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The FTSE100 is expected to open 5 points higher at 6,632, the DAX is expected to open 14 points higher at 8,350 and the CAC40 is expected to open 13 points higher at 3,987

The last two days for equity markets have been somewhat of a roller coaster as investors try and determine whether or not the prospect of Fed tapering is a positive, or a negative for stocks. The fact that the OECD added to the gloom yesterday with a raft of downgrades to its growth forecasts has added to the murky economic picture as investors wrestle with the conundrum of rising stock market valuations against a backdrop of shrinking economic activity. 

 

While we saw a negative finish on Wall Street last night stocks did manage to finish off their lows, which suggests we could well see a positive open here in Europe this morning.

 

Even so the gains seen early on in the week have been pretty much wiped out as markets struggle to maintain the positive momentum that had more or less been taken for granted until last week’s first negative weekly close in five weeks.

 

For now the jury remains out but the fact that bond yields are starting to edge higher suggests some market participants are concerned that tapering could well happen sooner rather than later and have decided to take some money off the table.

 

The recent rise in yields isn’t good news for peripheral bond yields either as money has come out of these markets as investors become slightly more risk averse.

 

Bond yields on Spanish and Italian bonds have edged higher again which is particularly bad timing for Italy which has a 10 year bond auction today where it is likely to see a significant increase in yields from the last auction when they came in at 3.94%.

 

As a reminder of the problems facing Europe we also get the latest adjustment to the Q1 GDP numbers for Spain with expectations of a decline of 0.5%, no change from the previous assessment, while we also get the latest European economic confidence numbers for May which are expected to improve slightly but remain at low levels.

 

As for today the main activity is likely to involve the release of some more US economic data with the latest revision to US Q1 GDP, with particular attention likely to be paid to the personal consumption component. Both are likely to be unchanged at 2.5% and 3.2%.

 

The latest weekly jobless claims will also be scrutinised with expectations of 340k, unchanged from a week ago. US pending home sales for April are also expected to show a rise of 1.3%, slightly down from the previous rise of 1.5% in March. The year on year figure is expected to rise to 12.6% from 5.8%.

 

EURUSD – continues to be capped by the 50 day MA at 1.2980 with stronger resistance at the 200 day MA, at the 1.3030 level. Dips continue to be fairly well sought after with the recent lows at 1.2800 continuing to offer decent support. Only the twin lows at 1.2750, which we last saw in March and April, remain the main obstacle to a move lower, towards 1.2680. Only a move above 1.3040 argues for a move towards 1.3200. 

 

GBPUSD - a marginal new low at 1.5010 yesterday but the failure to take out the 1.5000 level provoked a sharp rebound which keeps alive the possibility of a rebound towards last week’s high at 1.5280. Only a break below 1.5000 suggests that we could well see a move back to this year’s lows at 1.4830. We need to see a move back through 1.5280 and last week's high to stabilise and suggest a move back to the 1.5400 level.

 

EURGBP – the euro continues to find the air anywhere near the April highs above the 0.8600 level a little thin. While above the 0.8520 level where we have the 200 week MA keeps the bias for a move higher. Only a move back below 0.8520 negates and suggests further range trading towards 0.8450. 

 

USDJPY – downward pressure predominates here with the key reversal week and bearish daily candle last week putting the pressure on for a move towards the 100.00 level in the near term. Only a move back below 99.80 retargets 98.50 and delays a move towards the highs at 103.75 and the 105.50 area.

In an almost complete reversal of yesterday’s price action the bears have reasserted themselves today, overturning the brief return to optimism as European equity markets slide back sharply on the back of rising bond yields.

 

The yield on US treasuries rose to its highest level in 12 months on growing concerns that the Fed could well be getting nearer to the point of a possible paring back in its current asset purchase program.

Instead of the usual “risk on, risk off” scenario (RoRo), we’ve become used to, now we have to contend with the new “taper on, taper off” scenario or (ToTo) which is likely to dominate market sentiment until the next Fed meeting on June 18th and 19th, and even possibly beyond that.

 

This concern saw Europe’s markets open lower this morning, and the declines had further fuel added to the fire by the OECD who in their latest assessment of the global economy revised their outlook down again, this time from 3.4% to 3.1% on a global basis.

 

The reductions in Europe were even deeper with a revision of EU GDP down from a contraction of 0.1% to a contraction of 0.6%, while France’s GDP target was slashed as well from 0.3% to -0.3%.

The OECD also voiced its concern that without some form of QE in Europe and negative deposit rates we could well see further forecast reductions in the coming months.

 

The IMF also got in on the act early on by downgrading their expectations for Chinese growth from 8% to 7.75%, however the effect of this was somewhat muted given that they were moving it in line with markets had been pricing in for some time now.

 

All FTSE sectors are in the red today with the more defensive sectors bearing the brunt with Utilities and Health care on the slide.

