Domestic demand boosts UK manufacturing

Looking ahead, this week's data may set the tone for the coming month, while Chinese manufacturing PMI points to continued struggles.

London city skyline
Source: Bloomberg

European markets are selling off heavily this morning, with the FTSE in particular giving back some of those substantial gains seen from Friday’s Bank of Japan fuelled rally. The question on everyone’s mind this week is whether the gains seen over the past two weeks are the start of a wider recovery, or simply a precursor to another leg lower in global markets. Today marks the beginning of a week with huge significance in terms of economic releases. It seems likely the market direction for the rest of the month will be hugely influenced by the market reaction to a handful of key data points.

Today looks set to be dominated by the release of manufacturing PMI readings from a whole host of prominent economies. The release of yet another disappointing Chinese manufacturing PMI reading should have come as no surprise to many, with five of the last six sub-50 readings (denoting contraction) coming below market estimates. From an industrial perspective, there are precious few indicators that point to a recovery within China and this continues to spell bad news for the global economy which has been hugely reliant upon Chinese demand to help compensate for weak western demand post-2007.

UK manufacturing started off 2016 on the right foot, with today’s PMI reading pointing to an acceleration in the speed of expansion in the sector. Domestic demand remains the mainstay of UK manufacturing, as highlighted today, which saw export orders flounder in the face of an overall industry in ascent. The strength of sterling relative to the euro remains a big issue and with expectations of further action at the European Central Bank in March, this theme is only likely to intensify.

Ahead of the open, we expect the Dow Jones to start 85 points lower, at 16,381.

FTSE 100 risers and fallers (as of 10.25am)
 

Company % change Index points
BT Group +2.52 +3.95
Pearson +1.77 +0.44
Fresnillo +1.73 +0.08
Anglo American +1.35 +0.18
Sky +1.11 +0.48

 

Company % change Index points
Prudential -3.36 -4.54
BP -1.78 -4.73
HSBC Holdings -1.7 -6.58
Aberdeen Asset Management -1.74 -0.16
Standard Chartered 1.61 -0.79

Key charts to watch

​FTSE 100
The FTSE 100 has given some of last week’s gains, but the market is still in the uptrend that has been in place since 20 January. If it holds above the support at 6027, a retest of 6128 is possible, and an hourly close above that level would be a bullish signal, and 6169 is the next major resistance level in sight.  An hourly close below 6027 would be a bearish indicator, and the next big support levels are 5970 (trendline support) and 5952. 

FTSE 100 chart

GBP/USD
GBP/USD has had a positive start to February, but traders are wondering how long will it run given the big decline in January. Support is coming into play at $1.4230, and rallies will run into resistance at $1.4413. An hourly close below $1.4230 would be a bearish indicator, and support at $1.4173 will be the next big support level on the horizon. 

GBP/USD chart

Brent oil
Brent is quickly making up for lost ground, and the resistance at $36.10 will be a stumbling block. An hourly close above $36.10 would be a bullish sign and $36.74 is the next major resistance level in sight. Support is being provided at $35.05. Should we see an hourly close below this mark, additional losses can be anticipated, and $34.24 will be the next support level to watch. 

Brent crude chart

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