Last week was a week of multi-year and new record highs for markets across the globe,
from Asia to Europe as the Japanese Nikkei nudged against the 20,000 level, its highest level in fifteen years; while Chinese and Hong Kong markets also hit multi year highs.
Not to be outdone the German DAX and FTSE100 also made new record highs
as investors piled into equities on expectations of further stimulus from the central banks of China, Japan, and Europe, with concerns about the situation in Greece, being largely ignored.
This post Easter enthusiasm has also been helped by the announcement of a number of significant M&A deals and expectations of further stock buyback announcements,
which has also helped push US equities back towards their recent peaks after a couple weeks of relative underperformance.
Despite all of this investor enthusiasm, concerns remain about the underlying health of the global economic recovery as another big week for economic data gets under way
, starting today with the release of some more disappointing Chinese trade data, which once again has raised the prospect, that despite recent easing measures by the Chinese authorities, that we’re seeing a sharp slowdown, which could well ripple out across the globe.
A bigger than expected slide in both March exports and imports
have raised concerns about the prospects of the Chinese economy hitting its 7% GDP target later this week.
Not only did we see exports slide 15%, missing expectations of a 10% gain by a large margin, but imports also came in lower
, dropping 12.7% outside expectations of a 10% slide.
These data misses raise concerns that not only is the Chinese economy failing to rebalance with demand remaining low, but also the global economy’s demand for Chinese exports is also falling back raising concerns about the state of the global recovery as well.
If this week’s industrial production and retail sales numbers also disappoint,
which seems a distinct possibility now, particularly with iron ore prices remaining weak and tracking lower we can expect that any disappointment in this week’s Q1 GDP number to translate into a rising expectation of further easing measures
to ensure that the Chinese economy hits its 7% target, which on the basis of this morning’s data could well be quite difficult to meet.
Also this week, a number of other areas are likely to come into focus, with US earnings season set to get under way in earnest
, with concerns about the stronger US dollar being outweighed by expectations of higher dividends and buyback activity with US shareholders expected to be on the receiving end of record pay-outs for 2015.
In the UK,
rising expectations of political gridlock in the lead-up to next month’s election have started to weigh on the pound, sending it to a five year low against the US dollar as both main political parties start to play Russian roulette with their economic credibility by making unfunded election promises in order to try and steal a sustainable lead in the opinion polls.
On the data front this week the latest inflation numbers could see CPI prices turn negative for the first time ever,
while the latest average earnings and unemployment data on Friday could give a boost to the Tories if they reinforce the recent recovery by improving further.
Over the past few months, despite a recovering labour market the US consumer has remained circumspect in terms of their spending
, with retail sales remaining stubbornly weak, with weak spending patterns in Q4, which has spilled over into Q1. The March retail sales number tomorrow could well be crucial in determining whether the US consumer has been merely holding back due to bad weather, or whether they aren’t spending because simply they don’t want to.
We also have the latest ECB rate meeting,
where we can expect to hear the latest details of how well the recently started bond buying program is progressing, and whether the continued weakness in the euro might be a cause for concern, particularly with the increase in negative yields causing unnatural distortions in European bond markets.
– last weeks unexpected break below 1.0710 suggests that we could be set for a move back towards the March lows at 1.0460, having pushed below the 1.0600 level. Any rebound needs to get back above 1.0760 to suggest a return towards 1.0900.
– the pound continues to look weak pushing below the March lows of 1.4630 which suggest we could well be set to revisit the 2010 post-election lows at 1.4230. To stabilise the current decline we need to get back above the 1.4735 level and retest the 1.4900 area.
– while the euro holds above the 0.7220 level we could well see another test of intraday resistance currently at the 0.7280 level. A move through here has the potential to target the 0.7340 area. Below the 0.7220 area targets 0.7170.
– the US dollar continues to edge higher but needs to move conclusively above the 120.70 level to retarget the highs at 122.00. Support currently sits down at the 119.70 area.
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