 

National Grid (NGG), Centrica (CNA), Scottish and Southern (SSE), all high yielders, are all lower over concerns about the sustainability of their current dividend policies.

 

Retailers have also taken a hit after CBI retail sales plunged the most in 16 months in May. It seems higher energy prices and below inflation wage growth along with tax changes in the new tax year have constrained consumer spending.

 

Also slipping back after going ex-dividend are Marks and Spencer (MKS), despite getting a price target upgrade from Bernstein and Bank of America Merrill Lynch, while AMEC (AMEC) is also lower.

On the plus side the miners are having a slightly better day of it with Eurasian Natural Resources (ENRC) outperforming despite the likelihood it will lose its place in the main benchmark index at the next re-rating. 

 

US markets opened lower today on the back of the about turn in Europe’s markets as downgrades from the OECD and the IMF temper yesterday’s brief return to optimism. A continued improvement in US economic data suggests that the US patient could be about to have its monetary crutches taken away and be allowed to stand on its own two slightly unsteady feet. This appears to be driving money out of the bond markets as yields push higher, and in turn causing a little profit taking on the part of nervous investors after yesterday’s failure to take out last week’s all-time highs.

 

Apple shares are likely to be in focus in light of recent comments from CEO Tim Cook about what the company is looking at with respect to future product development plans.

 

US retailer Michael Kors is also in focus after the company announced a jump in Q4 earnings with broad sales growth across all segments.

The US dollar has slid across the board today somewhat surprisingly given the sharp rise in 10 year bond yields.

 

The Japanese yen has managed to reverse its losses from yesterday after Bank of Japan head Kuroda emphasised the need for a stable financial system, while rising Japanese bond yields have helped support the currency.

 

Even the pound has gained against the dollar despite some awful retail sales numbers for May, the worst since January 2012, highlighting the precarious state of the UK economy as we head in to Q2. The OECD also downgraded its growth forecast for the UK economy by 0.1% to 0.8%.

 

The euro continues to cling to its Teflon capabilities despite a bigger than expected increase in German unemployment and a sharp growth downgrade from the OECD of the euro area. Renewed calls for negative deposit rates by the OECD appear to have been shrugged off in the same way as previous comments on the subject.

 

The Australian dollar has continued its weaker tone, touching its lowest levels since October 2011 as narrowing yield differentials continue to work in the US dollar’s favour.

 

Crude oil prices appear to have run into a bit of a wall after comments from the Saudi oil minister that he saw no need to alter OPEC production targets at this week’s meeting of OPEC on Friday, and this has limited their recent upside potential given today’s OECD downgrades of global growth. If OPEC won’t cut production then it’s hard to see a reason for prices to go up given the weak global growth outlook.

Gold and silver prices have remained fairly steady with gold continuing to knock on the $1,400 level ceiling without success.

The FTSE100 is expected to open 22 points lower at 6,740, the DAX is expected to open 13 points lower at 8,468 and the CAC40 is expected to open 13 points lower at 4,043

Having seen a strong rebound yesterday driven by much better than expected US housing data and consumer confidence data Europe’s markets look set to take a breather and open lower this morning ahead of the annual European Commission evaluation of the budget plans of all 27 EU states, as it looks to implement its excessive deficit reduction procedures.

 

Of particular interest will be what conditions the commission imposes on France and Spain in exchange for extending the time for these economies to get their deficits below the 3% as stipulated by the excessive deficit reduction procedure.

 

While concerns remain regarding the health of the broader European economy investors seem comforted by the fact that whatever happens economically the likelihood of any prospect of significant credit tightening seems remote and as such they remain of the view that stock markets are good bets to buy on dips.

 

The divergence between the German economy and the rest of Europe is once again set to be put into sharp focus today with the latest May German unemployment numbers set to remain at their current low levels of 6.9% with a rise of 5k expected.

 

The latest inflation numbers are expected to show that May CPI remains well below the ECB’s 2% target rate at 1.3%, raising once again the possibility that the ECB could well cut rates at next week’s monthly rate meeting.

 

Speculation about negative deposit rates continues to be particularly divisive amongst ECB members with French ECB member Christian Noyer stating yesterday that he remains unconvinced about the need for negative deposit rates.

 

Irrespective of whether we get negative deposit rates the problems in Europe are likely to be thrown into sharp focus later today as the OECD delivers its May economic outlook for the Euro area and the findings aren’t likely to be positive with France in particular set to be in the spotlight as its economy continues to diverge away from Germany’s.

 

In Spain the economic data continues to remain poor, with adjusted retail sales set to show a decline in April of 6.4%, a slight improvement on March’s 8.9% fall.

With mortgage lending showing a year on year fall of 34% yesterday, concerns remain about the state of the Spanish banking sector after Bankia shares fell sharply again yesterday after another 11bn shares hit the market as part of another multi-billion euro recapitalisation of the troubled bank.

