Saturday, April 20

IMF lowers growth forecast for Europe

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Fundamental outlook

THE International Monetary Fund (IMF) lowered its growth outlook on Europe due to the heightened uncertainties surrounding the markets in the region. The US midterm election proved to be a challenge for President Donald Trump as the Democrats regained power in the House of Representatives. The American economy retained its inflation pace. UK’s growth stagnated as its GDP came within expectations.

The US ISM services index rose 60.3 in October. The jobless claims were at 214,000 for the week ended November 3.

America producer prices rose 0.6 per cent in October while core prices climbed 0.5 per cent. Both reports were above forecast.

After the US midterm election, the outcome has split the power of Congress with Democrats regaining the majority power in the House of Representatives while Senators seats were still controlled by the Republicans. Market analysts reckoned that President Trump will face more challenge in implementing new policies for the remaining term as the voting majority will be leaning on the Democrats.

China’s trade surplus expanded US$34 billion in October, higher than previous month, maintaining strong growth in import/export trades.

China producer prices rose 3.3 per cent in October from a year ago, slower than 3.6 per cent annualised gains during the previous month. Consumer prices expanded 2.5 per cent from a year ago, matching forecast.

Japan’s bank lending to consumers and businesses grew 2.2 per cent in October from a year ago. Core machinery order fell 18.3 per cent in September on a monthly comparison. The current account surplus grew 1.33 trillion yen in September, a sixth consecutive month of decline.

IMF downgraded its growth outlook for the European economy in 2018 and 2019 due to external turbulences affecting the region’s markets such as the US-China trade war and uncertainties in the Brexit deal.

Markit reported that the UK services index grew 52.2 in October, the slowest in seven months. Preliminary GDP rose 0.6 per cent in 3Q. Manufacturing production gained 0.2 per cent in October, the highest record in three months.

Technical forecast

US dollar/Japanese yen rose higher last week as the dollar continued to strenghten. This week, there is a possibility that it could test the recent top at 113.50 before winding down. Support is temporarily seen at 113.30 area and narrow trade is expected to occur for a while due to the stagnating dollar.

Euro/US dollar reversed down mid-week from 1.150. Support seems to be resilient at 1.13 with a potential for a triple bottom formation. This week, we reckoned a tough market trend will prevail as it may break lower than the aforementioned support. Consolidation is capped below 1.15.

British pound/US dollar has been suppressed three times on the day-chart, below the EMA200 line. This week, we forecast the trend will be contained from 1.2950 to 1.3130. We foresee the market will progress into a bear trend on a long-term after the end of this temporary sideways pattern.

Dar Wong is a professional in the financial industry based in Singapore with 29 years of global trading experiences. The expression is solely his own. You may reach him at [email protected]