Europe set for lower open, despite improvement in China data

The European single market is one of the EUs greatest achievements. It has fuelled economic growth and made the everyday life of European businesses and consumers easier. Recently, the markets saw another record-breaking week last week, with the Stoxx600 closing higher for the sixth week in succession, suitable to its best run of gains this year.

At the same week that also observed new record highs for the DAX and CAC40, US markets finished the week lower, albeit well off their lows, amidst concern that rapidly rising inflation could compress the potential for future positive company gains.

Regardless of the record numbers of vacancies in the US jobs market, the recent Michigan Consumer confidence numbers for November showed sentiment falling to its lowest levels in 10 years. Also it's been pointed out that consumers have become even more worse than they were in April last year in the rise of the first Covid-19 lockdown, however this probably isnt as surprising as it might be given the huge amounts of fiscal support available during the first quarter of 2020. Considering the most, if not all, fiscal support now not available it's perhaps not surprising that US consumers are slightly more pessimistic, along with the fact that one year inflation expectations rose to 4.9%, levels as it was seen in 2008.

If we look towards another week the inflation spirit has so far been the bell that hasn‘t been clicked, yet still the volume over the apparent lack of urgency to rising inflation risks from central banks has been getting louder in the past few weeks. While for those who are saying that central banks can’t do much about supply chain disruptions and shortages of products and as such should look through the sharp rises in prices, are undoubtedly correct in some part, that view entirely misses the very vital point that monetary policy could well be exacerbating some of this upward pressure in prices.

But note that, in As such there is for central banks to move monetary policy off their current emergency settings without it causing too much disruption. But presently, the two sides of the argument appear to be split between benign neglect, and a sharp tightening of policy to head off inflation risk when it comes to policy settings. There is a middle ground and central bankers need to get off their collective backsides and take it.

For This week we‘ll be getting the latest October CPI numbers from France and the UK, as well as German PPI, following on from last week’s US CPI numbers, which hit a 31 year high of 6.2%. Also As we look ahead to this week, Asia markets have started the week rather mixed despite the latest Chinese retail sales numbers for October improving from 4.4% in September to 4.9%. This was a little surprising given the lacklustre import numbers in last weeks trade numbers, which showed that domestic demand was still on the weak side, however at least it shows that some optimism may be starting to return.

Industrial production also remained subdued, even as it improved modestly from 3.1%, to 3.5%, even with a lot of Chinese industry struggling to keep going due to currently elevated energy prices.

As a result of a partially

subdued Asia session, European markets look set to open in a similarly lacklustre fashion, and slightly lower from Fridays close.

EUR/USD – continues to slip towards the 1.1400 area, with the potential to fall towards the 1.1170 area. the 1.1500 area. We have the potential for a move towards 1.1170, and June 2020 lows. To stabilise we need to recover back above the 1.1530 to retarget the 1.1620 area.

GBP/USD – found a modicum of support at 1.3350, however we need to push back above the 1.3430 level to stabilise and delay the prospect of further losses towards 1.3160.

EUR/GBP – while below the 200-day MA and the 0.8580 area the bias remains for a return to the 0.8470 area on a break below the 0.8520 area.

USD/JPY – decent resistance at the previous highs at 114.75, as well the highs last week at 114.30. While below the 114.20 area the risk is for a move back below 113.70 towards 113.20.