While European markets did manage to have a good day yesterday, on the back of a strong performance from US markets on Monday, the nature of the rebound was always likely to be contingent on US markets being able to hang on to those gains.
The subsidence in concerns about trade is no doubt welcome, however it remains inescapable that for all the gains seen in US markets over the past 18 months the bulk of these have been driven by tech stocks, and yesterday these tech stocks swooned quite sharply, reversing a good proportion of Monday’s gains, in the process dragging the S&P500 back down towards its 200 day MA.
This rolling over in tech stocks looks set to weigh on European markets this morning, with a lower open as markets mull over the potential for uncertainty over a tech sector that could catch a cold as a result of Facebook's woes around user data.
With the increasing focus on what is going with respect to how Facebook has managed its users personal data, it must surely be only a matter of time before attention turns to the rest of the tech sector, and how companies like Alphabet, Twitter, Microsoft and Apple to name a few, manage their own users personal data. If lawmakers do turn their attention to the rest of the sector, which seems likely, then it is hard not to see how other tech companies will escape scrutiny on how they use this user data, raising the prospect that we could uncover other practices that invite scrutiny.
Third party data access is likely to be one area of interest along with what safeguards they have in place with respect to this data, which to all intents and purposes is people’s intellectual property. If further malfeasance is uncovered then the out performance in tech stocks that has been so indicative of the recent run up could well be factor on any run lower, if investors lose confidence any further.
Recent updates from the retail sector have pointed to a difficult environment for UK retailers, with a strong of profit warnings. Despite this retail sales have held up quite well, and later this morning we’ll get another snapshot of the UK economy with the latest CBI reported sales data for March which is expected to come in at 7, just below the February reading of 8. While it is significantly below the levels seen at the end of last year, the numbers are still in positive territory.
We will also be getting the final revision US Q4 GDP which is expected to see an improvement from 2.5% to 2.7%, however it is unlikely to shift the dial too much with respect to perceptions about the US economy, which while still showing some decent internals does look a little weaker in this quarter.
EURUSD – pulled back from just shy of the 1.2500 area yesterday where we have a trifecta of resistance levels. A move through 1.2530 could signal a much higher euro, but while below here the risk is for a drift back to the 1.2250 area.
GBPUSD – finding it difficult to move through trend line resistance and the 200 week MA at 1.4270, and while below the pound remains susceptible to a drift back down to the 1.3980 area. A move below 1.3970 runs the risk of a return to the lows last week.
EURGBP – squeezed back to just shy of the 0.8800 level yesterday. We need to see a move back above the 0.8820 level to signal a move back to 0.8920. While below the risk is for a move back to the 8 month low of 0.8667 which we saw last week.
USDJPY – rallied back to 105.90 yesterday after Monday’s key day reversal. We need to hold above the 105.20 area to target further gains towards the 107.20 area. If we break back below 105.00 we could well see a return to the lows at 104.60 and possibly lower towards 103.00.
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