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European equity optimism continues

Last week the euro came under pressure on account of the lukewarm economic reports from the eurozone. 

French manufacturing PMI slipped from 49.7 to 49.6, and undershot the 50 forecast, and the French services PMI report came in at 50.5, topping the 49.8 consensus estimate. The German manufacturing sector remains weak as the reading was 44.5, and it missed the 45 forecast. On the bright side, the German Services PMI update was 55.6, which topped forecasts and was an improvement on the month.

Overall, the outlook for the region isn’t great, and the European Central Bank (ECB) will be under pressure to launch an aggressive targeted lending scheme in September. In the UK, all the Brexit talk has been about the state of the UK economy, but it is clear that mainland Europe’s manufacturing is suffering on account of the political uncertainty.

The slip in the single currency helped the DAX and the CAC 40 reach new multi-month highs. Europe’s rebound from late 2018 hasn’t been as impressive as that US’s, but it is certainty playing catch-up. It would seem that investors are viewing that disappointing economic news from the euro-area as positive news for the equity markets, as some traders are taking the view that the ECB will be intervene towards the back end of the year.

US equity markets moved little yesterday, as the fact that European markets remained closed, brought about little volatility in the New York

Equity markets in Asia were a little lower overnight after it was reported that the Chinese government will focus on structural reform, rather than fiscal stimulus. It would seem that the change in direction of policy is due to the better-than-expected growth first-quarter growth figures.   

On Friday, UK retail sales in March jumped 1.1%, and that was a big shock as economists were expecting a drop of 0.3%, adding to the February report, was revised higher to0.4%, from 0.2%. Some traders were speculating that the solid March report was because of Brexit stockpiling, and in turn less it took away some of the positive news.

The US dollar its highest level in nearly two years on Friday on the back of the mixed eurozone data, but also because of the robust US economic indicators. The jobless claims rate drooped to another multi-decade low, and the retail sales report showed 1.6% growth in March. The US economy is ticking along nicely, and the greenback is likely to remain in demand.  

The firmer US dollar weighed on the gold market, and the metal fell to a fresh three month low last week. Gold enjoyed a big rally between August and February, in light of the strong greenback, we might see further losses for the metal.

Oil rallied yesterday after there was chatter that the Trump administration will put even further pressure on Iran. The US government granted eight countries permission to keep importing oil from Iran, but now there is speculation that Mr Trump will remove that exemption in a bid squeeze Iran’s oil exports to zero. WTI hit its highest level since late October, while Brent Crude hit level not seen in early November.

The US new home sales report will be released at 3pm (UK time), and the consensus estimate is 650,000, which would be a decline from the 667,000 in February. The Richmond manufacturing index will be released at the same time, and the consensus estimate is 13, and keep in mind the March reading was 10.

EUR/USD – has been broadly pushing lower since early January, and if the negative move continues it might retest the 1.1176 area. Resistance might be found at 1.1448.  

GBP/USD – has been driving higher since early December, and if it holds above the 200-day moving average at 1.2972, it might retest the 1.3380 area. The 1.2775 area region might act as support.

EUR/GBP – while its holds below the 200-day moving average at 0.8822, its outlook is likely to be negative. 0.8471 might act as support. A rally might encounter resistance at 0.8800.  

USD/JPY – has been largely been pushing higher throughout 2019, and a break above the 112.00 area, might bring 113.70 into play. 111.13 – 50-day moving average, might provide support.


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