 

In the UK the latest CBI retail sales numbers for May are expected to show an increase from the brief dip into negative territory in April to a positive reading of 4 and the best reading since February.

 

EURUSD – the single currency continues to run into selling pressure near to the 200 day MA near to the 200 day MA, just above the 1.3000 level. On the other hand any dips continue to be fairly well sought after with the recent lows at 1.2800 offering decent support. Only the twin lows at 1.2750, which we last saw in March and April, remain the main obstacle to a move lower, towards 1.2680. Only a move above 1.3020 argues for a move towards 1.3200. 

 

GBPUSD - the pound continues to find support at the 1.5020/30 level suggesting the possibility of a rebound. Only a break below 1.5000 suggests that we could well see a move back to this year’s lows at 1.4830. We need to see a move back through 1.5280 and last week's high to stabilise and suggest a move back to the 1.5400 level.

 

EURGBP – the euro continues to find the air anywhere near the April highs above the 0.8600 level a little thin. While above the 0.8520 level where we have the 200 week MA keeps the bias for a move higher. Only a move back below 0.8520 negates and suggests further range trading towards 0.8450. 

 

USDJPY – the moves at the end of last week could well see a delay to the 105.50 area scenario. A key reversal week and bearish daily candle last week could well see the likelihood of a move towards the 100.00 level in the near term. The US dollar needs to get back above the 102.80 area to retarget the highs last week at 103.75. Only a move back below 99.80 retargets 98.50.

Despite there being very little evidence of a turnaround in economic fundamentals in Europe we’ve seen a complete about turn in sentiment after the sharp losses seen at the end of last week as investors pile back into equity markets on little more than continued central bank support from the Bank of Japan, and expectations of future support from the ECB after comments from ECB member Peter Praet that there was still scope to reduce rates further.

 

These gains were given an extra shove this afternoon after better than expected economic data from the US helped push the EuroStoxx50 to its best levels since 2011 and the DAX back to within 30 points of last week’s all-time highs. 

 

Poor consumer confidence data from France and a sharp slide in German import prices has fuelled expectations of further easing from the ECB at next week’s rate meeting. While these expectations of further ECB generosity has helped confidence in risk assets there is no getting away from the fact that Europe’s two largest economies continue to diverge away from each other.

 

Consumer confidence in France sits at its lowest levels since 2008, in complete contrast to Germany where it’s at its highest levels since September 2007, with no expectation that EU leaders have any idea of what to do about it.

 

The gains have been pretty broad based across all sectors with the notable exception of the basic resource sector which has lagged behind as concerns about the future trajectory of Chinese growth weigh down on the miners.

The worst performers have been Evraz (EVZ), Randgold Resources (RRS), Eurasian Natural Resources (ENRC) and Anglo American (AAL), as JP Morgan cut the target prices on a number of the sector.

 

On the plus side financial stocks are higher with Barclays (BARC) leading the gainers on expectations of continued central bank support. Even a downgrade from Citigroup for Lloyds (LLOY) hasn’t been enough to prevent the bailed out banks’ shares from having another good day.

 

Irish construction firm CRH (CRH) is having a good day on weekend reports that the Irish government is considering a €1bn fund to boost the construction sector.

 

Health care stocks are also doing well led by GlaxoSmithKline (GSK), higher on a broker upgrade and AstraZeneca (AZN) whose shares hit an eleven year high after announcing that it had agreed to buy US pharmaceutical company Omthera for $323m.

 

US markets have opened significantly higher today, following in the wake of Europe’s sharp rebound as well as a better than expected gain in the Case Shiller housing index for Q1, showing a gain of 10.2%, above expectations of 9.6%, and well above the previous 7.25%, to show their biggest percentage gain since 2006.

 

US consumer confidence also blew away expectations of a rise to 71.2 coming in at 76.2, its highest levels since 2008, helped in some part by the recent fall in oil prices.

 

In company news luxury retailer Tiffany posted Q1 sales in excess of market expectations helped by rising demand from Asia, though the gains were tempered slightly by the company maintaining its full year guidance.

 

Pharmaceutical stocks helped drive the gains with Merck and Johnson and Johnson leading the way.

 

The Japanese yen has come under pressure once again after Japanese policymakers reaffirmed their commitment to managing any potential volatility from the bond markets to ensure smooth transmission of monetary policy.

 

The Swiss franc has also slipped back as traders move back into the commodity currencies of the Australian and New Zealand dollar as commodity prices rebound from their recent lows.

 

The euro has also struggled to rally with any conviction held back by fears of lower rates, while improving US economic data has helped underpin the US dollar.

 

Oil prices have surged on the back of todays’ much better than expected US economic data as both housing data and consumer confidence rose to multi year highs, as optimism about economic recovery outweighed any concern about the possibility of the Fed tapering its asset purchase program. WTI and Brent prices look set to once again retest their recent range highs at $98 and $106 respectively.

