uropean markets endured a somewhat mixed session yesterday as investors weighed up a raft of conflicting economic data from, not only Europe, but around the world, and this uncertainty looks set to continue into today’s trading session with a lower open expected this morning.
A combination of a higher euro and a rise in European bond yields is starting to unsettle stock market investors
at a time when concerns about a US rate rise are starting to diminish.
While Greece continues to be a running sore
, the successful navigation of this week’s €750m repayment to the IMF albeit with some creative accounting has seen the focus shift back to how the various parties can come to an agreement that will please all sides, at a time when the Greek economy has slipped back into recession.
Yesterday started with Chinese economic data
showing a slight improvement in industrial production data, but retail sales continued to disappoint as attempts to stimulate domestic demand remained stuck in reverse gear. This would appear to suggest that last weekend’s move on rates by Chinese authorities won’t have been the last one we see this year.
In Europe we saw an unexpectedly strong French Q1 GDP number
, but this was largely driven by a rebound in consumer spending, no doubt as a result of the lower euro, and oil price, which given the recent rebound in both, raises concerns about the sustainability of the rebound in economic activity, given the weaknesses elsewhere in the economy.
The manufacturing sector continues to be a worry,
and the continued decline in investment spending, against a backdrop of a record unemployment rate, remains a concern.
Combined with a weaker than expected German Q1 GDP number
, and the rising probability that fears about deflation could well have been misplaced have seen European bond markets continue to fall back, pushing yields higher in the process.
This rise in yields is starting to push the euro up against the US dollar,
reversing some of the stimulatory effect of a lower currency, at around the same time that the US economy is beginning to start flashing warning signs that the slowdown seen in Q1, could well ripple out into Q2.
Yesterday’s US retail sales data for April came in below expectations
, for the fifth month in a row, and further throwing into doubt the timing of a possible move higher in US interest rates, as US consumers once more showed a reluctance to hit the shops despite the fiscal boost that lower oil prices, should have given to their finances.
This fall in prices was borne out by a bigger than expected fall in import prices,
which showed a decline of 10.7% year on year for April. This weakness in spending and prices is likely to be a significant concern for Fed policymakers irrespective of what the jobs market is telling them.
Today’s weekly jobless claims
are expected to reinforce the narrative here with rise from 265k to 272k, but last week’s rather ordinary payrolls report would appear to suggest that the US labour markets is just ticking over, as opposed to moving along in cruise control.
The latest PPI data for March
is expected to show pricing pressures remain benign, coming in at 1.1%, a slight increase from 0.9% in February.
– the euro continues to find itself well supported on any dips. As long as we stay above the 1.1050 break out point the risks favour a move higher, above 1.1400 towards 1.1500. A push below the 1.1050 level could see a sharp fall towards 1.0900.
– having pushed above 1.5570, 38.2% retracement of the down move from 1.7190 to 1.4565 and the 200 day MA at 1.5630, suggests we could see a move towards 1.5880. Any pullbacks should now find support at 1.5570 as well as 1.5450.
– despite dipping below 0.7155 the euro rebounded from near its April lows at 0.7115/20 and has rebounded back towards the 0.7220/30 area. If we break back through here then there is potential to retest the 0.7300 area.
– still range bound and stuck below the 120.70 level the risk remains for a retest the March lows at 118.30. In the short term we also have support at last week’s low at 119.05.
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