The failure of the coup and a reassertion of Turkish government control appear to have allayed concerns of rising geopolitical risk on Europe’s border. As such, European stocks look set to open mostly higher on Monday, adding last week’s advance.
Mega-merger activity on the FTSE 100 could spur extra gains with reports that Japan’s Softbank is near a £24 billion acquisition of UK chip giant ARM Holdings. The merger will be the first test for Prime Minister Theresa May’s new Ministry for Business, Energy and Industrial Strategy and her belief that “transient shareholders are not the only people with an interest when firms are sold or closed.”
Global sentiment appears to be still intact but the political instability brought about by Brexit, terrorist events in Europe and now an attempted coup in Turkey (a future potential EU member) are all reasons that could dissuade investment in Europe.
There are already justified concerns over President Erdogan’s tightening grip on the Turkish people. Questionable practices during recent national elections and undue pressure placed on the central bank to cut interest rates run counter to developed market ideals. Although the Turkish people appeared to join the streets in support of the government, this is likely more a desire to avoid another military takeover than support for Mr Erdogan.
The British pound is rising early on Monday ahead of a talk from the Bank of England’s Martin Weale on Brexit and a meeting of EU foreign ministers. Sterling had fallen the most in two weeks on Friday after BOE chief economist Andy Haldane added to speculation the central bank would add stimulus at its August policy meeting after holding fire in July. Nonetheless, the Bank of England on hold, even with hints of action at its next meeting in August could deter more speculative shorts for the time being.
The euro remains relatively subdued alongside any expectation of action at this week’s European Central Bank meeting. Policymakers are in wait-and-see mode after monetary easing was announced in March and implemented in June. This meeting will probably be most interesting from the perspective of hearing ECB President Mario Draghi’s official reaction to the Brexit vote. Today, Bank of Spain Governor Linde Speaks in Almeria at 11am whilst the Bank of France’s Villeroy speaks at 3pm.
EURUSD – Having challenged 1.1150, the euro is back below 1.11 and in the middle of a 200-pip range between 1.10 and 1.12. The large downswing on June 24 through the bottom of its old trading range implies further downside towards 1.08.
GBPUSD – Gains have been capped over the last two-days with a Tweezer Top-like rejection from just below 1.35. Another test closer to the lows may be needed to establish a bottom. A break of 1.28 could target the 1.25 handle.
EURGBP – Euro-Sterling has found support again with a second strong bounce from 0.825. A break lower could target the old swing high at 0.8117, though the uptrend favours another move higher to the high above 0.86.
USDJPY – Dollar-yen close the week above 106 but has found some short-term resistance from the 50-day MA, which has acted as resistance throughout the downtrend that began in December. A pullback to the July 1 high at 103.40 could find support.
Equity market calls
FTSE100: to open 21 points higher at 6,690
DAX: to open 35 points higher at 10,102
CAC40: to open 5 points higher at 4,377