European stocks look set to pull back from multi-month highs with a lower open on Wednesday owing to a weaker lead overnight from the US and Asia both of which finished mixed.
Asian markets got an early lift from a weak dollar and rising oil price but gave up early gains after Kuwaiti oil workers ended their three-day strike, bringing oil prices back down as markets adjust to the higher supply. It had been the reduced supply from Kuwait that played a role in supporting oil prices in the wake of the failed Doha meeting.
On Tuesday the FTSE 100 hit a four-month high led by miners as commodities rallied, though all sectors were strong in a broad-based rally in which Brexit fears don’t seem too apparent.
US tech stocks lagged on Tues after poorly-received Netflix results and this pattern looks set to continue based on results after hours. Yahoo just beat estimates but Intel missed on revenues and announced it is cutting 12k jobs (11% of its workforce) and its CFO is stepping down as part of restructuring.
Speculation over Brexit perhaps played a bigger role in the rise in Sterling, which gained against the US dollar and the euro in past week. The gains are mostly churn after a big drop but warnings from the UK Treasury and BOE Governor Mark Carney at the margins have improved the chance of the UK remaining in EU.
UK labour market data on Wednesday is expected to show the unemployment rate and average earnings growth flat at 5.1% and 2.1% 3m/y respectively. With the surprise pop in UK inflation in March it would be a surprise to see some of that was wage-pulled. Still wage growth above 2% is still much higher inflation and supportive of UK growth, which challenges the cautious outlook from the Bank of England.
Weak US housing data, one of the stronger parts of the economy of late left the dollar lower on Tuesday. Data on Wednesday is expected to show existing home sales rise to 5.29M from 5.14M.
EURUSD – The euro leaped back over the support from the early April price range and possible resistance to close above 1.1350. The pair needs to close above 1.1460 to undo the bearish implications f last week’s bearish engulfing candle pattern.
GBPUSD – The pound rallied to its strongest since March to test the declining trendline through the Feb 4 and March 18 peaks. It is now at the upper end of its well-defined 1.40-1.45 price range.
EURGBP –The euro-sterling pair closed below 0.79 and is still retracing from the 0.81 handle, trendline resistance, a long-term pivot near 0.8065 and the 61.8% Fibonacci retracement of the decline since August 2013.
USDJPY – Dollar yen is attempting a small double bottom at 108 but needs a close above Friday’s peak around 109.75 to improve chance of a re-test of 111 support turned possible resistance.
Equity market calls
FTSE100: to open 30 points lower at 6,375
DAX: to open 43 points lower at 10,306
CAC40: to open 22 points lower at 4,544
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