Markets are seeing risk aversion and an increasingly weaker dollar as traders assess the impact of weaker than expected US payrolls on Friday and surprisingly weaker Chinese economic data. Friday’s US jobs report was lukewarm at best, but with drab jobs growth, a touch disappointing wage growth and fewer hours worked, it nudges the debate on about whether the US economic recovery is running out of steam. The trade dispute also came into context as China’s trade data showed a stark slowdown of growth, with exports only growing by +5.4% (+10% expected) and imports just +3% (+14.5% exp). This shows that the frontloading effects of the trade dispute are now dissipating. Furthermore, Chinese CPI inflation also was lower than expected at +2.2% (+2.4% exp). It all paints a picture that the dispute is beginning to bite in China with negative implications on its trade partners and global supply lines. The dollar is under pressure across the majors this morning and risk appetite is suffering. This is especially being felt across the equities space which is reeling from elevated volatility and selling pressure.
Wall Street closed sharply lower on Friday with the S&P 500 -2.3% at 2633, with futures further lower today by -0.5%. In Asian markets the pressure was felt, with the Nikkei -2.1% whilst the Shanghai Composite was -0.8%> European markets are similarly feeling the brunt, with FTSE 100 futures around -0.6% lower and DAX futures around -1.1% lower. In forex, it is a weaker dollar across the board today but interesting to see the euro performing well on news of potential positive traction in the stand-off between Italy and the EU. In commodities there is a consolidation on gold, whilst oil traders are also taking stock after the agreement to cut production at the meeting between OPEC and Russia on Friday.
It is a fairly quiet start to the week, with initial focus on UK monthly GDP at 0930GMT which is expected to show growth of +0.1% in October. UK Industrial Production at 0930GMT is expected to grow by +0.1% in October, but actually turn the yearly data negative at -0.2% (September 0.0%) which would be the lowest since April 2017. US JOLTS jobs openings are at 1500GMT which unexpectedly jumped to 7.01m last month.
Chart of the Day –USD/CHF
The rally rolled over at 1.0128 a few weeks ago and the market has begun to retrace via a bout of Swissy outperformance. It is interesting to see that the market has spent much of that time oscillating between key Fib levels, with the 38.2% Fib retracement of 0.9540/1.0128 at 0.903 and the 23.6% Fib at 0.9989. It seems that there is a ceiling at parity now but the momentum indicators are negatively configured and looking at the MACD lines dropping below neutral and the Stochastics turning lower again, there is a deterioration. However, the Swissy strengthened on Friday to pull USD/CHF to its lowest close since mid-October on Friday and is now looking to make a decisive move lower today amidst increasingly risk averse markets. A close below the 38.2% Fib level would be a two month low and open 0.9834 at 50% Fib. The momentum indicators are confirming the breakdown, with the MACD lines tracking below neutral, the RSI falling below 40 for eleven month lows. This now means that the market is increasingly becoming a sell into strength. There is resistance around the 38.2% Fib initially now at 0.9903, with the hourly chart showing resistance 0.9890/0.9915.