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EU Market Outlook - Uncertainty Builds Creating Opportunity

Last updated 9/20/2012 1:52 AM EST (GMT -5) 0 Comments - Add your comment

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Andrew Taylor

Market Strategist, GFT

Follow @ATaylor_GFT

Top Headlines

o    China Mf PMIs level but markets not impressed

o    Spain Bond Auction – out for clues on Bailout request

o    GE, FR, EC PMIs, UK Retail Sales, GE PPIs

Market Moves

o    Yen rally sees most counter ccy majors test decent supports

o    AU/Asia equities lower on China data, Nikkei and Shanghai Comp suffer most

o    Gold, Silver, Copper and our old mate Oil push lower in unison

The US session fared well for the majority of its day only to give up its gains going into the close. This reoccurring theme shows the lack of confidence from traders to hold positions overnight. The Asian equities followed on from the uncertain tone preferring to trade cautiously ahead of the scheduled Chinese manufacturing data that proved to be a sensible play with the figures showing that their manufacturing sector really does face some challenges near term which is worrying the markets.   

The sell across the board on risk markets into safe havens (equities, commodity and any currency associated with the risk tag testing lower) shows you how reliant other economies have become on China turning the corner to drive global growth. The recent ECB, Fed and BoJ actions show that those Central Banks are out of options and have resorted to flushing their systems with cash to buy time and await a global growth recovery (that is China), with so much riding on the Chinas progress, it is no wonder that floundering economies are calling for larger scale stimulus measures from China. The calls will be falling on deaf ears as the Chinese authorities have clearly displayed their conviction to managing its own affairs via a very measured and purposeful approach.

Commodities also felt the pain from the Chinese data with oil finally joining the gang again or perhaps it was a case of the others rejoining oil after their excursion north thanks to the Fed creating fictitious demand. Either way, the cooling of the oil price was a classic case of demand destruction through supplies accompanied by verbal intervention by the Saudis making sure that the pressure remained. We may start to see some buying interest at these levels waiting for the next shift in sentiment.

Copper carries a fair amount of interest as it is seen as the link to growth and lately has proven to be quite resilient. Copper is actually the main recipient of Chinese infrastructure stimulus sitting at approx 40% which surprises many who think that Steel products are the main beneficiary which really only accounts for 10%. So when looking for an indicator into the state of growth for China then Copper may be one that you have listed on your watch list.

Outlook

Today’s European session is likely to endorse the same theme with markets needing to focus on Manufacturing data in the Euro zone and Retail sales for the UK. None of the prints are expected to be pretty and whilst the lull of QE3 is out of the spotlight we can expect markets to be weighed. Keep an eye on Spain’s bond auction today – could provide some insight to whether Spain s requirement for a bailout is delayed further.

Trade Idea

If you following on twitter (and the Singapore Trading Room) an opportunity presented on the break of AUD/USD below 1.0400.

Once set around 1.0395-ish the first target for half the position is 1.00380 (stop to entry) and the rest aiming for 1.0330

For more intraday analysis and trade ideas, follow me on twitter @ATaylor_GFT

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About The Author

Andrew Taylor's financial markets career started in 1991 in the interbank FX market,where he worked for one of the largest banks in Australia. Andrew then went on to trade on behalf of some of the biggest global banks, working across five of the world's major financial hubs: Sydney, New York, Singapore, Auckland, and Tokyo.

His more than 20 years of experience spans market borders and asset classes, covering global equities, commodities, options and futures. Andrew's wealth of trading experience and ability to communicate with traders of all levels has put him in demand as a first point of contact for clients and the media alike when seeking information and guidance.