Equity markets in Europe enjoyed a decent end to a choppy week, however the Friday rebound wasn’t enough to prevent a negative week for both the DAX and the CAC40.
The FTSE100 on the other hand enjoyed its fifth successive weekly advance, posting its best daily close since 11th February and best weekly close in over two years, since January 2020.
US markets had an altogether more negative week, with the Nasdaq 100 weighing on the wider market against a backdrop of a rising US dollar and yields which have continued to move higher. Last week’s unexpectedly aggressive pivot by several Fed officials, who are normally considered to be of a more dovish persuasion, Fed Governor Lael Brainard being a case in point, has seen US 10-year, 5-year and 2-year yields hit their highest levels in over three years.
The US dollar has also taken a run to the upside, with the US dollar index moving above the 100 level for the first time since May 2020, while the pound slipped below the 1.3000 level, for the first time since November 2020, despite the fact that the Bank of England is in a hiking cycle of its own.
The euro also slid back, though we did see a brief recovery in Asia trading after the first round of voting in the French election showed that Emmanuel Macron held a better-than-expected lead against Marine Le Pen heading into the second round run off in a couple of weeks’ time.
While Macron’s lead is encouraging, recent history has taught us that nothing is certain until the final vote is counted, and in the case of the French President, Macron’s arrogance may count against him in the second round if he thinks he has the election in the bag.
The weekend voting appears to show Macron ahead with 28% of the vote, against Le Pen with 23%, with Melenchon and Zemmour trailing in behind, which now makes it a straight choice between the status quo, and the unknown quantity, which is Le Pen, with the opinion polls showing Macron with a 54-46 lead in the second round.
While that might seem a slam-dunk, there is still a good chance that those who voted for Melenchon and Zemmour could well swing in behind Le Pen, such is their dislike for Macron, and the memories of the Gilet Jaunes protests, although a large percentage could well decide to not vote at all.
When all is said and done, in the final analysis it will come down to who French voters dislike the least, which seems to be par for the course in politics all over these days.
Nonetheless, as we look ahead to today’s European open, markets in Europe look set to open lower, with no sign of a lift for the CAC40 in the wake of the first weekend of French polling.
Today’s economic data has a UK centric bias with the latest UK GDP numbers for February as well as the latest manufacturing and industrial production data for February, which is expected to show the economy slowed, after a strong January performance.
UK GDP is expected to show the economy grew by 0.2%, down from 0.8% in January, while on a rolling 3-month basis we are expected to slow to 0.9% from 1.1%, with index of services expected to account for the modest slowing, from 0.8% to 0.2%. Industrial production and manufacturing production is also expected to slow to 0.3%.
In Asia, markets have got off to a poor start and this is expected to similarly weigh on today’s European open ahead of another key week for inflation data, with UK, German and US CPI for March due tomorrow.
EUR/USD – found support just above the trend line support from the 2017 lows, at 1.0830/40 last week, and has rebounded in Asia trading this morning. A break below the March lows signals the potential for a move towards the 2020 lows at 1.0635. Resistance remains back at the 50-day MA, as well as this month’s high at 1.1185.
GBP/USD – rebounded off the 1.2980 level last week, as some stops below 1.3000 got triggered. A break below 1.2980 argues for a move towards 1.2800. We need to get back above the 1.3180 area to stabilise.
EUR/GBP – rebounded from the 0.8300 area, but still remains range bound. Resistance now comes in at the 0.8420 area, and behind that at 0.8510.
USD/JPY – still looks well supported despite last week drifting back from last week’s high at 124.68. We still have solid barriers at last month’s peaks at 125.10, and the June 2015 highs at 125.85. Neckline support remains back at the 121.30/40 area. A break below 121.20 argues for a steeper move lower towards 118.00.