Reaction to Chinese trade and inflation will be crucial to sentiment

The Non-farm Payrolls report last Friday has done little to clear up whether the Federal Reserve will be raising interest rates next week. The mixed report did though contain a key improvement in average hourly earnings which could finally suggest that the slack in the economy is beginning to shrink to an extent that will begin to impact on inflation (the second part of the Fed’s dual mandate). However, this week the big focus turns back on China with two key economic releases that could drive further market volatility. Last month, the surprise fall in China’s export levels struck fear into traders around the world, cause huge volatility and selling pressure. This volatility is yet to properly settle down and could ramp up once again if trade and inflation data again comes in with a negative surprise this week.

How are the forex markets set up this week as traders react to these huge issues? What are they key drivers this week? There is also key focus on two key charts with a technical appraisal of Euro/Dollar and Sterling/Dollar. With the euro, there is a key medium term pivot level which is once more being tested. Will it be broken? As for Cable, there is a key support which is under pressure now. What are the chances of a strong trend finally developing.

We take a look at how the equity markets are reacting to recent developments in China and the Non-farm Payrolls report. The key focus on equity markets this week are on the DAX Xetra and FTSE 100, both of which have been dragged around by shifts in market volatility and are still yet to fully settle down following recent market turmoil.

Finally we look into developments on the commodities and bond markets, both of which are key barometers of market sentiment. The reaction to the Chinese data will certainly be played out in full on commodities such as oil and also the precious metals. Furthermore, Treasury yields continue to paint a story on Fed rate hike expectations.

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