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Quiet start for European stocks expected as focus shifts to China and UK economy

Markets in Europe continued to leave behind the scars of the recent turmoil around the collapse of Silicon Valley Bank and Signature Bank in the US, and Credit Suisse in Europe last week, by pushing to new record highs for the CAC 40, 11-month highs for the DAX, and the fourth successive weekly gain for the FTSE100.

An improving economic picture coming out of China also gave a helping hand to European markets, particularly in luxury retail, in a picture that suggests Chinese consumers are starting to rediscover their ability to spend., as we look ahead to this week’s China Q1 GDP and March retail sales numbers.    

We even saw some modest weekly gains for US markets as some really strong quarterly numbers from US banks prompted speculation that the Federal Reserve might have to hike rates by more than a single hike of 25bps, which most people had been expecting at the next meeting in just over a fortnights time.

While the disruption caused by the SVB collapse did create some ripples in the US economy in the month of March, the sharp rally in US 2-year yields and upbeat assessment of the US economy from Friday’s Q1 banking numbers has caused markets to scale back their bets on the number of possible rate cuts by year-end, which had started to get priced in by markets in the early part of last week.

With no real US data of note out until the back part of this week, and the jobless claims data, the US dollar rebound that we saw on Friday could well have more legs in it given that we’ve just come off the back of 5 successive weekly declines.

This week's main focus will be on further earnings reports, notably from the likes of Goldman Sachs and Morgan Stanley tomorrow as well as Tesla and Netflix later in the week.

It’s also an important week for the UK economy after last week’s February GDP numbers showed that the economy stagnated with the various industrial disputes dragging the wider economy.

Tomorrow, we get a snapshot into the labour market as well as wage pressure, against the backdrop of the February surge in headline CPI to 10.4%. The pay gap is expected to widen further with wage growth expected to slow to 6.2% from 6.5%, while unemployment is expected to remain unchanged at 3.7%,

This will be followed by Wednesday’s March CPI numbers which hopefully will see the headline rate fall below 10%, although most people expected this to happen in February and it didn’t with the main reason being surging food prices. This effect is likely to manifest itself in Friday’s March retail sales numbers, which could see a sharp slowdown from the solid start to the year we saw in January and February.  

EUR/USD – last week’s move up to the 1.1075 area could well have been a false break out after the euro closed back below 1.1000, posting a key day reversal. A fall below 1.0970 could well signal further weakness toward the 1.0830 area if we don’t continue to make new highs towards 1.1120.

GBP/USD – similarly last week’s move to 1.2545 failed to follow through with a sharp fall on Friday, opening up the prospect of a deeper correction towards the 1.2270 area. Initial support at 1.2340 and last week's low.   

EUR/GBP – continues to push away from the 50-day SMA and now needs to break above the 0.8870 area to retest the March peaks of 0.8925. Still have trend line support at 0.8740 from the August lows at 0.8350.

USD/JPY – rebounded from the 132.00 area at the end of last week but needs to move above cloud resistance at 134.50 to signal further upside or risk a return to the April lows at 130.60.


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