European equity markets posted another positive session yesterday, with the FTSE 100 leading the way, helped mainly by a surge in basic resource stocks, as metal prices soared on the back of concerns that other producers could be added to the US sanctions list of Russian companies.

Nickel, aluminium, copper and platinum prices all rose strongly, while oil prices also made new three-year highs, helping push the CRB index to a similar multi-year high, on chatter that Saudi Arabia wouldn’t be unhappy to see oil prices move as high as $100 a barrel, probably so that they can push the Aramco IPO out of the door, at the highest possible valuation.

US markets also finished the day higher, though the Dow got dragged lower by IBM as investors reacted badly to the company’s forward outlook.

The Fed’s latest Beige book survey painted a broadly positive picture of the US economy, though there was concern about rising tariffs and the effect they might have on the broader outlook.

This helped push US short-term yields higher, with the two-year hitting 2.43%, bringing it even closer to the 10-year yield which closed at 2.875%, flattening the yield curve even further.

You would think that investors would start to worry more about the inflationary effects of the sharp rises being seen in commodity prices in recent weeks, rather than the effects of some tariffs that haven’t even been fully implemented yet.

Turning to the UK, for the most part of this year it’s been difficult to escape the steady drip, drip, drip of bad news from UK retail, with profit warnings from across the retail sector at a seven-year high.

High profile names including Toys ‘R Us, Debenhams, Maplins, Mothercare, Moss Bros, Carpetright, Kingfisher and New Look are either going into administration or reporting difficulties. The list goes on, with even high street mainstay John Lewis warning about falling sales, amid reports of job losses in the thousands, across the entire sector in the first three months of this year alone.

There have been notable success stories, with this week’s news from JD Sports and Primark, owned by Associated British Foods, posting some fairly decent updates, but they tend to have been the exception.

Against this sort of backdrop, you would tend to expect to see consumer spending patterns take a little bit of a hit, and while it is no secret that consumers in the UK are more price sensitive, they’ve shown little sign of reining back spending significantly so far this year.

Today’s retail sales numbers for March could of course shatter this perception of consumers feeling a little better about their spending habits.

So far this year consumers have been in a fairly cautious mood, with retail sales in January and February rising 0.1% and 0.8% respectively. This morning’s March numbers could reverse all or most of these gains with expectations of a decline of 0.5%.

This would be at odds with last week’s British Retail Consortium numbers which saw a rise of 1.2%, which when compared to a disappointing services PMI report for March paint a rather confusing picture for the month. Today’s numbers are also likely to be affected by weather related factors given the freezing weather seen throughout the month. 

On an annualised basis we can expect to see an improvement from 1.2% to 2%.

EUR/USD – watching paint dry with resistance above the 1.2400 area and support at the 1.2320 level, within the broader range of 1.2200/1.2500 range which continues to dominate. We need to see a break below 1.2160 or a break above 1.2540 to suggest a strong move in either direction.

GBP/USD – appears to have made a new short-term peak at 1.4376 slipping back below the 200-week MA at 1.4250 yesterday. This failure to follow through higher could see a deeper move lower towards the 1.4080 area in the short term and even a retest of the April lows at 1.3970.

EUR/GBP – move back through the 0.8690 area yesterday after finding support at the 0.8620 area. This could well act as support for now for a move back to the 0.8750 area. We need to see a move back above 0.8750 to suggest a retest of the 0.8800 area.

USD/JPY – while above the 106 60 area and last week’s lows, the risk remains for a move back towards the 108.20 area. The 105.20 area also remains a key support with a break below 105.00 opening up a move towards 103.00.

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