Fundamental Analysis

Europe Lower Ahead Of PMIs And As Brexit Talks Stall Again

  • AUD Lifted By Retail Sales Data and RBA Statement;
  • China Gets PMI Releases Off to a Positive Start;
  • Irish Border Issues Preventing Progress in Brexit Negotiations;
  • Tax Reform Remains Key For US Investors.

European equity markets are expected to open a little lower on Tuesday following a softer session in Asia, which came as US equity markets took a negative turn after posting fresh record highs at the open.

AUD Lifted By Retail Sales Data and RBA Statement

There was plenty of movement in the Australian dollar overnight as stronger retail sales data for October followed by a slightly more hawkish tone from the Reserve Bank of Australia lifted the currency around 0.7% against the greenback. The growth in consumer spending is the highest we’ve seen since May and comfortably exceeded expectations, while the September reading was also revised higher.

While the data was largely responsible for the Aussie move overnight, the RBAs reference to a tighter labour market did appear to push the currency a little further. That said, while we are seeing progress, the probability of a rate hike any time soon appears slim and the post announcement move was probably largely aided by the momentum gathered in the aftermath of the retail sales release. The RBA left rates unchanged at today’s meeting.

China Gets PMI Releases Off to a Positive Start

The Caixin services PMI rose more than expected overnight, which follows a similar bounce in the official reading last week. As has been expected, we are seeing a dip in the surveys in the latter part of the year and yet they are showing some resilience despite the fact that stimulus efforts have been reined in. Improvements in the global economic environment will be going some way to filling this gap and should continue to aid the transition in China for the foreseeable future.

There’s plenty more services PMI surveys being released across Europe this morning, although many of these will be revised readings and may therefore have little impact. The UK reading is expected to ease off a little from October but remain elevated at 55.

Irish Border Issues Preventing Progress in Brexit Negotiations

This comes as negotiations between the UK and the EU appear to finally be making some progress. The two sides still have a little further to go before they can proceed onto the next stage and discuss future trade but there appears to be a more optimistic feeling that this can be achieved before the deadline in just over a week. The pound has already rallied in anticipation of a deal on the financial settlement and citizens’ rights although as ever complications, this time around the Irish border, are preventing these being wrapped up just yet.

Tax Reform Remains Key For US Investors

The passage of tax reform through Congress will likely be the key focus for US investors between now and year-end, with a rate hike this month almost entirely priced in. While these discussions take place though there is plenty of data to keep an eye on including of course this Friday’s jobs report. Today it’s the ISM non-manufacturing PMI that will steal the focus, as well as the services PMI reading, both for November.

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