For most of last week we saw US and European markets move in opposite directions to each other, but yesterday they moved in conjunction with each other with the German DAX
again making new record highs as it busted through the 12,000 level for the first time ever, and in the process saw its year to date gains push well above 20%.
Sentiment found support from three areas,
starting with weekend comments from Chinese leader Li Keqiang that authorities still had room for more stimulus in the event that the recently announced growth target of 7% might miss expectations and fall short.
The continued weakness in oil prices also served to help equity markets, given the continued downward pressure it places on inflation pressures, while weak US data also helped, ahead of the start of today’s two day Fed meeting.
The comments from the Chinese leader were particularly welcome
given the overall weakness seen in the Chinese data seen in the last week or so, as industrial production as well as retail sales fell back sharply, while imports showed significant weakness.
US markets also saw a strong rebound, as did the FTSE100
after we saw yet more weak US economic data raising the prospect that the conclusion of tomorrow’s Federal Reserve rate meeting might not generate the hawkish outcome that many in the markets are expecting.
Following on as yesterday’s data did from last week’s disappointing retail sales numbers, weak PPI numbers, industrial and manufacturing production came in much weaker than expected
, sowing further seeds of doubt about what might come out of tomorrow’s statement.
On the menu for today is the latest German ZEW economic sentiment indicator for March,
and given the gains seen in the DAX thus far it wouldn’t surprise to see a significant jump in confidence to the highest levels in 12 months.
We also have the final European CPI number for February
which is expected to show a slight improvement to -0.3% from -0.6% in January, though core prices are expected to stay steady at 0.6%.
In Berlin German Chancellor Angela Merkel is due to meet ECB President Mario Draghi
where the subject of the ECB’s bond buying program could well come up for discussion, given yesterday’s publication of the latest numbers for the central banks first week of bond buying with €9.75bn of sovereign bonds bought in the first week.
While Greece managed to make another payment to the IMF yesterday,
relations between Germany and Greece continue to remain fractious, with Greek finance minister Varoufakis claiming that a video filmed in 2013 of him sticking the finger to Germany had been faked.
It will certainly make for an interesting back drop for this week’s EU summit meeting
between Chancellor Merkel and Greece Prime Minister Tsipras, as officials strive to arrive at a deal that can keep Greece inside the euro zone.
– the euro managed to briefly pull back above 1.0600 yesterday, after failing to push below 1.0450, but it needs to get back above 1.0630 to suggest a larger pull back towards 1.0800. The risk remains for a significant short squeeze given we still remain rather overextended, as the market looks for the move towards parity.
– having found some support at 1.4700 the pound has rebounded but needs to push through 1.4960 trend line resistance from the February highs at 1.5555. In the first instance we need to get back through the 1.4830 level to stabilise and signal a move back towards 1.5000.
– the euro continues to find some support just above the 0.7100 level, which suggests that we remain at risk of a move towards the 0.7230 level. Only a concerted break below 0.7000 could potentially open up a move towards 0.6600 and levels last seen in late 2007.
– the failure to push beyond the new multi-year high at 122.05 last week could prompt a pull back towards the 119.80 area in the short term, but while we hold above this level the prospect of a move towards the 2007 highs at 124.20 remains.
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