Having come off the back of a rather mixed session yesterday it seems rather apt that we could well be heading for a mixed open today.

US markets were unable to shake off the jitters around the tech sector closing lower on the day, as the tech juggernaut that has powered most of the gains in the US over the past two years, appears to be starting to misfire quite badly, with some of the biggest decliners from that sector, the so called FANG stocks of Facebook. Amazon, Apple, Netflix and Google. European markets also had a mixed session with the FTSE100 outperforming, while the DAX finished lower.

Looking back over recent events, as we come to the end of what will be a negative month, and a negative quarter for stocks, it’s probably an opportune time to analyse recent events to determine how we got here. The quarter started in such a promising fashion with new records as well as multi year highs being set, as January came and went.

The passing of tax reform proposals in the US should have been the catalyst for further gains, along with an improving jobs market and rising wages, while economic activity indicators across Europe were at much higher levels than they are now. 

Since then the wheels have come off to a certain extent, and as we head into Q2 investors will have to decide over the Easter break whether the worst is over or whether there is more to come.

Concerns about disruptions in global trade, slowing economic activity, and now worries about the tech sector being the target of regulatory changes, and higher tax rates, has provided a perfect storm of uncertainty and doubt into investors psyche, replacing the complacency that was so prevalent at the beginning of the year.

As far as European markets are concerned the declines have been more severe, and more importantly some key trend indicators have been compromised. US markets, on the other hand appear to be just about hanging on to their key support levels with the 200-day MA’s acting as support for now, both on the S&P500, as well as the Dow.

On the data front today’s main focus will be on the final UK Q4 GDP reading as well as the latest US PCE inflation data, which will be scrutinised for any evidence that prices are set to head back to the Federal Reserve’s 2% target.

The pound looks on course to post another decent month and a decent quarter with the final iteration of Q4 GDP set to show that the UK economy grew at 0.4% on a quarterly basis, rising to 1.4% on an annualised basis, with services once again contributing most to the headline number. Business investment is expected to remain unchanged at 2.1% year on year, though given the recent transition agreement there is some optimism that this could well start to pick up.

In the US the latest core PCE inflation numbers for February is expected to show a modest pickup to 1.6% from 1.5% in January, which should be enough to keep the prospect of another US rate rise in June in play.

There is a concern that given recent weak retail sales numbers that despite rising incomes, US consumers seem reluctant to spend. Today’s personal spending numbers for February could well reinforce that view. In recent months spending has dropped off somewhat from the levels seen a few months ago with a rise of 0.2% for the second month in a row expected. This is a far cry from the gains we were seeing at the end of last year.

EURUSD – this week’s failure to move through the 1.2500 area where we have a trifecta of resistance levels has prompted a drift back lower. While a move through 1.2530 could signal a much higher euro, the failure to do so means the risk is for a drift back to the 1.2250 area, and even 1.2160.

GBPUSD – this week’s failure to move above trend line resistance and the 200 week MA at 1.4270, has seen the pound drift lower with the prospect we could see a run down to the 1.3980 area. A move below 1.3970 runs the risk of a return to the lows last week.

EURGBP – squeezed back to just shy of the 0.8800 level this week. We need to see a move back above the 0.8820 level to signal a move back to 0.8920. While below the risk is for a move back to the 8 month low of 0.8667 which we saw last week.

USDJPY – Monday’s key day reversal was the clue to a move back towards the 107.20 level, with the 105.20 area the key support area. A move through 107.20 targets the 108.00 area. A move below 105.00 could well see a return to the lows at 104.60 and possibly lower towards 103.00. 

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