will be positive or negative, the markets are facing the situation where even a rumour can move global equities a percentage point.
There is certainly a culture clash for analysts to negotiate. Speaking on Sunday, Chinese vice commerce minister, Wang Shouwen, told reporters:
“We hope for both sides to stand from a position of equality and mutual respect, to face the same direction, and be considerate of each other's concerns… Differences should be overcome by negotiations from calm and rational attitudes, and we should seek solutions that will benefit both sides.”
Source: Nikkei Asian Review
The approach of the US president is a little more direct. President Trump noted last week that a trade deal between the two counties “could happen sooner than you think.” (Source: Nikkei Asian Review)
FTSE 100 EURO TOP 100 index (Euronext:E100) — Weekly, 1H candle, 30th September — 4th October:
Much of Monday’s bounce in the markets reflects the poor trading of last week. The recovery of 50 basis points follows a 3% fall so might just form a regression to the downward trend. The catalyst of the up move appears to have been positive jobs data out on Friday. Market analyst at CMC Markets in London, David Madden, was speaking with CNBC when he said:
“I think the fact that the US jobs report was broadly positive really put the brakes on the fear factor that was circulating last week — that the US has been hit hard by the trade war.”
The Non-farms Payroll job report was released Friday and pointed to US NFP jobs increasing by 136,000 in September. This missed the consensus expectation of 145,000 by 9,000. Some of that shortfall was explained by the August figure being revised upwards by 9,000 (from 159,000 to 168,000). At the end of a down-week, meeting expectations was seen to be sufficient reason for what might turn out to be a relief rally.
German economic data released Monday is one indicator from the fundamental analysis school of thought, which suggests that the intraday rally in equities may indeed be short-lived. German industrial orders fell even more than expected in August. A poll by Reuters forecast an overall fall of 0.3% between August and September. Whilst a contraction of that size would have been bad enough, the actual figures were a fall of 0.6% fall in German manufactured goods. Capital goods, which act as a benchmark for investment, fell 1.6%.
The German economy shrank by 0.1% in Q2 2019, and another negative number for Q3 will see the German economy meet most definitions for being in recession. The ‘good news’ that the markets are waiting for is a change in policy at government level. The European Central Bank is also trying to nudge Angela Merkel’s administration towards adopting an expansive fiscal policy. There is, however, domestic opposition to such a move — the German public in general still favours a balanced budget.
German employment levels have been the one measure that have surprised to the upside. On Monday 30thSeptember, the 5% matched the 5% consensus. The pain from the slowdown is currently being shared across the workforce rather than falling on the shoulders of a few individuals. Data suggests underemployment rather than unemployment is the trend. The next German job figures aren’t due out until 30thNovember but will be keenly anticipated.
The S&P 500 index is just below significant resistance levels. The yearly high of 3,023 is proving a tough barrier for price action, but the emergence of an upward wedge pattern might suggest the bulls have some chance of breaking through to new levels.
S&P 500 index (OANDA SPX500USD) — year-to-date — price chart:
The technical analysis team at fpmarkets has broken down the daily data to a more granular level:
“A Gap fill complete with Wednesday’s lows, followed by a sharp reversal higher. The buyers have control and will need to close the market back towards the 3000 point level in the coming week. Consolidation below 3000 points is expected in the coming days.”
The fpmarkets technical team adds:
“The RSI has turned sharply higher and has moved to remain below the key 50 level, and remains only a sign of increasing price momentum.”
The technical data currently available is much like the fundamental data — proving to be something of a mixed bag. With a busy news week ahead, it could well be the case that geopolitical events once again point the way.