US markets staged a nice about turn yesterday after two successive days of declines after Treasury Secretary Steve Mnuchin hinted that a major tax reform plan was close, which appeared to be at odds with earlier comments this week that a plan by August may well be delayed.
This constant flip flopping, as well as economic data that appears to be showing some signs of softening is keeping US stock markets in the range they’ve been in for the past month or so.
With all eyes on the first round of the French presidential vote this weekend, the France CAC 40 outperformed yesterday as markets started to price in the prospect of the independent candidate Emmanuel Macron making it through to the second round of voting against Marine Le Pen, or possibly Jean Luc Mélenchon who has enjoyed a late surge in the polls.
Whether it will be enough to deliver him into the second round is debatable, but markets are starting to price in the prospect that Macron will probably win a contest between either of the other two contenders.
Let’s hope he doesn’t get squeezed out, particularly in light of last night’s terrorist attack in Paris, which given the tightness of the polls, could influence events, leaving investors to face the prospect of a face-off between Marine Le Pen on the right and Mélenchon on the left. Any such outcome is unlikely to be well received by the markets.
Against this backdrop it is likely that today’s French and German flash manufacturing and services PMI’s are likely to play second fiddle, despite the fact that they will probably show that the recovery in economic activity being seen this year in France is likely to continue into April.
Expectations are for manufacturing to come in at 53.1 and services 57.2, both slightly down from March.
In Germany these numbers are also expected to soften slightly to 58 for manufacturing and 55.5 for services.
The UK consumer is also set to be in the spotlight today along with the pound after this week’s strong rebound in the wake of this week’s election announcement.
We saw a big rebound in March retail sales of 1.4% after three months of weak numbers, and while this was welcome it doesn’t disguise the fact that rising prices have been squeezing consumer incomes and curbing spending habits in recent months.
Having said that inflation does appear to have plateaued a little and employment levels remain high while wages are just about holding up. Could we see a March surprise or will we see the numbers fall back? Expectations are for a decline of 0.3% with annualised sales falling to 3.4%.
EUR/USD – has edged above the 1.0750 level, with the break opening up the potential to push up towards the 1.0850 area and March peaks. The uptrend from the January lows remains intact while above the 1.0600 level.
GBP/USD – the pound appears to be finding support around the 1.2780 level but has thus far struggled to retest this week’s highs above 1.2900. Upside momentum towards 1.3000 and 1.3300 remains intact while above the 200 day MA as well as the break of its triangular consolidation at 1.2600.
EUR/GBP – key support currently lies just above the lows this week and last December at the 0.8300 level. Until we get a move below here the potential for a short squeeze back to the 0.8450 area and even 0.8500 remains high. A move below 0.8300 has the potential to open up a move towards 0.8000 initially. A recovery back through the 0.8450 level is needed to stabilise.
USD/JPY – the 108.00 level and the 200 day MA is holding for now but we need to break back above the 110.20 area to stabilise. Initial resistance comes in at the 109.40 area for the current rebound. A break of the 108.00 level could well trigger losses towards the 105.00 level quite quickly.
FTSE 100 is expected to open 5 points higher at 7,123
DAX is expected to open 13 points higher at 12,040
CAC 40 is expected to open 4 points higher at 5,081
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