Asian markets put in a mixed show last night so as a result European indices are a little shy this morning. Looking at the charts of the major Asian indices and comparing them to the FTSE there are great similarities in their movements at the moment. The China effect is definitely a major force in the direction of global indices at the moment and it seems that the shift is almost enough to say that if China sneezes, the rest of us will catch the cold.
The market is just in profit taking mode so far today despite riskier stocks topping the leader board with miners and banks amongst them. Barclays is heading back towards the £3 after an upgrade by BOA, who also extended their bullish comments to Lloyds and RBS. Barclays stock price has had a roller coaster of a ride so far in 2010 and since its decline from around the 380p level it looks to have formed a small double bottom around 260. Despite the strength of banking stocks so far in February, until the dust settles and we get more details on Obama’s proposals to curb the “risky” activities of banks, moves to the upside could be limited. To the downside drug makers are causing the overall losses after Roche came in with worse than expected numbers.
On the economic data front we get PMI services numbers from the UK this morning which are expected to fall slightly, but could compliment the strong manufacturing numbers earlier in the week and show yet another rise. The recovery in the PMI data has been remarkable and it is still leaving a few analysts scratching their heads as to why UK GDP hasn’t been stronger. This services survey has reached its highest level since January 2007, which has mainly been stimulus driven so when the Bank announces that QE is over tomorrow, as is widely expected, it will be interesting to see how the PMI surveys cope.
After the surprise increase in UK consumer confidence this morning EU retail sales are also expected to show a rise. On the whole the labour market has not capitulated as much as was expected and as the overall economic outlook has improved the consumer is experiencing a small revival which is translating into slightly better retail sales.
The highlight of today will be the preview to Friday’s NFP as the US ADP employment number is released at 13h15. Although the two numbers are quite independent of each other ADP provides a gauge of what can be expected this Friday. In January both numbers showed falls of around 80k, much weaker than expected and a decline in ADP of around 30k is expected today, whereas Friday’s NFP is due to post a small rise. The real employment number if the NFP but ADP can move the markets so watch out come 13h15 London time.
We then end the day with US ISM non-manufacturing numbers at 15h00 which is also a bit of a market mover and the service sector received good news from the latest Beige Book so a good number above 50.0 is expected.
The dollar is under pressure this morning and has been overnight, particularly against sterling which has benefited from the strong consumer confidence number. The prospect of an end to QE in the UK is also playing on the mind of currency traders as cable bounces back above 1.6000. Gains against the euro have been limited after EUR/GBP’s bounce off the 0.8700 minor support area with the cross now sitting at 0.8730, still capped by the 20 day moving average.
Gold is benefitting from the dollar’s weakness and bulls are pushing the precious metal through resistance levels. If the equity bulls continue to push indices higher then gold could benefit, but the question still has to be answered as to whether this correction to the downside is over yet.