 

This improvement in US economic data also manifested itself into a sharp selloff in both gold and silver prices.

The FTSE100 is expected to open 56 points higher at 6,710, the DAX is expected to open 27 points higher at 8,410 and the CAC40 is expected to open 12 points higher at 4,007

After the sharp declines seen in the latter part of last week the return of UK and US markets today is likely to see a firmer start to UK markets this morning. This is largely as a result of a fairly quiet but positive European session yesterday.

 

The extra day for UK and US markets is likely to have been useful for investors to weigh up and absorb last week’s events, and what they mean going forward for their asset allocation decisions in a world where the prospect of open ended QE from the US is no longer the done deal investors thought it was a few weeks ago, while a Chinese slow down remains a growing concern.

 

In Europe its set to be a fairly quiet day though we could get some market moves from comments from German finance minister Schaeuble, due to speak later today while the ECB’s Asmussen could shed some light on the stalled subject of banking union. As far as economic data is concerned German import prices for April are set to show a decline of 0.4%.

 

In Japan, concerns about spiking bond yields was one of the main reasons behind last week’s sharp falls in the Nikkei while disagreements amongst Japanese policymakers about its ability to meet its long term inflation target has raised some concern about the Bank’s determination to follow through on its pledge to deliver on its target.

 

This uncertainty could well see some short term weakness in the Japanese stock market in the wake of the gains seen so far this year, which could well blow through into European markets as we head into the end of the month.

 

Concerns about China are likely to remain after last week’s disappointing manufacturing numbers given reported comments by Chinese premier Xi Jinping that the Chinese government would be content to see a lower growth rate if it meant protecting the environment, as its cities continue to grapple with a significant pollution problem.

 

This isn’t likely to bode well for resource stocks, which have already been under significant selling pressure due to weak commodity prices and sentiment isn’t likely to be helped by reports that China could well be considering tough new controls on carbon emissions by 2016 as a means of rebalancing its economy away from resource sectors towards technology.  

 

It’s set to be a fairly important week for US markets with the latest consumer confidence numbers for May due out later today while the second revision of Q1 GDP is out later in the week.

Consumer confidence has been one of those numbers this year that has been particularly flaky with two sub 60 readings in January and March both followed by sharp rebounds in February and April. Such fluctuations aren’t usually symptomatic of strong confidence, though we do expect to see an improvement from April’s 68.1 to 70.7 and a six month high, probably helped to some extent by the recent falls in fuel prices.

 

Irrespective of the weakness or otherwise of the latest US economic data, last week’s events from the Fed are now more likely to see investors pay closer attention to every single nuance of US economic data going forward, with an increased likelihood that better economic data could well be treated as a negative by markets, as it makes it more likely that the Fed will start to taper asset purchases sooner rather than later.

 

EURUSD – the single currency continues to run into selling pressure near to the 200 day MA near to the 200 day MA, just above the 1.3000 level. On the other hand any dips continue to be fairly well sought after with the recent lows at 1.2800 offering decent support. Only the twin lows at 1.2750, which we last saw in March and April, remain the main obstacle to a move lower, towards 1.2680. Only a move above 1.3020 argues for a move towards 1.3200. 

 

GBPUSD - the pound managed to find decent support at the 1.5020/30 level suggesting the possibility of a rebound. Only a break below here suggests that we could well see a move back to this year’s lows at 1.4830. We need to see a move back through 1.5280 and last week's high to stabilise and suggest a move back to the 1.5400 level.

 

EURGBP – the euro continues to find the air anywhere near the April highs above the 0.8600 level a little thin. While above the 0.8520 level where we have the 200 week MA keeps the bias for a move higher. Only a move back below 0.8520 negates and suggests further range trading. 

 

USDJPY – the moves at the end of last week could well see a delay to the 105.50 area scenario. A key reversal week and bearish daily candle last week could well see the likelihood of a move towards the 100.00 level in the near term. The US dollar needs to get back above the 102.80 area to retarget the highs last week at 103.75. Only a move back below 99.80 retargets 98.50.

When European markets opened this morning you could be forgiven for hearing a loud hissing sound as the air drained out of the strong rally we’ve seen unfold since the beginning of this month.

 

This morning’s sharp drop on the Nikkei was certainly one catalyst, but it certainly wasn’t the only one as we saw the Japanese index plunge sharply in a fall that saw every constituent in the index close lower, the first time that this has happened since 2005.

 

Whatever the catalysts behind today’s equity market sell-off they need to be put into the context of how far markets have risen this year. Since November last year the Nikkei has almost doubled in value so a 7% decline while significant, still leaves us much higher than when we started the year. 

 

Furthermore at the beginning of May the FTSE was trading at 6,450 so we’re still well above those levels. It also shouldn’t be forgotten that if anyone had predicted that the FTSE would be trading just below the 2007 highs by May when we started out in January, then I think most people would have taken that.

