As is so often the case after a strong market reaction to an unexpected piece of data, there comes a period of reflection which often brings a counter reaction and we saw just such an event yesterday as US markets pulled back some ground after Friday’s sharp jobs data related selloff.
Despite this rebound, concerns remain about the prospects of a Federal Reserve rate hike
in the coming months, which when set against the start of a large European QE program is likely to see the euro weaken further and the US dollar strengthen in the coming weeks.
These concerns already appear to be hindering upside progress in the UK’s FTSE100
after another sharp fall yesterday, as both the strength of both the US dollar and the pound against the euro, both at multi year highs, undermine earnings potential here, as we look to another negative open this morning.
The German DAX appears to have no such constraints pushing to another record high
as the European Central Bank began its bond buying program six years to the day after the Federal Reserve started its own program.
With only industrial production numbers from the other European underperformers, Italy and France to worry about today
, both of which are expected to come in on the weak side, European markets look set to open slightly higher, as investors continue to monitor events in Greece, where European finance ministers continue to urge Greece to stop wasting time
and come forward with some credible new proposals, ahead of a scheduled €350m payment to the IMF due on Friday.
Unfortunately tensions look set to remain high particularly
after a rather unnecessary outburst yesterday from the Greek defence minister who threatened to unleash a wave of economic migrants if Europe allowed Greece to go bust.
On the economic data front the latest Chinese inflation data pointed to an economy where prices still remain weak,
despite CPI edging higher to 1.4% factory gate prices slid further, by 4.8%, further raising the prospect of further easing from the Chinese central bank.
The latest BRC retail sales numbers for the UK matched January’s rise of 0.2%
, coming in at also coming in at 0.2%, and continuing the rebound from the sharp fall of 0.4% seen in December. This continued improvement suggests that consumers feel more confident about spending as wages start to outstrip inflation for the first time in over five years.
Later on today we also get to hear speeches from Bank of England governor Mark Carney, and MPC member Ian McCafferty
– the euro continues its decline and we’ve seen the move towards 1.0800, with potential for further losses towards 1.0500 in the coming weeks. To stabilise we would need to see a move beyond 1.0980 initially and then the resistance at the 1.1250 area. Only a move back through 1.1270 re-targets the 1.1450 area and last week’s high.
– the pound looks set to retest the lows this year at 1.4950, after pushing through the 1.5120 level, but could find some support at the 1.5000 level in the interim. To stabilise we would need to see a rebound back through the 1.5130/40 level, and then behind that at the 1.5350 level.
– having broken below the 0.7230 level at the end of last week the euro continues to fall and looks set to push lower towards the 0.7000 level. To stabilise we need to get back through the 0.7240 area, which would then argue for a move back towards the highs last week at 0.7300.
– having pushed up to 121.45 so far the US dollar looks set for a retest of the 121.85 highs of last year. A move through 121.85 has the potential to target the 2007 highs at 124.20. We need to hold above 119.80 for this scenario to unfold.
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