Financial market research and analysis

The UK manufacturing PMI surprised on the upside and printed a solid 56.9 in August versus 55.0 expected by analysts and 55.1 printed a month earlier.

The GBPUSD advanced to 1.2947, yet the knee-jerk positive reaction remained short-lived. Tough Brexit discussion between the European and British officials continue weighing on the sentiment across the pound markets. Offers against the US dollar are eyed at 1.2980 (50-day moving average) and 1.3020 (50% level on August decline).

The FTSE 100 stocks started the session slightly upbeat. Energy stocks feel the pressure as oil markets failed to follow up on Thursday’s gains.

The WTI crude rallied to 100-day moving average ($47.50 at the time of writing) on Thursday, on the back of news that the US government would supply 1 million barrels from the Strategic Petroleum Reserve. Yet, the refinery shutdowns caused by Hurricane Harvey could limit the positive attempts in oil prices.

Some traders may want to take a chance on a positive correction due to the widening spread with the Brent crude. There are talks that the pipelines could start lines over the weekend. Yet, this is a risky bet given that the uncertainties persist.

Gasoline futures had an aggressive downside correction on Thursday, the futures price tanked by 17% below $2 a gallon in a single move. The slide continues.


Micro Focus dives after HPE deal

Micro Focus (-7.0%) shares dived to lowest levels since July after the completion of its merger with HPE software business. The deal finalized a year after the merger announcement and created the UK’s largest tech company by capitalization and the world’s biggest pure-play software. The operating margin is expected to double as a result of this merger. However, investors seem disquiet on challenges for the integration of the two companies’ operations, which would involve a deep restructuring program, including significant job costs. Officials are in discussion with the unions, but the plans may not go as smoothly as shareholders would’ve wished.


Euro facing mood swings before September 7 ECB meeting

The euro traders could have mood swings before next week’s European Central Bank (ECB) meeting, provided that the strong euro revived discussions about an eventual reluctance from the ECB to exit the Quantitative Easing (QE) program at the desired speed. Strong euro may move the ECB away from its 2% inflation target.

The August inflation estimate surprised by advancing to 1.5% year-on-year from 1.3% printed a month earlier, versus 1.4% expected by analysts. However, the core inflation remained unchanged at 1.2% year-on-year, confirming that the rebound in prices was mostly driven by highly volatile energy prices and could not be trusted in the context of an important policy decision.

The Eurozone's August final manufacturing PMI data came in line with expectations and triggered little market reaction. Dip-buyers are seen into 1.1800, call options trail above this level at today’s expiry.

The DAX (+0.42%) and the CAC (+0.70%) are better bid on softening euro, however the positive euro risks prevail.


US jobs data will not include Hurricane Harvey impacts

The US jobs data is the major macro event of this Friday. The US dollar is firm before the nonfarm payrolls (NFP) data, as Wednesday’s ADP report hinted at the possibility of a positive surprise today. The consensus is 180’000, which corresponds to the 12-month average and Hurricane Harvey's impact will not be reflected in this data. A read above 200’000 could revive the USD bulls, without however improving the Federal Reserve (Fed) rate hike expectations significantly. The probability of a December rate hike stands at a timid 33.8%.

The US stocks performed well on Thursday: the Dow Jones (+0.25%), the S&P500 (+0.57%) and NASDAQ (+0.95%) gained on encouraging income and spending report in July. Technology stocks closed at record highs. Today’s earnings data will be closely monitored. A strong read could reinforce appetite in the US stocks, as low inflation would improve the US households’ purchasing power and the low rate environment may allow businesses to continue borrowing at relatively interesting costs.

The Dow is called 42 points firmer at $21’990 in the US market open.


Gold consolidates gains

Gold rebounded from $1’298 (minor 23.6% retrace on July – August rise) on Thursday. The USD appreciation didn’t translate into comparable improvement in the US yields. Low opportunity cost of holding gold remains interesting for investors. Though, a further rise in the USD appetite could limit the gold demand pre-$1’325 (August peak).


Bad news revived BoJ doves

Asian stocks traded on a positive note. China’s manufacturing PMI showed expansion in activity for the third consecutive month.

Nikkei (+0.23%) and Topix (+0.13%) gained timidly, as the 2Q capital spending in Japan fell unexpectedly to 1.5% year-on-year, from 4.5% printed a quarter earlier. The expectation was a solid 7.9% expansion. The company profits retreated to 22.6% in the second quarter from 26.6% previously. In addition, the manufacturing PMI hinted at slight slowdown in August.

The chunk of discouraging economic data revived the Bank of Japan (BoJ) doves. A solid NFP read could give a hand to the JPY-bears. As a result, the USDJPY could challenge the critical 110.65 resistance to July – August decline (major 38.2% retrace on July – August decline), which could be an inflection point and suggest a short-term bullish reversal in USDJPY if surpassed.


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