 

At any rate the change of tone today probably has more to do with the fact that the current debate around the prospect of tapering is likely to intensify in the coming weeks, and as a result every bit of US data is likely to be dissected in an attempt to establish when the Fed decides to call time on the open credit card at the bar.

 

The disappointing Chinese manufacturing data, to a seven month low, gave markets the extra nudge over the edge that was needed and persuaded investors with money in the game to cash in and pull some of that money off the table as markets now look set to embark on what looks like an entirely healthy correction and readjustment, given that the underlying economic data continues to disappoint on several levels.

 

Amongst the biggest fallers today we’ve seen the technology sector and basic resource stocks take a bit of a hammering with ARM Holdings (ARM) sliding back sharply after being downgraded by Paribas to “neutral”

 

Amongst the mining sector the biggest fallers are Anglo American (AAL), Antofagasta (ANTO) and Rio Tinto (RIO) as commodity prices got slammed, and copper down sharply.

One of the few gainers has been in the utilities sector with United Utilities (UU.) as the company delivered profits of £305m, a rise of 8.7%.

 

US markets took their cues from the Asia and European sessions opening sharply lower despite a slight improvement in US weekly jobless claims, coming in at 340k, and improvement on the previous 363k.

 

In signs that the US housing market is continuing to improve new home sales also improved for April, rising 2.3% much more than expected.

 

On the flip side we saw US manufacturing PMI slip back to 51.9 in May with new export orders shrinking.

 

In terms of companies to watch PC maker Hewlett Packard is one to watch after reporting earnings for Q2 better than market expectations coming in at $0.87c, above the $0.81c consensus. The company also raised its outlook for the rest of the year.

 

Troubled retailer JC Penney is also likely to be in the spotlight after reporting that its 5 year credit facility was increased to $2.25bn.

 

Elsewhere in the retail sector Ralph Lauren reported Q4 profits of $1.37c a share, above expectations of $1.30c a share, however sales revenues came in short in a familiar story for this particular earnings season.

This morning’s fall in the Nikkei has translated into a sharp rise in the Japanese yen and the Swiss franc as investors once again start to fret about the strength of the global economy. Doubts about the strength of the Chinese economy has prompted some profit taking and also sent the Australian dollar lower as well.

 

The pound has had a rather indifferent day despite the latest Q1 GDP numbers being confirmed at 0.3%, while the euro has also found a decent underpinning after French and German manufacturing PMI’s saw a slight improvement in the latest numbers. It seems investors are choosing to ignore the sharp sell-off in Italian and Spanish bonds which have seen yields jump sharply higher.

 

Copper prices have tumbled today, after hitting a six week high yesterday, on this morning’s weaker than expected Chinese HSBC manufacturing PMI, once again raising concern about the weak nature of the latest rebound in the Chinese economy.

 

Oil prices have continued their recent declines declining for the third day in a row on both Brent and WTI as economic data continues to point to reduced demand against a backdrop of high inventories.

 

Gold on the other hand rather perversely is higher on the day despite speculation about potential Fed tapering in the coming month as investors once more use the yellow metal for a bit of haven buying.

The FTSE100 is expected to open 80 points lower at 6,760, the DAX is expected to open 108 points lower at 8,423 and the CAC40 is expected to open 31 points lower at 4,020

There was an expectation after Bernanke’s testimony on Capitol Hill yesterday that the latest Fed minutes wouldn’t add too much to overall market expectations around the prospects for further easing against expectations of possible tapering.

 

After an initially dovish statement the fact that the Fed chairman refused to rule out tapering this year in response to a direct question left the market none the wiser, apart from the fact it would probably come at some point, the only question would be whether it was sooner or later.

 

The release of the latest Fed minutes completely changed that dynamic with a single line, “a number of participants express a willingness to reduce QE in June.” 

 

This is hugely significant because this Fed meeting came before the most recent payrolls data and the huge upward revisions to the numbers that we saw at the beginning of May. If members of the committee felt this way before the huge upward revisions to the jobs numbers, then it stands to reason they probably feel even more inclined now, bringing forward the probability of an even livelier debate about the timing of a slowdown in the current levels of stimulus, when the Fed next meets on June 18th and the 19th.

 

In any event this was enough to stop US stocks in their tracks, retreating from more record highs, and will ensure, along with a much weaker than expected Chinese manufacturing PMI that European markets open lower this morning, as markets fret about an earlier than expected pull back of their favourite palliative.

 

We should know more after the next US employment report, but you can be certain another good report will ratchet up the expectations of the markets about a reduction in the scale of the current program, from the current $85bn a month, even if it overlooks the fact that the Fed’s balance sheet will still be growing, albeit at a slightly reduced pace.

