After hitting all-time highs earlier this week both European and US markets had a sharply negative session yesterday
, after the World Bank downgraded its estimates for 2014, from 3.2% to 2.8% blaming the tensions in the Ukraine and tighter global financial conditions.
Even though none of the factors cited by the bank was anything not already known to investors, it does appear to have prompted some light profit taking, sending the S&P500 to its biggest one day loss since the 20th May.
For now investors appear to be of the opinion that the move yesterday was nothing more than a little caution being exercised in a thin market in the absence of any significant further positive reasons
for pushing markets to new record levels, after last weeks ECB, and US employment report prompted rally.
As far as today’s market activity is concerned
it is worth keeping one eye on the deteriorating situation in Iraq
, particularly if events there spiral further out of control and cause oil prices to spike higher
, which could spook investors, already a little bit twitchy about high valuations.
On the economic data front the latest US retail sales numbers for May
are due to be released against a backdrop of continued degree of uncertainty about the strength of the US economy in Q2 in particular and overall in general since the beginning of 2014.
The more data we seem to get from Q1, the more the final US GDP number estimates seemed to get revised lower, with some estimates that the number two weeks ago of -1% could well get revised lower still, towards -1.6%.
When you consider that markets were looking for a number of 1.2% for Q1 at the end of April, then we will have seen a swing
of over -2.5% in a matter of weeks.
This means that any rebound in Q2 will need to be almost Lazarus like in its strength
to offset the slowdown in Q1, and also justify the valuations being priced in by stock markets against a back drop of a slowly reducing Federal Reserve stimulus program.
To date the data we’ve seen so far this quarter doesn’t support that type of economic rebound, even though the data has been a lot more positive.
Last weeks economic data was OK but the jobs growth number on both ADP and non farm payrolls numbers needs to be nearer 300k+
, than the numbers seen last week, while US retail sales needs to be a lot stronger than they have been in recent months.
So far this year we’ve seen Q1 sales of 1.5%, while the April numbers came in at a miserly 0.1%
, which means for us to have confidence in a bounce back in the US consumer, and the economy in Q2, as well as justify improved consumer confidence numbers, we need to see a really strong May number this afternoon, well above the 0.6% estimate markets are looking for.
Weekly jobless claims are also set to come in around 310k slightly down on last weeks 312k.
– while we remain below the 1.3580 level the risk remains for a test lower towards the lows last week at 1.3503 and then on to 1.3480, the lows this year. Below the lows this year we also have key trend support from the 2012 lows at 1.2045, which now comes in just above 1.3445. Only a move back through 1.3600 would argue for a move back towards 1.3675, with a break above targeting the 1.3780 level.
– yesterday saw another failed attempt above the 1.6800 level and while we remain below trend line resistance now at 1.6820 from the highs this year at 1.6998, the risk remains for a move lower. Only a break through here risks a return to the 1.6920 area, and then the 1.7000 level.
Support remains just below 1.6700, as well as the 100 day MA at 1.6690.
– the euro continues to drift slowly lower towards the first target at 0.8035 the December 2012 lows, with intraday resistance at 0.8085. A break through 0.8030 would then target 0.7960 the lows in November of the same year.
The pressure remains on the downside while we remain below trend line resistance from the March highs sitting just below the 0.8140 level, the risk remains for further declines.
– yesterday we slipped back towards intraday support at 101.80 before rebounding A move back through here retargets the range trade lows of last week near 101.00. The range highs remain anywhere below the 103.00 area and last weeks high at 102.75.
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