As we come to the end of a historic week and month for stock markets with new highs being posted across the board, the FTSE100 continues to lag behind its peers, in Europe, and with US markets posting yet another indifferent session European markets look set to open mixed this morning. Once again yesterday it struggled to move beyond its recent highs, getting left behind by its sibling the FTSE250, as well as the German DAX, as both put in new record highs, while the EuroStoxx 50 also put in multi-year highs as well. As we come to the end of February and the beginning of ECB QE next week, stock markets continue to look supported, while the euro slid sharply yesterday, as government bond yields across Europe continued their falls to record lows, right across the yield curve. In some parts of the European bond market this has caused yields in some countries to push into negative territory. To get a gauge of the problem of negative yields, when looking at 2 year yields, only 4 countries show yields in positive territory, and they are Italy, Portugal, Slovenia and Spain, and they aren’t far away, while all the rest are negative. Cyprus and Greece aren’t included. This is likely to present a problem for the ECB when they embark on QE next week, given that they could face a shortage of bonds to buy, due to a reluctance to sell. This is because banks are unlikely to want to sell these bonds due to a desire to keep their capital buffers up to the required regulatory levels, and that’s before we even think about the downside of a negative yield. As it is, deflation risk is already driving more investors into bonds, which means, unlike the Fed, the ECB isn’t going to be the only buyer. Today’s February CPI data from Italy, Spain and Germany is likely to reinforce these deflation concerns with the latest numbers all expected to come in negative at -0.3%, -1.5% and -0.5% respectively. This week’s cautious testimony to lawmakers on Capitol Hill from Fed Chair Janet Yellen indicates that the US central bank remains uncertain about the timing of a possible rate hike. This week’s economic data does appear to reinforce that uncertain narrative after weekly jobless claims once again jumped sharply above 300k and January CPI came in slightly weaker than expected at -0.7%, though core prices remained fairly steady. This further evidence of weaker prices once again undermines the prospect that we might see a rise in US rates in the near term, though a slight rise in core prices yesterday, gave the US dollar a bit of a boost. While there is understandably a lot of focus on the robust jobs data we’ve seen in the past few months, the spending patterns of US consumers which make up 70% of the US economy have been anything but robust. Durable goods for Q4 saw a decline of 3.2%, while retail sales were flat, and consumer spending at its lowest levels since 2009. Today’s economic data release of the latest US Q4 GDP number is expected to reinforce those concerns about a slowdown in the US economy, and is expected to see another downward adjustment. Expectations are for a downward revision from the previous 2.6% to 2%. EURUSD – yesterday’s break below 1.1270 has seen the euro fall sharply back below the 1.1200 area. This remains a key level on a monthly close, and could well argue for further losses towards 1.0800. Resistance remains near the 1.1450 level, with resistance behind that at the highs this month at 1.1530. This remains the next target on a move through 1.1460. GBPUSD – yesterday’s drop below 1.5460 suggests we could well have topped out with a key day reversal which means that we could well fall all the way back towards the low 1.5300’s. Only a move back below the 1.5280 area argues for a move back towards 1.5200 and a retest of the 1.5000 lows this month. EURGBP - while below the 0.7460 level the pressure remains on the downside and a move towards the 0.7250 level. If we push below here then we could well see further losses towards 0.7000. USDJPY – the US dollar continues to ping pong within its recent range rebounding from 118.60 earlier this week. The 119.80 level this week remains a key obstacle for a return to the high 120.00’s. CMC Markets is an execution only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.