 

Later today, the focus shifts back to the European economy after yesterday’s European Summit where the subject of tax evasion was high on the agenda. Considering the state of the European economy you would have thought that growth and employment measures would also have been in there somewhere, and though they were, EU leaders seemed to be more preoccupied with the tax side of things, while the talk of jobs and growth was almost a side issue with lots of words, but not much action.

 

We have the latest updated French, German and EU Services and Manufacturing PMI numbers for May and while we do expect to see some improvement the French numbers are still expected to remain remarkably weak, both below the 45 level.

 

At best the German numbers are expected to stagnate around the 50 level on the services side, but remain in contraction on manufacturing at 48.7.

 

Italian retail sales for March are expected to decline again by 0.1%

 

The UK economy and the pound will be hoping for a slug of good news after yesterday’s awful retail sales numbers for April, which saw a decline of 1.3%. Following on as they did with the sharp fall in inflation seen in April they have reignited the tired old debate about further stimulus from the Bank of England can be expected in the near term. The IMF also added their two pence worth to the debate by stating that they felt that the UK had some headroom for further fiscal measures to stimulate economic growth.

 

We have the latest iteration of UK Q1 GDP and given the recent improvements in manufacturing and industrial production numbers seen in the March numbers, there has to be a chance we could see a revision higher from 0.3%, even though it would seem most economists aren’t expecting that.

 

In the US the latest weekly Jobless claims are expected to show a fall back to 345k after last week’s shock rise to 360k.

 

EURUSD – yesterday’s rebound stalled just below the 200 day MA just above the 1.3000 level before slipping back towards this week’s low.  The 1.2800 level should retain an element of buying interest. Below that the twin lows at 1.2750, which we last saw in March and April, and they remain the main obstacle to a move lower, towards 1.2680. Only a move above 1.3020 argues for a move towards 1.3200. 

 

GBPUSD - the pound continues to remain weak with the key support remaining at 1.5020/30 level. A break below here suggests that we could well see a move back to this year’s lows at 1.4830. We need to see a move back through 1.5280 and this week's high to stabilise and suggest a move back to the 1.5400 level.

 

EURGBP - yesterday’s move above 0.8520 undermines the lower euro scenario and suggests the possibility of further gains towards the April highs at 0.8620. The 0.8520 level should now act as support where we have the 200 week MA. We need a close above 0.8520 on the week to suggest a shift in sentiment higher. Back below 0.8520 negates and suggests further range trading. 

 

USDJPY – we’ve seen further US dollar gains and look to be heading towards the 105.50 area after we took out this week’s highs at 103.30. The 102.80 level should now act as support for this move to unfold. A break through 105.50 which is 61.8% retracement of the 124.15/75.30 down move is the next obstacle towards a move towards 110.00. Given we have now broken the 100 level any pullbacks are likely to find support at the April highs. Only back below 99.80 retargets 98.50.

After trading for most of the day in or around break even European markets went on another ramp higher as Fed Chairman reiterated comments from senior FOMC voting members that reinforced the prospect that we remain quite some way from the likelihood of an imminent program of the Fed adjusting the pace of their current stimulus program. His comments in prepared remarks that “premature tightening risks slowing or ending the recovery” sent the DAX to new record highs and the FTSE100 ever closer to its all-time highs at 6,950.

 

These comments would appear to have knocked any talk of tapering on the head for the time being, or at least until the next set of good payroll numbers, where we will no doubt go through this particular dance again.

 

In the Q&A to Congress the Fed Chairman didn’t really offered anything particularly insightful over and above what we already know. The US economic recovery remains uneven.

 

The best performers today have included the partially state owned banks of Royal Bank of Scotland (RBS) and Lloyds Banking Group (LLOY) after the new UK financial  regulation authority gave the two banks are clean bill of health with respect to their respective capital positions.

 

Also doing well Chilean copper miner Antofagasta (ANTO) is a top riser as copper prices enjoy a positive session hitting their highest levels in over a month. Anglo American (AAL) is also enjoying somewhat of a rebound after coming to an agreement with trade unions over job cut measures at Amplatts, its South African platinum operation.

 

On the downside chip maker and Apple supplier ARM Holdings (ARM) is on the slide as investors wake up to the fairly high valuation the company has, and the demand outlook and headwinds in attempting to maintain that valuation.

 

US markets opened higher ahead of the latest testimony of Fed Chairman Ben Bernanke to Congress on the outlook for the US economy.

 

As far as earnings are concerned the picture continues to remain mixed with general retailer Target reporting a 29% fall in profits for Q1 while revenues also fell back as well. Expectations had been for profits of $0.95c a share, but came in at $0.77c. The company also lowered its full year guidance for 2013.

 

Sliding same store sales in the US and Europe also hit Staples numbers as profits came in below expectations for Q1, as the company absorbed a 9.2% decline in revenues.

 

DIY retailer Lowe’s also appeared to be feeling the pinch as it reported a rise in Q1 earnings of 2.5%, and revenues that came in inline. Market expectations had been somewhat higher though. 

