After yesterday's strong sale-off in US equities, today stock indices have adjusted somewaht and are trying to bounce off from yearly lows. It is quite possible that today we will see an attempt of the American market to rebound from the annual minimums on the oversold technical conditions, however, we can’t expect a full recovery ahead of tomorrow's Fed meeting.
Of course, yesterday's drop in the US stock market to a minimum in the last 14 months could not but affect other markets in the world. Monday sale set the tone for trading in the rest of the world. Earlier today MSCI Asia Pacific index fell by 0.9 percent, while the Japanese Topix index closed 2 percent lower, reaching an 18-month low ahead of the Bank of Japan meeting this week. European markets were under strong pressure throughout the European trading session, but shortly before the arrival of American traders, the indices bottomed and and proceeded to recovery. Today in Europe another bunch of statistical information was published, and once again it was weaker than market expectations. The data confirms that economic expectations in the Eurozone are beginning to deteriorate somewaht, as leading indicators are moving to a gradual decline and slowdown are gaining momentum. Data on the business climate index in Germany fell from 102.0 points to 101.0 points. The index for assessing the current situation dropped from 105.4 points to 104.7, and the economic expectations index dropped from 98.7 to 97.3 points.
In Europe, the market focus remains on the political situation, as well as the problem of budgeting for 2019 in several EU countries. After the recent events in France, risks have arrisen of involving France into a crisis situation around the state budget and its approval by Brussels. France, which plans to set the deficit level at 3.4%, will meet with Brussels disapproval (given the fact that Rome had problems approving a deficit of 2.4%, but still there might be exceptions for France), and we believe that this will be extremely difficult to agree on what could be another reason for a political crisis in the EU. On this background, despite the positive trading session for the European currency, when the quotes gained by more than 0.20%, the euro slowed down to the level of 1.1400, after which the market pulled back and sank to the first support area of 1.1370.
Today, the focus of the markets is back to US economic data as a small block of American economic statistics mome out. Traders will analyze data on the US labor market. The figures are above expectations for both positions (building permits 1228K, housing starts 1256K). Unexpectedly, the data provided strong support for the US dollar. The dollar index rose to 96.40. However, of course, the main attention has already been directed to the meetings of the American regulator, which begins today, and the results will be announced tomorrow.
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