Bond prices and equity markets continued to push higher in unison
yesterday with German bunds and US treasuries seeing yields move lower, while stocks rose after US durable goods posted a strong upward revision for March which has raised expectations that this week’s US Q1 GDP downward adjustment may not be as bad as first thought. US housing data also improved along with consumer confidence.
Given current sentiment it is increasingly difficult to imagine what the catalyst would be to prompt any sort of sharp downward move in equity markets
given how markets continue to go from strength to strength on a day to day basis, with their ability to cast aside any form of negative narrative.
Yesterday we saw the German DAX and the S&P500 post new record highs once again
with the prospect of further gains; if as expected today’s economic data continues to come in on the positive side, as investors buy into a narrative of improving economic data and a backdrop of a further loosening of monetary policy from the ECB at next week’s rate meeting.
It would appear that European investors are banking on some form of substantive action from the ECB next week
to avert deflation concerns, but the danger remains that the bank could well be inhibited by its mandate, as well as German political considerations which mean the potential for disappointment remains all too real.
Last weekend’s European election results highlight the political risks
all too starkly with the rise of anti-euro parties, causing consternation in political circles in Brussels.
This consternation has even spread to Germany where the rapid rise of AfD has served to illustrate some disquiet amongst German voters as to the longer term costs of the euro which could poison the well further if the ECB is seen to act politically.
The fear is that while it is unlikely that we will be getting anything like shock and awe from the ECB next week
, with market expectations still probably way too high, we could in fact get something more akin to bubble and squeak.
As for today while we don’t have any US data to speak of, German May unemployment data could well provide a catalyst for the DAX to push towards the 10,000 level
, particularly if it continues to come down.
Given last week’s sharp improvement in German May services sector PMI data
, we could well see a further decline in the monthly jobless numbers with expectations of a 15k fall. The unemployment rate is expected to remain unchanged at 6.7%
– the euro continues to find support just above its recent lows at 1.3610, without being able to close conclusively below the 200 day MA, now at 1.3635. It seems that only a move below 1.3600 could signal further declines towards 1.3480. We need a move back above the 50 day MA and through 1.3780 to stabilise and retarget 1.3850.
– yesterday’s dip to 1.6780 proved to be all too brief but still managed to stay above the 50 day MA and trend line support from the November lows now at 1.6756, but downside pressure does seem to be building with trend line resistance now sitting at 1.6890 from the highs this year. A move back above 1.6890 retargets the 1.7000 level.
– given the inability to push below the 0.8070 level the last four days the risk is for a short squeeze back towards 0.8130 initially and trend line resistance from the March highs sitting just below the 0.8200 level. With a new low at 0.8080 a break lower could well see further losses towards 0.8035.
– last week’s brief break below the 200 day MA wasn’t able to push beyond the lows this year at 100.65, and the subsequent snapback could well see a return towards 103.10 and the highs this month. We need to push beyond the 50 day MA first currently at 102.25. We need to see a close below 101.20 to target a move towards 100.00.
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