US investors don’t appear to be in any hurry to give up on the Trump trade quite yet, after another record close on Friday, despite the fact that details of President Trump’s new stimulus plan continue to prove to be about as elusive as water in the desert.
For all the new President’s promises that a plan is on its way he continues to devote his energies at depicting the press as purveyors of “fake news”. If he devoted anywhere as much energy towards his new fiscal plans as he does in portraying himself as a victim there would in all probability be a lot less uncertainty around the prospects of the global economy than there currently is at the moment.
In Europe investors continue to worry about the potential for a surprise outcome in the upcoming French election, after all of the major candidates found themselves in various forms of controversy. At the end of last week there was concern about some reports that French socialist candidate Benoit Hamon was considering merging his campaign with far left candidate Jean-Luc Melenchon under a single banner.
These reports don’t appear to have panned out thus far, but none of the other candidates appear to have made any strides in the polls as uncertainty reigns about the final outcome, with both Francois Fillon and Marine Le Pen under investigation for misuse of public funds, while Emmanuel Macron came under fire for comments he made in Algeria about events that occurred when the country was under French rule.
The election campaign in the Netherlands also got under the way at the weekend, with far right leader Wilders already ahead in the polls a win for him next month could well ratchet the tension up even further, and fray the nerves of investors even further ahead of the French vote.
The resignation of ex-Italian Prime Minister Renzi as his party’s leader at the weekend in an attempt to take on rebels in his own party is another factor that could roil European markets this week, as concerns about an early Italian election grow.
In the absence of US markets due to President’s Day, markets in Europe are likely to be quieter than usual today, with the FTSE100 likely to be in focus after Kraft Heinz announced it was withdrawing its interest in Unilever after the backlash against it at the weekend.
Kraft Heinz management announced its intention to “amicably” withdraw its proposal but I doubt there was anything amicable about it. The proposed deal, whatever its merits, was always likely to attract attention given the completely different approaches each company has to conducting its everyday business. That’s even before the undoubted toxicity around the Kraft brand here in the UK after its management shamefully reneged on promises about jobs when it took over Cadbury’s in 2010. The whole tawdry episode left a rather unsavoury taste in the mouth even more so when Kraft then went and spun Cadbury’ s off into Mondelez less than 2 years later.
Ultimately these sorts of talks require a certain amount of good faith on the part of both parties. In light of Kraft’s recent history that was always likely to be stretch, notwithstanding the potential political opposition in the Netherlands, as well as here in the UK.
Here in the UK the pound could come under further pressure after last week’s disappointing retail sales numbers, as the unelected upper chamber of the House of Lords begins its deliberations on the Article 50 bill, with a number of lawmakers determined to try and force through some of the amendments the House of Commons wasn’t able to. Any delays here could derail the timetable set out by the UK government to trigger Article 50 by the end of March.
The comments of Bank of England governor Mark Carney are likely to be scrutinised tomorrow when he testifies to MP’s on the contents of the recent quarterly inflation report, when the Bank of England upgraded its growth forecasts but left its inflation forecasts unchanged.
Mr Carney must have been a little relieved when last week’s CPI numbers came in below expectations at 1.8%, as he could well have faced some difficult questions given the growing criticism of the Bank of England’s decision to cut rates in August last year, which it could be argued has amplified the recent sharp rise in inflationary pressures seen in the back half of 2016. The fact that the rise in factory gate prices to 20.5% hasn’t filtered down into the headline numbers yet isn’t likely to mean that they won’t in the coming months.
EURUSD – continues to trade between support at the 1.0520 area, and resistance up near the 1.0720 area. A move through 1.0720 retargets the 1.08 area.
GBPUSD – the pound continues to look a little vulnerable, though it was able to find buyers below 1.2400 last week there is a concern the lack of a rebound could see it break lower towards 1.2250. A move above the recent high at 1.2580 retargets the 1.2700 area.
EURGBP – last week’s rebound through the 0.8580 resistance ran out of fuel just below the 0.8600 area, before sliding back. Until the euro is able to push through this area we remain vulnerable to a return to the 200 day MA at 0.8450. A break of the 200 day MA retargets the 0.8300 area.
USDJPY – having fallen short just below the 115.00 level we could well drift back towards the range lows at 111.60 in the short term.
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