 

On the currencies front the euro initially outperformed largely as a result of some negative sentiment surrounding the US dollar and the pound.

 

The pound suffered after retail sales for April slid sharply by 1.3%, well below expectations though this is likely to have been as a result of the unseasonably cold weather and the fact that Easter was in March this year. Food sales were also lower for the same reasons while public sector borrowing came in at £8bn, better than expected and an improvement on the £12.6bn in March.

 

The MPC minutes didn’t contain any surprises with the 6-3 split to hold pat on current QE remaining intact, while the weakness in the pound suggests that the markets are betting that we could well see this split start to move towards a looser monetary policy.

 

The US dollar has enjoyed a turbulent afternoon dropping sharply initially after Fed chairman Bernanke’s testimony to Congress as he reiterated that the risks to an early end to stimulus were too great and risked derailing the recovery. His response to Q&A though saw these gains reverse as he refused to rule out the possibility of tapering asset purchases this year if the labour market were to improve.

 

The Japanese yen has continued its slide hitting multi year lows against the euro, and the US dollar pushing above the previous levels above the 103.20 level against the US dollar.

 

The Swiss franc also slid sharply after Swiss National Bank chief Jordan reiterated the central banks openness to raising the ceiling on the EURCHF rate while also keeping the option of negative rates on the table. There was nothing new in any of this but it does highlight the determination of the SNB to keep a lid on the franc.

 

Gold and silver prices initially continued their rebounds after this week’s earlier sharp sell-off as market participants try to second guess what will come out from Bernanke and the latest Fed minutes later today. Gold briefly poked its head above the $1,400 level in the wake of the post Bernanke prepared remarks, but slid back sharply in response to the Q&A response that suggested we could see tapering as early as this year.

 

Oil prices on the other hand continue to be weighed down by concerns about economic growth and rising inventories, after the American Petroleum Institute reported a fourth straight week of rises. Rising China stockpiles have also weighed on Brent prices.

The FTSE100 is expected to open 12 points lower at 6,792, the DAX is expected to open 13 points lower at 8,459 and the CAC40 is expected to open 8 points lower at 4,028

Once again we saw US stocks make new record highs after fairly dovish comments from Fed Presidents Bullard and Dudley played down the prospects of any form of tapering of asset purchases in the near term.

 

As such while stocks continue to be embarking on escape velocity the outlook for the global economy remains anything but clear cut, with debates continuing to rage about the complete disconnect between equity markets and the underlying economy.

 

While Dudley’s dovish comments weren’t that much of a surprise, Bullard’s overly dovish tone was, and his robust defence of the merits of QE was taken as a sign that maybe markets are expecting far too much from this afternoon’s Fed minutes, as well as Bernanke’s testimony to Congress.  

 

Certainly the recent uneven nature of US economic data hasn’t supported the prospect of a paring back in the scale of asset purchases, and Mr Dudley also reminded investors that the Fed is prepared to go either way with respect to the current asset purchase program, which took some of the steam out of some of the recent US dollar strength, as well as knocking 10 year treasury yields back from near the 2% level.

 

Fed watchers also appear to be split on what the most important event from today will be given Bernanke will be speaking prior to the release of the minutes. The Fed Chairman is highly unlikely to go “off message” ahead of the release of the minutes, and is likely to cite the uncertain economic outlook, while appearing to be neither overly bullish nor bearish on the state of the US economy.

 

The minutes are likely to point to a lively debate about tapering, however given that most of the noise has come from non-voting members of the committee; the focus is likely to be on any shift in stance on the part of the voting members.

 

Before  these events we have a plethora of UK data due out in the wake of yesterday’s weaker than expected inflation numbers for April which also prompted some sterling weakness as markets looked to price in the prospect of the possibility of further easing measures.

 

While the prospect of further easing in the near future continues to remain unlikely, given the recent improvement in UK economic data, markets continue to derive some mileage out of it.

 

Today’s April economic data is likely to point to a slowly improving economy with retail sales expected to come in at 0.1%, an improvement on March’s 0.7% decline, and public sector borrowing to fall from £15bn to £8.5bn.

 

The main focus is likely to be on the Bank of England minutes and whether or not in light of the recent improvement in some of the economic data.

 

While we aren’t expecting any surprises, there is one scenario which could provoke a response even if it doesn’t seem that likely. The scenario is to do with the voting intentions of the three doves on the committee, and while what I’m suggesting may not seem likely I’m going to put it out there. These three of Fisher, King and Miles, have all called for an extra £25bn worth of QE. In light of the recent improvement in UK data could one or more of them be tempted to reverse their calls for this extra stimulus?

