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Yellen “put” keeps US markets in the green for 2016.

It would appear that all that is needed for stocks to go up is a weaker US dollar as European markets celebrated Tuesday’s smack down of the hawks on the FOMC by Federal Reserve Chairwoman Janet Yellen in her speech to the Economic Club of New York.

US markets also enjoyed the rarefied feeling of being in positive territory for 2016 for the second day in succession.

The comments which reset market expectations to where they were in the aftermath of the 16th March FOMC meeting and press conference, saw the FTSE100 post its best close this year, though it still remains below its end of year close at 6,242, boosted by a strong performance from the mining and oil and gas sector.

Expectations for when rates could potentially rise also slipped further out with markets now assigning a 2% likelihood of a move in April and a 20% likelihood of a move in June.

As we come to the end of the first quarter of 2016, the best performing sector has rather surprisingly been the mining sector, as the rebound in commodity prices has helped stop the rot of seven consecutive quarterly declines, while the ripple out effects of concerns about even more negative interest rates has seen financials perform the least well, with the result that the FTSE350 banking index looks set to close the quarter at its lowest level since the end of Q1 2009.

One of the positive effects of the recent rebound in commodity prices has been to assuage some concerns about the deflationary effects of falling energy prices, something that was reinforced by a sharp rise in German CPI for March yesterday which saw prices rise 0.8% from the previous month, while the annualised number also came in higher at 0.3%, up from 0% in February.

This surprise jump could well see a similar leap in today’s EU CPI estimate for March, which came in at -0.2% in February. Expectations are for a slight improvement to -0.1%, however given the jump on the headline German number yesterday, we might see a slightly better number, around 0.1%.

Also due out is the latest German unemployment numbers for March, which is expected to see yet another drop, this time by 6k.

With concerns about this summer’s EU Referendum vote never too far from investors’ minds today’s final UK Q4 GDP number is a reminder that for all those concerns the UK economy is still growing, albeit not as fast as a year ago, despite this week’s headlines about potential large scale job losses in the steel industry.

A quarterly figure of 0.5% is expected, however business investment did show a sharp drop in the last estimate of 2.1%, which would appear to suggest that the upcoming vote could well have prompted a slowdown and some caution about potential investment ahead of the June date. On an annualised basis a figure of 1.9% is expected which would be a disappointment given that expectations as we started 2015 were for a much higher number.

Despite concerns about a Q1 slowdown, lending conditions appear to be holding up well, on both the consumer side as well as the mortgage side, though the mortgage numbers will be skewed by the Chancellors decision to adopt an additional 3% slab stamp duty fee on second homes from the 1st April as would be purchasers try to get in before the cut-off date. 

EURUSD – the euro is currently running into resistance just below the February highs at 1.1380. A move through here could well see a move towards 1.1500 initially. Pullbacks should find support around the 1.1140 area. Only a move below 1.1030 argues for a move towards 1.0800.

GBPUSD – the pound pushed up towards trend line resistance at 1.4470 yesterday, which appears to be the neckline of a potential inverse head and shoulders reversal. A move through 1.4500 has the potential to target a move towards 1.5000. A move below 1.4050 argues for a move towards the recent lows at 1.3835.

EURGBP – the inability to break conclusively above the 200 week MA at 0.7935, has seen the euro slide back, which keeps the bias towards the downside. A weekly close above 0.7935 suggests a move towards 0.8100, while a failure argues for a drift back down towards 0.7820.

USDJPY – after eight successive days of gains we’ve seen the US dollar drop for two days in a row with resistance currently at 114.20 and support down near the 110.70 area. We still remain in a broad range with an overall bias to the downside.

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