Major European stock indexes traded mixed in the morning with the Euro Stoxx 50 and the French CAC 40 touching the bottoms of their Thursday's price ranges. Then stocks quickly rebounded and even climbed into positive territory past noon but just to lose the gains one more time and to wait for new drivers during American trading time. The single European currency repeated the similar somersault but in a modified manner, and its trick is half finished for now, as EUR/USD clocked to touch the intraday ceiling near 1.1880 during the Asian session and then slipped below the 1.18 area with intention probably to test the next 1.1750-1.1770 technical support zone. Such a behaviour looks as if it is quite a predictable hang-over after the pair had a real blast at near 1.20 party before the middle of the week.
Today's morning retracement on EUR/USD and generally on the foreign exchange market and higher volatility on European stocks also represents the natural reaction to the fresh and critical but rather contradictory business activity data. The German manufacturing sector proved its very strong resilience in August, with IHS Markit's Purchasing Managers Index (PMI) estimate rising to 53.0 points, the highest level since October 2018. However, the German services PMI was only at 50.8 in August vs 55.6 for July, and with a composite reading at 53.7. This was still above the 50 mark that formally separates the growth indication from economy contraction signs, which is not the case for the French manufacturing PMI reading at 49.0 points for August after 52.4 points in July.
Overall, the manufacturing activity in August for the Eurozone was at a half-and-half 51.7 level after almost the same 51.8 reading in July and vs 52.7 average expectations by the Bloomberg expert poll. The Eurozone service PMI showed a near the wind level of 50.1 points after a much more positive indication of 54.7 points in July. The released statistics taken together with the U.S. data on Thursday may increase the chances of a more lasting technical correction in the currency market and it may be more reasonable to continue a flat formation on the charts of European indices for a while. The continuing jobless claims in the U.S. declined to 14,844 million after 15,480 million a week ago, but the initial claims rose to 1,106 million vs the revised 971,000 number last week, as most of the market analysts expected the new jobless claims around 925,000.
Philadelphia Fed Manufacturing Index at 17.0 points also disappointed the markets yesterday after 24.1 points in July and 27.6 points in June. The data is compiled from a survey of about 250 manufacturers in the Philadelphia Federal Reserve district, and any level above zero on the index indicates improving conditions, but the pace of the improvement also matters. Philadelphia Fed New Orders at 19.0 vs 23.0 in July, Philadelphia Fed Employment index at 9.0 vs 20.1 and Philadelphia Fed Capital Expense (CAPEX) Index at 23.0 vs 26.6 a month ago also turned out to be worse than expected, and only the Philadelphia Fed Business Conditions indicator was better at 38.8 points after 36.6 in July.
All this worse-than-expected data generated an additional wave of safe-haven purchases of the U.S. Treasury bonds, which helped to strengthen the U.S. Dollar to some extent. The current sentiment may also hold back the further growth of U.S. stock indexes and precious metals for now, despite the fact that Apple, Amazon, Google and some other high-tech stocks put on the "yellow jersey" again and rushed up, far ahead of the main "peloton" of the shares from the S&P500 broad market list.
It is remarkable that the British Pound performed better than the Euro, as GBP/USD rose from below 1.31 to above 1.3250 levels yesterday in American hours and today in Asia, mainly on expectations of better statistical date on Friday morning. U.K. retail sales surged in July to pass their pre-COVID peak by 3.6% from June, above all forecasts in a Reuters poll, and were even 1.4% higher than in July 2019. That showed a sharp recovery from double-digit negative figures in pandemic spring. And the U.K. services PMI at 60.1 points after 66.5 a month ago gave the markets a new seven-year high for the indicator, as the manufacturing PMI was also at a very good 55.3 level, with a composite PMI at 60.3 points.
So, the data lived up to the expectations invested in Sterling. Then the well-known principle "buy expectations, sell facts" worked out, and GBP/USD dropped back to below the 1.31 area on profit-taking. "This uptick in retail consumption may help ease concerns over the fragility of the U.K. economy - but not for long," Alistair McQueen, head of savings and retirement at Aviva just commented. He also remarked that there have been contrasting experiences for different types of retailers. Supermarkets and other food shops have benefited as British people eat at home more, and online sales have boomed, household goods stores have seen strong demand, but other areas have suffered, with clothing and footwear sales still 25% down on a year ago.
Statistics for the manufacturing and services PMI from the United Stated is also expected later today, as well as U.S. Home Sales and EU consumer confidence data. This information may add some fuel to the already existing informative overloading today to raise before-the-weekend volatility even more than usually.
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