European markets underwent a rather mixed session yesterday, aided by a combination of rising oil prices, which helped underpin the energy sector, while better-than-expected PMI numbers dragged the FTSE off its lows and back into positive territory. Overnight oil prices have slipped back as concerns about demand outweighed the worries about an extended blockage in the Suez Canal.
A dialling back of some of the tension between the EU and UK over vaccines may well have also helped on the margins, though all of that could well be for nought if EU leaders decide to go down the road of introducing an export ban at today’s EU summit.
Tensions between the EU and UK still remain fairly elevated, despite efforts to cool the narrative, while the recent comments from Thierry Breton, the EU’s internal market commissioner accusing the UK of vaccine nationalism still suggest the potential for a misstep, as feelings continue to run high, particularly on the EU side, where the sense of grievance remains especially elevated.
There is by no means unanimity among EU member states about the stance being taken by the EU Commission with the likes of Ireland expressing concern about the damage such actions might do to the EU’s reputation, and that’s even before the damage it might do to the EU’s own attempts to kick start its own faltering vaccination program, at a time when infection rates are rising again sharply.
Sentiment in Europe continues to remain fragile after German chancellor Angela Merkel was forced into a sharp U-turn over her decision to announce a full 5 day lockdown over the Easter period, as the German governments response to their rising crisis shows further signs of coming apart at the seams.
US markets on the other hand found the going a lot tougher after the Nasdaq and Russell 2000 rolled over sharply into the close, however unlike on previous occasions there was no specific catalyst. Bond yields couldn’t really be blamed given that US 10-year yields finished lower on the day, while recovery stocks also crumbled after the Centres for Disease Control crushed any expectation of an early return for cruises by keeping in place the order to limit sailings until 1 November.
This weakness in US markets looks set to translate into a similarly softer open in Europe with the main focus of attention today on a number of central bank speakers from ECB president Christine Lagarde, Bundesbank president Jens Weidmann, and Bank of England governor Andre Bailey, all participating in a virtual central bank event hosted by the Bank for International Settlements.
Later on, we also get to hear from a host of Federal Reserve officials, including vice-chairman Richard Clarida, New York Fed president John Williams, and Charles Evans of the Chicago Fed.
On the data front we will get an extra insight into consumer spending patterns for the UK economy for March after a remarkably strong flash services PMI number yesterday. The latest CBI retail sales number is expected to show an improvement on the very weak readings of -50 and -45, we saw in January and February, and perhaps offer an insight into next month’s March retail sales numbers.
We’ll also get the final iteration of US Q4 GDP which is expected to confirm a modest 4.1% annualised expansion at the end of last year. On the weekly jobless claims front the improvement in the labour market is expected to continue with a decline to 730k, from 770k the previous week, while continuing claims are estimated to decline to 4m.
EUR/USD – the fall below the 200-day MA opens up the prospect of further losses towards the 1.1750 area. We now have resistance at the 1.1870 area, and behind that at 1.1980.
GBP/USD – falling below the 50-day MA which raises the prospect of further weakness towards the 1.3500 area. Pullbacks need to stay below the 1.3770 area for this to unfold. A move above 1.3770 reopens the prospect of a move back to 1.3980.
EUR/GBP – the current rebound from the 0.8540 area, appears to be finding resistance at the 0.8650 area for now. A move through this level does open up the 0.8730 area. The bias still remains for a move lower towards 0.8400. Any rebound needs to overcome the 0.8730 to delay this outcome.
USD/JPY – continues to look a little soft, with the 108.20 level a key support. The main resistance remains at 109.30, with the bias still for a move towards the 110.00 level while above 108.20. At current levels we do remain susceptible to a pullback towards the 107.30 area in the interim. The current uptrend from the January lows lies all the way back at the 200-day MA and 105.60 area.