An acceleration in the selloff of global bond markets appears to be starting to let some of the air out of the recent rally in global equity markets, as US markets suffered their worst one day fall this year, though sharp falls in tech stocks also contributed after Apple announced it was slashing production of its rather expensive iPhone X.

It would appear that the $1,000 cost may well have been too steep for most people, as demand for the marque product appears to be falling well short of expectations.

US markets also came under pressure after US bond yields hit their highest levels in several years. The US 10 year yield pushed above the 2.7% level for the first time since April 2014, while the 2 year yield rose to its highest level since September 2008 ahead of this weeks Fed rate meeting, and the prospect that US policymakers could well revise their forecasts higher for the US economy in light of the recent tax changes brought in by the Trump administration earlier this month.

The rise in yields appears to be also being driven by rising inflation expectations after a string of US companies announced that they would be passing on some of the proceeds of the recent tax cuts in the form of bonuses or wage increases. On Friday Fedex became the latest US Company to announce it would be raising wages following on from Starbucks, Wal-Mart and JP Morgan amongst others in recent days.

In Europe, two members of the European Central Bank governing council Klaas Knot and Benoit Coure adopted some fairly hawkish rhetoric with Mr Knot insisting that the bond buying program should cease in September, helping push the German 5 year yield into positive territory for the first time in over two years.

The rise in yields also took its toll on markets in Europe yesterday, and looks set to spill over further today after a sharp selloff in Asia. This is despite a slightly weaker euro as the US dollar enjoys a modest rebound. It would be the ultimate irony at a time when economic data still remains fairly upbeat that concerns about rising inflation could be the catalyst to prompt an not only an economic slowdown, but also further stock market declines.

Today’s economic data from France and Spain is expected to show that Q4 GDP came in slightly below the Q3 readings at 0.5% and 0.7% respectively, with the slowdown in Spanish GDP likely to have come about as a result of recent events in Catalonia.

The EU Q4 GDP number is expected to come in unchanged at 0.6%.

The pound has come under pressure at the start of this week as doubts start to resurface about the future of Prime Minister Theresa May, amidst mounting disquiet in her party, about her ability to adopt a consistent and clear line when it comes to addressing the next stage of the Brexit talks, amidst disagreement over the terms of any transition period.

The EU in laying out its guidelines for the transition period appears to have prompted some strong pushback in some parts of the Conservative party, saying the UK must be a rule taker without any say in laws that may affect it, while also accepting free movement.

It would appear that the uneasy peace that has existed between the various factions in the party since last years botched election are once again starting to manifest themselves with talk of a leadership challenge bubbling back to the surface.

This is due to rising unhappiness and concern that the continued fudging of the type of Brexit the UK is looking for is causing huge frustration on both sides of the Channel.

EURUSD – finding support above the 1.2320 area for now after last week’s failure just below 1.2550 last week. The 1.2600 area and 61.8% retracement level of the 1.3995/1.0340 down move is a key target and while we stay above 1.2320 the current up move should remain intact, while only a move below 1.2160 would delay it completely.

GBPUSD – has slipped back towards the 1.4020/30 area which is currently holding with a break below targeting the 1.3850 area. We need to move back above 1.4180 to retarget a move back to the recent highs at 1.4340. The 1.4590 area and 50% retracement of the 1.7190/1.1950 down move remains a possibility, while above 1.4000.

EURGBP – has thus far struggled to overcome the 0.8810/20 area and while it does so the risk of a retest of the lows at 0.8690 remains. We have interim support at 0.8760, while a move through 0.8820 retargets the 0.8870 area.

USDJPY – currently treading water below the 110.10/20 area and while below here the risk is of a return to the 107.30 area and September lows. We need to see a move back through 110.20 to argue for a retest of the 111.00 area.

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