It’s been an unremarkable week for global equity markets, despite an ECB rate meeting, an EU summit and Fed minutes, there hasn’t really been a significant catalyst to help improve investor appetite for further risk after last week’s strong gains.
The global economic outlook continues to look a little on the soft side, even without this week’s IMF growth downgrades, and yesterday saw US markets slip back ahead of the start of what is expected to be an earnings season, where expectations are set pretty low.
Asia markets aren’t trading particularly strongly one way or the other ahead of this morning’s China trade numbers for March.
In February China trade deteriorated quite sharply as exports declined 20% and imports by 5.7%, numbers which would have been skewed by the Lunar New Year holiday. Today’s March numbers may well show an improvement though this could merely be attributed to the February skew coming back the other way.
A rebound in the latest manufacturing PMI’s has raised expectations that the Chinese economy may well have hit bottom and has started to rebound. Exports in March are expected to see a rise of 7.7%, while imports are expected to rise 5.8%.
Reports of additional progress on a US, China trade deal don’t appear to have been enough to prompt much interest with most attention set to be on today’s Q1 numbers from US banks JP Morgan and Wells Fargo, both important bellwethers of the US economy.
Banks across the board have been finding it difficult to maximise returns in the current low rate environment. Trading in the first 3 months of this year has proved to be even more difficult, with inversion of the US yield curve prompting JP Morgan to review its staffing levels in news out last month. With the bank missing profit estimates in its last quarter for the first time in 15 quarters, and the recent announcement of job cuts in its asset and wealth management divisions, today could well see another disappointment.
Wells Fargo, on the other hand offers an insight into the US housing market, and here we’ve seen a significant amount of weakness in recent months. This could well be another disappointing quarter.
It was with a sense of relief that markets in Europe rallied modestly yesterday, after the EU extended the Brexit deadline to article 50 until the end of October, thus avoiding the potential for a “no deal” Brexit today, thus giving politicians further breathing space in order to try and have another go at getting a deal across the line.
One positive effect of moving the deadline into the autumn is that holidaymakers on both sides of the English Channel can now plan their summer holidays without fear of a Brexit dislocation in the next six months, as airline and travel stocks enjoyed a nice pop higher. It is also likely to unlock some pent-up consumer spending which is likely to have taken a dip in March.
The downside is that for other businesses in the UK the extension resolves nothing, meaning that any investment decisions are likely to be delayed further until we get a decision on whether to pass the existing deal, revoke article 50, or use the extra time made available to make further preparations for a no deal departure in October.
For the moment business is trapped in an investment limbo, all the while the UK economy is likely to flat line, as businesses keep their powder dry until the economic situation becomes clearer.
This also helps explain why the pound barely moved on the extension news. It also means that any prospect that the Bank of England might raise interest rates this year has pretty much gone, not that it was a high probability in any case.
One plus side from this week’s Brexit extension is that MPs are now on holiday until 23rd April which means that the news cycle will probably be a little less Brexit heavy, giving us all a little bit of a Brexit break. After all its not as if there’s anything else going on in the world!
EURUSD – struggling to move much beyond the 1.1300 area, but still has solid support at the 1.1180 area, with a break targeting the 1.1000 level. The main resistance level is still up near the 1.1340 area and 50-day MA. Upside likely to remain limited to the 200-day MA at 1.1460 if we move above the 50-day MA.
GBPUSD – still treading water above the 200-day MA and 1.2960 area which continues to act as solid support. The 1.3170 area still remains a key barrier on the upside and is likely to cap until we get a clearer political picture. Below 1.2960 opens up the 1.2800 area.
EURGBP – becalmed below the 0.8650 area for now and needs to move above here to argue for a move towards the 0.8720 level. While below here the bias remains for a move back to the recent lows at 0.8500.
USDJPY – a strong move above the 111.20 level has opened up the possibility of a return to the 112.00 area, and March peaks at 112.20. The 111.20 should now act as support, while a move below that opens up the 110.70 level again.