With US markets closed for President’s Day yesterday, they will have some significant catching up to do after yesterday’s stellar European session, when they return from their long weekend later today.
Having seen the Nikkei225 push above 30,000 for the first time since 1990, a move that continued in Asia this morning, European markets got off to a decent start to the week, led by the FTSE100 and FTSE250, who both outperformed their European peers, while the pound also had a solid session, hitting a three year high against the US dollar.
The FTSE250 hit its best level since 24th February last year as it looks to close in on its pre pandemic February 2020 high of 21,950, while the FTSE100 posted its best close in over a month, and second biggest one day gain this year.
Having underperformed so much in recent weeks, the potential for a FTSE100 retest of its January peaks and a move towards 7,000 could well increase as long as we see a continuation of the type of progress that we’ve been seeing so far on the vaccine front, and the continued sharp fall in Coronavirus infection rates. The FTSE100 outperformance was also helped by a sharp move higher in commodity prices as copper, platinum and oil prices all hit multiyear, or multi month highs,
The talk is now turning to when the various UK restrictions that have been in place since 6th January are likely to get eased. This could come as soon as March 8th as a roadmap out of lockdown starts to take shape, with some schools reopening, as investors look ahead to next Monday’s announcement of a possible timetable to an economic restart.
This anticipation saw strong gains across all sectors with the likes of British Airways owner IAG and Premier Inn owner Whitbread driving the domestic gainers, while Shell and BP drove the commodity sector higher as oil prices hit their highest levels in over a year, after an arctic winter storm threatened to disrupt US oil production.
Banks were also solid performers, led by Barclays as UK 10-year gilt yields pushed to an 11-month high, widening the gap between short and long term rates, in so doing improving the prospects for future profitability, ahead of its full year results later this week.
Today’s European open looks set to be a positive one after another strong Asia session this morning, with the Nikkei225 kicking on further; as this weeks early gains and positive vaccine story provide the catalyst that could well see new record highs for global stocks in the days ahead.
On the data front today we get the latest confirmation that the Eurozone could well see a double dip recession when it reports its Q4 GDP numbers later this morning with a -0.7% contraction. While we don’t as yet have much clue in what to expect for Q1 this year, it is unlikely to be much better given the various lockdown restrictions that have been in place across France, Germany and the rest of Europe since the beginning of the year.
These numbers would also confirm that the Eurozone economy contracted by -5.1% in 2020, with employment expected to fall by -2.3%. French unemployment is expected to rise to 9.1% for Q4.
The latest Germany ZEW economic expectations index is predicted to slip back slightly in February to 59.5, after a surprise jump to 61.8 in January. The bigger than expected jump in January appeared to be predicated on a fairly quick economic reopening for the German economy. This timeline has seen a setback on the back of the slow rollout of the vaccine program in Germany, as well as concern over stubbornly high hospitalisation and infection rates.
EURUSD – continues to look well supported with support at 1.2070 with the 50-day MA acting as resistance on the upside, at 1.2170. While below the 1.2170 area the risk remains for a move back to the lows on a break below 1.2060, and towards 1.1800.
GBPUSD – continues to drive higher with the 1.4000 level within touching distance after breaking above the 1.3750 level last week. A break through the 1.4000 area has the potential to close in on the 2018 peaks at 1.4380. Support now comes in at the 1.3750 area, with bigger support at the 1.3600 area.
EURGBP – further declines expected here towards the 0.8600 area now that we’re below the 0.8860 level. Interim support comes in at the May 2020 lows at 0.8670 initially, with interim resistance now at 0.8770.
USDJPY – the current bout of US dollar strength could well see a break above the 200-day MA at 105.60, with a move through 105.80 targeting the 106.30 area. Support comes in at the trend line from the January lows currently at the 104.40/50 area.