US stock markets continued their recent rebound yesterday, led by US defence companies after the multibillion dollar deals signed by President Trump in Saudi Arabia over the weekend, while Asia markets traded sideways, seemingly shrugging off reports of a terror attack in Manchester, late last night.
While US markets appeared to have recovered their equilibrium, after last week’s air pocket, the same can’t be said for the US dollar which appears to have become disconnected from the so called Trump trade, as it continued to slip back hitting a new six month low against the euro, after German Chancellor Angela Merkel said that the euro was “too low”.
Oil prices have also continued their recent rise on optimism that Saudi Arabia and Russia will be able to broker an extension to the current production cap, which pleases everyone, especially Iraq, OPEC’s second biggest producer who have consistently missed their production quotas. The Iraqi’s appear less than convinced about the need for a nine month extension, amidst concerns that US shale producers will simply fill the vacuum.
European markets appear to have hit a short term plateau for the time being caught by the drag of a stronger euro, amidst some concerns that the European Central Bank might come under pressure to ease off its loose monetary policy sooner rather than later.
This pressure could intensify later today with the release of the latest flash manufacturing and services PMI’s for May for France and Germany. Last month’s April numbers had continued their trend of improving economic data in both countries thus far this year, with France outperforming Germany in the services sector last month.
This is expected to continue today with the latest French services PMI numbers expected to show an improvement to 56.8 from 56.7, while activity on Germany expected to come in at 55.5. On the manufacturing front the roles are reversed with German manufacturing expected to come in at 58, France 55.2, still pretty decent numbers for Q2.
Before that though the final Q1 GDP number for Germany is expected to be confirmed at 0.6%.
The latest German IFO survey for May is also expected to point to improving business confidence, with an increase to 113.1 from 112.9, though the recent gains in the euro might put a dampener on that.
The pound had a rather disappointing start to the week, and appears to have been broadly unaffected by last night’s terror in Manchester, sliding across the board but particularly sharply against the euro, as currency traders reacted to the sudden narrowing of the opinion polls over the weekend in favour of the Labour party, as a result of the rather botched attempt to try and deliver a different approach to the ongoing problem of social care in the Conservative manifesto.
For a prospective government that wants to deliver a message of strength and stability, the events of recent days have served to give the impression of being weak and wobbly, not a particularly good look when politicians in Europe are watching from afar.
Today’s UK public finances for April are expected to show a deficit of £8.8bn for April, as we start a new tax year, and up from the £5.1bn seen in March. This year’s numbers will be particularly important given that last year’s full year deficit was £52bn, considerably better than was expected at the end of last year.
This outperformance was mainly down to the fact that the performance of the UK economy since last year’s Brexit vote confounded almost everyone’s direst expectations. The concern now of course is that the pain has been merely deferred and has already started to seep through by way of lower VAT receipts, as inflation crimps consumer spending power.
Gold prices do appear to have ticked higher overnight, probably as a result of last night’s shocking events in Manchester.
EURUSD – the euro continues to make gains, pushing through the 1.1200 area, bringing it closer to the November highs at 1.1300, with a bigger resistance area at the 1.1370 area. If we fall back below the 1.1020 area then we could see a sharp move back to the 1.0950 area.
GBPUSD – continues to find resistance at the 1.3040 area. While below here we could slip back towards the 1.2840 area. A consolidated move through here has the potential to target the 1.3320 area. Only a move below 1.2750 argues potentially back towards the 1.2600 area.
EURGBP – pushed through the 200 day MA and the 0.8620 area with the potential to target the 0.8720 area. Any pullbacks should find support at the 0.8540 area and the 50 day MA.
USDJPY – finding resistance at the 111.70 area for now after rebounding from the 110.20 area. There is scope to move up to 112.40 area but a failure to push back through here could see a move back to the 108.00 area.
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