 

EURUSD – the recent pullback is currently struggling to overcome resistance at 1.2940, and while we stay below this level the market remains susceptible to pullbacks towards the 1.2800 level. The twin lows at 1.2750, which we last saw in March and April, remain the key support and while above here the risk remains for a move back towards 1.3020, and the 200 day MA on a break above 1.2940. 

 

GBPUSD – the pound slid back below 1.5160 yesterday on the weaker CPI, however while we remains above the April lows at 1.5030 we remain vulnerable to a short squeeze back towards 1.5280. We need to see a move back through 1.5280 and this week’s high to stabilise and suggest a move back to the 1.5400 level. The 1.5030 level remains the main obstacle to a move back to the lows this year at 1.4830.

 

EURGBP – we broke above the trend line resistance at 0.8500 from the March highs at 0.8795 but have so far been unable to push beyond the 200 week MA which continues to cap the upside and remains the main obstacle to a move higher towards 0.8580. Only a break below 0.8400 has the potential to open up a move towards 0.8320 trend line support from the 0.7755 low.

 

USDJPY – the US dollar could have found a short term top at 103.30 and could well see a drift back towards the 100 area. The next target remains for a move towards the 105.50 area, but it might take a while to get there. This 61.8% retracement of the 124.15/75.30 down move is the next obstacle towards a move towards 110.00. Given we have now broken the 100 level any pullbacks are likely to find support at the April highs. Only back below 99.80 retargets 98.50.

After a quiet morning throughout Europe, equity markets have pushed on again this afternoon as traders display an impressive appetite for risk assets despite growing calls amongst retail clients for stocks to cool off after what has been a meteoric rise.

 

In a technical sense markets are beginning to look a little over extended, and the potential for profit taking to trigger a market correction has to be a consideration for even the most fervent bulls. That said, as the cliché goes, markets can remain over extended for a lot longer than retail traders can remain solvent. As ever, caution is advised when fighting the trend…

 

Mixed numbers from telecommunications giant Vodafone (VOD) saw the stock move marginally higher as traders weighed the board’s decision not to pay a ‘bonus’ dividend to shareholders from the Verizon Wireless windfall. Disappointing sales figures from Europe and a consequent drop in profits made for grim reading, but were largely priced in.

 

Marks & Spencer (MKS) saw their shares bid over 5% better despite continuing struggles in their fashion retail arm, as investors bet on continued strength in their food business. The move took the stock past the +20% YTD mark and represents a new 5 year high.

 

Luxury brand Burberry (BRBY) announced double digit profit growth and plans for potential diversification of their product range, impressing investors and sending the stock to fresh 12 month highs. Strong sales amongst the burgeoning Asian middle classes continue to drive the company’s development.

 

The US markets have, as has become the norm, shrugged off any potential negative sentiment and largely held their levels today after a brief dip during Monday’s session as traders weighed the possibility of the Federal Reserve formulating an exit strategy for their unprecedented asset purchase programme.

 

Home Depot Inc led the way, as raising their earnings forecast due to a boost in renovation spending in line with the housing rebound. The retailer’s stock was up as much as 3.4% on the news that not only had it beaten Wall Street estimates for the present quarter but that the company had a positive outlook for the forthcoming year.

 

Headlines today accusing Apple of being one of the largest tax avoiders in the US, according to a Senate committee will come as a further blow to shareholders who see the stock trading 40% lower than October last year. Apple trades $7 lower as traders predict the possible reputational effect this news may have with Starbucks seeing much lower footfall after similar headlines in the UK recently.

 

The Yen rollercoaster continued today, with economic minister Akira Amari distancing himself from comments made over the weekend to see $/Y recover from the biggest drop in 3 weeks.  The weekend’s version seemed to indicate that Japanese officials had become concerned that further weakness to the currency may have a negative impact on recovery, but today insisted that “the overly strong Yen is in the process of being corrected” and that he wouldn’t speculate as to levels at which that might be achieved.  It is another reminder to investors of how sensitive we remain to loose political commentary, and today’s comments will do little to ease the pain of anyone stopped out during Monday’s retreat.      

 

Sterling fell to a 6-week low following today’s UK CPI report, easing the squeeze on the pocket of the consumer and perhaps paving the way for the central bank to take action in the coming months.  The Dollar strengthened against the majority of its major peers ahead of a speech from Federal Chairman Ben Bernanke tomorrow.   

 

Volatility in the market for spot silver continued unabated with sellers keen to take advantage of yesterday’s late bounce from $20.25 an ounce which was the metal’s lowest level since September 2010. Recent analysis of the iShares Silver Trust, the largest exchange traded silver fund, revealed a drop in holdings to their lowest since mid-January as investment flows continue out of precious metals.

 

Grains continue to struggle across the board, as improvements in conditions in the US in the last few weeks has finally allowed producers to catch up with planting.

 

Meanwhile London Cocoa has continued its march higher after putting on around 10% already since the beginning of March, as prices benefit from a weakening pound and some industry support after falling 0.7% yesterday.