OWe saw a good start to the trading week for European markets yesterday, with decent gains across the board, but before we got too bullish, yesterday’s moves kept us below the highest levels. high observed this month.
US markets also had a good day, building on the rebound we saw on Friday from the 18-month lows of the Nasdaq and S&P500 to close slightly higher.
After falling for 7 straight weeks, US markets were a little slow to rebound, and unlike the declines of recent weeks, yesterday’s Nasdaq 100 rally lagged the Dow Jones and S&P500, which led the rise yesterday. We may well see further gains in the days ahead, but as with any bear market rally, we need to see movement above previous reaction highs to be confident that a short-term bottom is in place.
For that, we need to see sustained movement above 12,600 in the Nasdaq 100 and 4,100 in the S&P500, and we’re still a long way from that, as US futures fell sharply after Snap cut its forecast for the second quarter.
While US markets closed in solidly positive territory yesterday, momentum waned overnight so today’s European open is expected to be negative with the focus today on UK public sector borrowing and flash PMI data, as well as comments from the ECB. President Christine Lagarde.
UK public sector borrowing for April is expected to show an increase of £17.9bn, a modest increase from March’s £17.3bn figure. Nonetheless, today’s figures are still expected to mark a significant drop from the same month last year and the year before, when the UK government borrowed £28.3bn and £47.8bn respectively. sterling, because of the huge measures that have been taken to support the British economy. during the pandemic.
This fall certainly marks progress, but it is still well above the levels we saw in the years leading up to 2020, when public sector borrowing in April for 2019 was just £6.2tn.
Today’s flash PMI numbers are rapidly losing credibility, at least in terms of headline numbers, when it comes to assessing whether or not the French, German and UK economies are resilient.
In terms of the wider economy, it is quite evident that economic growth is struggling across the bloc as well as here in the UK.
However, looking at the PMI figures, it would be tempting to think that all is well. Nothing could be further from the truth with rising energy prices and supply chain disruptions posing significant challenges for businesses large and small.
The manufacturing and services PMIs are all expected to slow from the numbers we saw in April, which were all in the mid-50s for the three countries of the UK, Germany and France, but the slowdown should not be significant.
In France, the manufacturing sector is expected to slow to 55.2 from 55.7 and services from 58.9 to 58.5.
In Germany, manufacturing is expected to slow to 54, from 54.6, and services from 57.6 to 57.1.
In the UK, manufacturing is expected to slow to 55, from 55.8, and services from 58.9 to 57.0.
We also have the latest CBI retail sales figures for May, which are expected to see a slight improvement from -35 in April to -30.
The US dollar slipped slightly yesterday, with the euro nearing a four-week high, after ECB President Christine Lagarde and a few other members of the Governing Council indicated that rate hikes would begin in July in a blog. post yesterday. She is expected to elaborate on those comments in an interview at Davos later this morning.
EUR/USD – continued to push higher, above the 1.0650 area and looks set for a test of the 1.0800 level where we have trendline resistance from the February highs, as well as the MA of 50 days. We currently have support at the 1.0530 area.
GBP/USD – moved above the 1.2520 area, but now we need to see a move beyond the 1.2630 area to say that a short-term base is in place. We now have tentative support in the 1.2470 area, and below that in the 1.2320 area. Above 1.2630 argues for a return to the 1.2830 zone
EUR/GBP – has rebounded from the 0.8420/30 area, with resistance still at last week’s highs at 0.8525/30.
USD/JPY – still have strong support just above the 126.80 area, but we are currently struggling to break above the 128.30 level. A break below targets the 123.00 area. If 126.80 holds then a move towards the target of the 135.00 area remains intact.
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