With European markets closed yesterday, US markets finished the first day of the month broadly unchanged, with the Nasdaq 100 posting its best monthly close in 12 months, while the S&P500 closed within touching distance of its highs this year.
April saw a similarly positive performance from European markets with record highs for the CAC 40, while the DAX closed at 15-month highs.
The FTSE100 has found the recovery from the March lows slightly more challenging, but it still managed to reverse almost all of its March losses.
With JPMorgan Chase stepping in to lance the boil of First Republic Bank over the weekend, recent regional bank results from last week are raising confidence that this bout of banking uncertainty could well be in the rear-view mirror.
If so, and it is a view held by JPMorgan Chase CEO Jamie Dimon, this would be extremely welcome to jittery markets at a time when yields are rising again and recent economic data suggests that central banks may well have to continue to raise rates.
This inevitably shifts the attention of the market to the Federal Reserve rate meeting which concludes tomorrow, and where we could see another 25bps rate hike, although there is a chance, we might see a pause, followed by the European Central Bank on Thursday.
Yesterday’s manufacturing ISM numbers from the US showed that economic activity in this sector remained in contraction for the 9th month in a row, but that prices paid were on the rise again.
This has been a theme in recent manufacturing PMI numbers in Europe as well, with economic activity in contraction, although input prices have been slowing.
Today’s manufacturing PMIs aren’t expected to add to the sum of knowledge as to what the ECB might do later this week given that we are expecting to see Spain, Italy, France, and Germany PMIs all contract to the tune of 49.9, 49.5, 45.5 and 44 respectively.
The number that will determine what happens on Thursday is the April EU flash CPI numbers which are set to be the swing factor as to whether we get a 25bps move, or a 50bps move by the ECB when it meets this week.
We’ve had a raft of ECB officials say there remains a long way to go before the central bank would even start to consider a pause in its rate hiking cycle.
A strong core CPI print today could prompt a continued aggressive approach, with expectations that we could stay at a record high of 5.7%.
Headline CPI is expected to tick higher from 6.9% to 7%, however, there are mutterings from some that the ECB could be overplaying its hand given what is already happening with PPI, which has seen sharp falls from highs of 43.3% back in August last year, and are now down at 13.2% on an annual basis, and could fall back to 5.9% later this week. It’ s also important to note the month-on-month readings are now starting to come in negative.
After finishing the month of April strongly, European markets look set to open the month of May slightly higher, after US markets finished a quiet session more or less unchanged.
In Asia markets the RBA surprised markets this morning by unexpectedly raising rates by 25bps to 3.85%, despite recent sharp falls in the headline rate of inflation. The Australian central bank has come under heavy criticism in the past few weeks for its failure to spot that inflation had run ahead of expectations, and today’s unexpected pivot could be as a result of that.
The tone of the statement was also more hawkish, saying that more tightening could be required if inflation continues to remain above target, with the central bank saying that services inflation was worryingly sticky.
EUR/USD – has spent the last few days range trading between 1.0940 and the 1.1080 area, with a break above 1.1120 needed to signal further gains. Below 1.0940 retargets the 1.0870 level.
GBP/USD – having hit an 11-month high last week at 1.2584 the pound has slipped back. Still in t a broad uptrend with support at the 1.2340 area, which needs to hold to keep the bias for a move towards 1.2630 intact, or risk a move towards 1.2270.
EUR/GBP – last week’s triple failure at the 0.8875 area, has seen the euro slide back, finding support at the 0.8760 area, with the potential for further declines towards the 200-day SMA at 0.8730. A break above the 0.8870 area suggests a retest the March peaks of 0.8925.
USD/JPY – the break above the 135.20 area has seen the US dollar rally strongly, through the 200-day SMA with the next resistance at 138.00. We could extend to the 139.60 area which is a 50% retracement of the 151.95/127.22 down move.