April turned out to be quite a decent month for European equities, with the exception of the FTSE100 which reversed the gains seen in March, held back by a slide in commodity prices, a stronger pound and weaker banks.
While a lot of the April gains seen in broader European markets have been predicated on an Emmanuel Macron win in the upcoming second round of the French election, the underlying economic data out of Europe since the beginning of the year has pointed to a decent level of economic activity, which has helped support the gains, and today’s focus will return to that later today when European markets return from their long weekend.
US markets also managed a fairly decent performance in April despite Friday’s US Q1 GDP numbers posting a rather big miss coming in at 0.7%, well below expectations of 1.2% and the 2.1% seen in Q4. The fall was a direct result of a sharp slide in personal consumption from 3.5% to 0.3%. Other internals were slightly more positive with the employment cost index rising 0.8%, above expectations while the GDP price index also rose by 2.3%.
Friday’s GDP data was all the more surprising given the recent resilience in recent ISM reports from both manufacturing and the services sector, though March’s disappointing jobs report could have been an early warning sign of some form of slowdown.
The release of the April manufacturing ISM report yesterday does suggest that economic activity is starting to slow a little with both the headline number coming in lower than expected at 54.8, along with the employment component which declined to 52, but they still remain well above the 50 level which indicates expansion.
US markets still managed to start the month of May on a positive note also helped by a late Congressional deal to avert a government shutdown as the debt ceiling was raised, though the banks did suffer a bit of a roller-coaster ride on comments from President Trump that he might consider measures to break up the big banks, reversing the repeal of Glass-Steagall by Bill Clinton in 1999.
The return of European markets today after the long weekend shifts the focus back to the wider European economy which has so far this year performed well, though the slightly softer manufacturing PMI readings seen from China and the US earlier this week might also point to a slight softening here too.
The final manufacturing PMI numbers from Spain, Italy, France and Germany are expected to remain fairly resilient at 54.3, 55.9, 55.1 and 58.2 respectively.
In the UK, the pound shrugged off a slightly weaker than expected Q1 GDP number at the end of last week. While the fall was a little bit steeper on a quarterly basis to 0.3% the annualised number was revised higher from 1.9% to 2.1%. While the decline in output is a little disappointing the March data which isn’t included in these numbers was better which means the numbers could well get revised up in the coming weeks.
Of more concern is the fact that in recent months UK manufacturing PMI’s have been drifting lower, and not higher. Today’s April manufacturing PMI number is expected to come in at 54, down from 54.2, and weaker for the fourth month in a row since December’s 56.1. While 54 is still a decent number the trend has been in the opposite direction to the recent trend in Europe.
EURUSD – continues to hold above the 200 day MA and 1.0820 area, and while it does so the prospect of further gains remains. Potential remains for a move towards the 1.1000 area, and towards the November peaks at 1.1300.
GBPUSD – continues to edge towards the 1.3000 area, on the way towards the 1.3300 area. Only a move below 1.2750 argues potentially back towards the 1.2600 area.
EURGBP – currently finding support at the 0.8410 area which keeps the prospect of a rebound back towards the 0.8480 area on the cards. The big resistance area remains just below the 0.8570/80 area where the 50, 100 and 200 day MA’s converge on each other. A move back below 0.8400 reopens the April low at 0.8305.
USDJPY – continues to find support at higher levels and could well head back towards the 112 50 area, where we have solid resistance. Potential for an inverse H&S being formed but while below 112.50 we remain vulnerable to a drift back down towards the 110.50 area and even 109.20.
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