European stocks had a mixed day yesterday with the FTSE 100 amongst others underperforming, though a large part of the reason for that was the fact that Astrazeneca Plc (LONDON:AZN) shares dropped over 10%, on the company’s rejection of Pfizer Inc (LONDON:PFZ)’s £55 per share offer, helping drag the UK index into negative territory.
By contrast both the DAX and CAC 40 managed to finish in positive territory yesterday, as did US markets last night, and this is likely to translate into a cautious but mixed European open this morning.
While stocks were able to enjoy a mildly positive session yesterday it was only largely due to a fairly positive performance from defensive sectors as concerns continued to reverberate amongst investors about last week’s disappointing European GDP numbers.
In virtually every case the GDP numbers disappointed with the exception of German Q1 GDP data which proved to be slightly stronger than expected, coming in at the same level as UK Q1 GDP data at 0.8%.
With no European data of note out until later this week the focus today lies on the UK economy after Bank of England governor Mark Carney’s dovish comments last week in the aftermath of the most recent quarterly inflation report.
The decision to leave the UK economy’s growth and inflation forecasts unchanged for 2014 feeds into an expectation that rates won’t rise before next May’s general election, and today’s latest inflation data for April could well be expected to reinforce that narrative, though a sharp rise in the annual CPI rate could prompt a sharp move higher in the pound if, as expected, the annual rate rebounds from the multi-year lows of 1.6% we saw in March.
If, on the other hand, the CPI number comes in weak then we could see a sell-off in the pound back towards last week’s lows, as traders throw in the towel on a possible test of $1.70.
Consumer prices are expected to rise 0.3% month on month and 1.8% on an annualised basis, putting them back above last week’s disappointing average earnings numbers.
Retail prices are expected to rise annually by 2.6%, a slight increase from 2.5% in March, while house prices are expected to continue to their recent pace of sharp rises, coming in at 9.6% for March, from 9.1% in February.
EUR/USD – the euro continues to hold above the 1.3650 level which keeps us within the borders of the double top pattern we talked about last week. A break below 1.3650 is needed to signal the potential completion of a double top reversal pattern and trigger further declines towards the 200 day MA at 1.3620 initially, and then the February lows at 1.3480. We need a move back above the 50 day MA and through 1.3780 to stabilise and retarget 1.3850.
GBP/USD – the pound has managed to rally from last week’s lows at 1.6735 and remains above the next support at the 50 day MA at 1.6735, and trend line support from the November lows at 1.5855. A fall below 1.6700 could well signal further declines towards 1.6625 and the 200 day MA. We need to recover back through 1.6900 to mitigate this scenario.
EUR/GBP – last week’s rally off 0.8128 stalled out at 0.8185, but we really need to break through 0.8200 to signal a base is in. The price action thus far would suggest a move towards 0.8090 on a move through 0.8125. Only a move back through the 0.8200 area hints at a return towards 0.8250, and open up a retest of the 0.8300 area. The 0.8090 level and the 2013 lows remains the next key support.
USD/JPY – the failure to break below the 200 day MA keeps the upside potential intact for now, but the rallies continue to remain weak. A close below 101.20 could well see sharp move towards 100.00. We need to see a recovery back through the highs this month at the 102.80 level to suggest a move back to the highs at the beginning of April at 104.10.
Equity market calls
- FTSE 100 is expected to open 6 points higher at 6,850
- DAX is expected to open 4 points higher at 9,663
- CAC 40 is expected to open 8 points lower at 4,461
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