European stock markets are expected to open lower on Friday but remain on course to end the week higher, with the CAC and DAX now very close to moving into positive territory for the year for the first time.
While there’s clearly some negativity coming from the U.S. and Asian sessions overnight, driven primarily by some disappointing earnings from the former, I think there’s probably also some profit taking going on, given the levels we’re now back at.
European stocks have been much slower to recover than their U.S. counterparts – Dow and S&P are instead closing in on record highs – which hasn’t been helped by the slowdown in China and other emerging markets which are major export partners. A stronger euro hasn’t helped matters either although ECB President Mario Draghi once again passed up the opportunity yesterday to intervene here with his old trick of talking down the currency, which suggests that while the central bank won’t be delighted with the current levels, they are comfortable with them.
Oil markets are trading higher again on Friday, up more than 1% after seeing some profit taking on Thursday. Brent and WTI are both trading at important technical resistance levels, around $46-46.50 and $42-43.20, respectively. If they manage to break through here it could be quite a bullish signal. The dollar is currently trading marginally higher on the day which may weigh on oil’s ability to really push on from here.
The yen has seen some weakness this morning spurred by reports that the Bank of Japan is considering applying negative rates to its lending program for financial institutions, which could come alongside a cut to interest rates. The move which would effectively mean the central bank is paying financial institutions to borrow cash would be intended to encourage lending, although this is never guaranteed. It was enough though to send USDJPY through 1.10 for the first time since 6 April and further take some of the air out of the yen’s rise.
Focus this morning will be on the flash manufacturing and services PMI data from the eurozone, Germany and France, which will be followed this afternoon by the manufacturing reading from the U.S. The eurogroup is also meeting today, with Greece unsurprisingly being top of the agenda as finance ministers attempt to wrap up the first review of its latest bailout program, never a straightforward affair.
For a look at all of today’s economic events, check out our economic calendar.