European markets had a disappointing session yesterday, slipping back sharply on a combination of fresh uncertainty over trade talks between the US and China, rising concern as to what sort of Italian government we might get, and disappointing economic data from France and Germany as services PMI’s fell to their lowest levels in over a year.

This would appear to suggest that the slowdown that we saw in Q1 across Europe may well be showing signs of spilling over into Q2 and may be symptomatic of a broader economic malaise.

While US 10-year yields slid back on safe haven buying of US treasuries, Italian 10-year bonds got battered again, sending yields to their highest levels since 2015 up at 2.45%.

US stocks, also fell back initially before stabilising and reversing their losses to close higher after the latest Fed minutes showed that Fed officials, while hinting that a rise was coming next month, might be prepared to allow inflation a modest overshoot of target before becoming too concerned. This interpretation appeared to lessen expectations that the Fed would be overly aggressive when it came to pushing rates higher this year, as markets dialled back expectations of four rate rises this year, to a maximum of three.

Asia markets weren’t able to pick up this positive cue due to an announcement by President Trump that an investigation would be started into US auto imports to determine their effects in US national security. This had the effect of knocking the valuations of Japanese and Korean automakers and could well have a similar effect in German and French automakers when Europe opens this morning.

As UK inflation continues to slip from its peaks at the beginning of this year, falling to a one year low of 2.4% in April, sending the pound to its lowest level this year against the US dollar, attention now turns back to the health of the UK consumer, with the latest retail sales numbers for April later this morning.

With wages now rising faster than inflation the hope is that the slowdown and spending pinch seen in Q1 proves to be transitory in nature with hopes of a recovery in Q2 after a sharp fall of 0.5% in retail sales in March. Some of the March slowdown is undoubtedly down to the cold weather as when fuel sales were included we saw a 1.2% decline, not altogether surprising when most of the country ground to a halt.

Today’s April retail sales numbers should see a strong rebound from the March underperformance with a gain of 0.9% expected including fuel, and a gain of 0.5% without fuel sales. Early indications also point to a fairly decent performance in May if yesterday’s CBI reported sales numbers are any indication.

While wages are now rising faster than inflation there is a concern that the recent rise in fuel prices, along with increases in some tax rates may impact on consumer spending in the coming months. This pinch may well start to show up in these retail spending numbers as the summer progresses.

As such the prospect of a UK rate rise this year is slowly diminishing with the June or August window slowly closing. If we don’t get a move by August it’s unlikely we’ll get one at all given that Ian McCafferty will be leaving the MPC at the end of that month.

EURUSD – continues to slide back falling below the December lows at 1.1710 as we look to head towards the 1.1600 area. We would need to see a pullback overcome the 1.1780 area to stabilise and argue for a return to the 1.1920 level.

GBPUSD – another new low this year at 1.3305 and the pound continues to show no signs of stabilising with the potential to fall back towards 1.3110 trend line support from the January 2017 lows. The 1.3390 level is now likely to act as resistance in the short term with resistance behind that at the 1.3500 area.

EURGBP – while above the 0.8710 area we need to push back through the 0.8800 level to look at a retest of the 0.8845 level and the 200-day MA at 0.8870. A failure to do so keeps the onus on the risk of a return towards the 0.8690 level, and even the recent lows at 0.8640. Still range trading.

USDJPY &ndash yesterday’s slide below the 110.70 area saw the US dollar slip back below the 200-day MA before rebounding from the 109.55 area. A move back below these lows would undermine the current bullish scenario and suggest a return to the 108.70 area. We need to see a recovery through the 110.80 area to keep upside momentum towards 112.00 intact.

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