For most of last week stock markets had been struggling for gains, but a remarkable turnaround on Friday saw stocks surge strongly, driven higher by a strong win for the Conservative party in the UK general election, as well as less than inspiring US jobs report for April, which appeared to put the final nail on the coffin to any remaining prospects of a Fed rate rise in June. While the unemployment rate fell again, this time to 5.4%, Friday’s US jobs report, while coming in as expected, saw significant downward revisions to previous months, with March revised down to 85k from 126k, bringing the three month average down below 200k for the first time in over a year. Last week’s UK election result was all the more surprising given that not one opinion poll in the last six months had even hinted at the merest prospect of last week’s turn of events, with the end result that we saw the FTSE250 hit record highs for the eighth time this year, as a number of sectors, which had been weighed down by concern about possible state interference from a prospective new Labour government, took off. With the euphoria of Friday now behind us markets look set to return to the more mundane business of concerns about the next twist and turn in the Greece crisis, the health of the UK economy, as well as mulling over the latest steps by Chinese authorities to stimulate their ailing economy. While investors were digesting events in the UK and US on Friday, the small matter of another disappointing set of Chinese trade numbers, this time for April, almost got lost in the fog of euphoria. Having seen a set of pretty awful March trade numbers, hopes were high that the April numbers would provide a bit of rebound. In the event they were disappointing as well, with exports sliding 16.2%, casting doubt on the global recovery story. Imports also slid again, this time by 6.4%, raising further questions about the internal Chinese recovery story. This weakness appears to have prompted the Chinese authorities to cut rates over the weekend, by 25 basis points, the third time in six months that rates have come down, with the likelihood of further easing measures in the coming months, unless things start to pick up quickly. This week’s April industrial production and retail sales data are likely to be the next key test as to the health of the Chinese economy. Today we get the latest Bank of England rate decision, delayed due to last week’s General election with no changes expected, though now that the Bank’s hand is unencumbered by concerns of being political, any significant improvement in this week’s economic data, could well shift expectations about the timing of a move on interest rates. This week’s unemployment and wages data are expected to show further improvement, though it will be the latest inflation report from the Bank of England that is likely to be of more importance, with respect to the banks expectations for growth and inflation expectations, over the next 12 months. Last but by no means least the clock continues to tick for Greece with a €750m payment to the IMF due tomorrow, as Greek and EU officials continue to argue over their respective red lines. Today’s Eurogroup meeting is unlikely to see any form of deal agreed in the next 24 hours, and with no new cash set to be made available, it looks like Greece will once again have to continue scratching around to meet tomorrow’s payment. EURUSD – Friday’s decline from the 1.1400 area could see the euro drop all the way back to the 1.1050 level, but as long as we stay above this level then a move to 1.1500 looks probable. GBPUSD – last weeks late move higher needs to push through the 1.5570 level to suggest further gains. We need to hold above 1.5220 to push on otherwise we could be at risk of a fall back towards 1.5000. EURGBP – Fridays sterling surge has seen the euro plunge back from the 0.7485 level towards the 0.7220 level, A break here could well see a move towards the 0.7150 area. Rebounds look set to see resistance at 0.7380 level. USDJPY – the ongoing failure to overcome the 120.70 level has continued to weigh on the US dollar. In the short term it looks range bound with strong support just above the March lows at 118.30, while at the same time the rebounds keep getting shallower. We need to see a break above 120.70 to mitigate the downside risk of a move towards 116.50. CMC Markets is an execution only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
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