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European stocks set for tepid start, UK lending data in focus

European stocks set for a tepid start

European stocks didn’t get off to the best start to the week yesterday, with big declines in energy as well as travel and leisure stocks, as rising Delta variant cases across Europe and Asia prompted the implementation of new border restrictions for vaccinated and unvaccinated travellers alike.

We heard yesterday that German chancellor Angela Merkel wanted to ban all UK travellers from coming into the EU due to rising Delta variant cases. While this isn’t a view that is shared across Europe, Spain has still announced that they want to see a proof of vaccination, or a negative covid test for those who want to go to the islands on the UK’s green list. Portugal is also insisting on certain safeguards with respect to visitors, just as the European summer holiday season starts to get into full swing, threatening another summer season wipeout for businesses in southern Europe, who were hoping to get some semblance of a tourist season.

Unfortunately, it's not just a European problem as the Delta variant starts to spread across Asia as well. In Australia, the Sydney region has implemented a full two-week lockdown, due to rising cases of Delta. With so few of the population vaccinated, it is highly probable this will get extended and unlikely that the borders will reopen quickly. Hong Kong also announced that it would also ban all UK travellers from Thursday this week in a bid to keep the Delta variant out.

US markets had a slightly better day of it with the Nasdaq and S&P 500 hitting new record highs, with tech stocks helping to support the wider market, however the Dow lagged behind as old economy stocks slid back. Today’s European open looks set for a tepid start after the losses of yesterday, after Asia markets also lost ground as concerns grow that the race between the vaccine and the virus is being lost.  

On the data front the latest UK lending data is expected to show that mortgage borrowing increased in May by £4.4bn, and up from £3.3bn in April as borrowers look to take advantage of the recent extension to the stamp duty holiday until the end of this month. Mortgage approvals appear to have stabilised between 80,000 and 90,000 a month, with expectations of 85,800 in May. Net consumer credit on the other hand has been more subdued, with net repayments every month this year. In fact, over the last 14 months UK consumers have paid down credit balances in 12 of those months, with households depositing an extra £10.7bn in their bank accounts in April. This morning’s credit numbers for May are expected to see the first lending increase since August last year.  

In the US we have the latest consumer confidence data for June which has seen quite a rebound in the last few months, from lows of 88.9 at the beginning of the year to 117.5 in April in the aftermath of the March stimulus payments that arrived on US doormats in April. While the recovery in sentiment has been impressive, it is only being intermittently reflected in consumer spending with retail sales underperforming in May, declining 1.3%, though we did see some improvements in March and April of 10.7% and 0.9%.

Nonetheless while the US economy is improving, sentiment still appears to be fragile, with rising gasoline prices acting as a brake on demand due to supply disruptions, while rising prices in other areas of the economy may well also be affecting demand. Expectations are for consumer confidence in June to rise to 119, from 117.2.

EUR/USD – still in a tight range above the 1.1850 area, with the 200-day MA at 1.2000 the next obstacle to a move higher. The key reversal from last Monday needs confirmation on a move through 1.2000 towards 1.2080. Below 1.1840 suggests a move to the 1.1704 level.

GBP/USD – currently looking a little soft with the 1.4000 level the key resistance. A break above 1.4020 opens up a move towards 1.4130. A move below 1.3870 opens up the prospect ot a move towards 1.3780. A break below 1.3780 suggests the potential for a move back to 1.3670.  

EUR/GBP – currently have resistance at the 0.8600 level, but has so far failed to push on, with resistance also at 0.8640. While below 0 8640 the bias remains for a return to the 0.8530 area, and last week’s low. Below 0.8530 opens up the 0.8480 level.  

USD/JPY – finding resistance just below the 111.20 level for now, which could see a move back towards 110.20 in the interim. Uptrend remains intact while above the 110.00 trend line from the lows this year. A move below this support opens a move back towards the 108.60 area.

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