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Markets have continued their weaker tone today as uncertainty in Europe and fears about the solvency of Spanish banks keeps investors on the back foot. Talk that the EU was considering withholding a €5.2bn bailout payment to Greece, due tomorrow, hasn't helped investor's frayed nerves. Talk that Bankia, Spain's fourth largest bank could be bailed out after the market close, hasn't stopped the IBEX35 closing in on its lowest levels since 2009.

Ex-dividend stocks have also proved to be a drag shaving 15 points off the index but the overall sentiment remains one of concern about political deadlock in Greece and uncertainty over the future of Greece within Europe.

There have been some bright spots but with such a negative tone it's been hard for markets to focus on anything positive. The UK's third biggest supermarket Sainsbury (SBRY LN) was an early gainer after reporting an increase in operating profits of 7%, above analysts' expectations. The company also announced an increase in its dividend. The company also increased its market share to 16.6%, the highest in a decade, despite a tough operating environment. Terrestrial broadcaster ITV (ITV LN) is also doing well after posting a positive Q1 trading update with sales up 13%, driven by a better performance from ITV studios.

On the downside the usual suspects of basic resource and industrial stocks have been hit the hardest with Weir Group (WEIR LN) sliding sharply on the back of a broker downgrade and some disappointment from its Q1 trading update which saw a 26% drop in sales at its oil and gas division. Business software company Sage Group (SGE LN) is also another heavy loser despite reporting a 3% rise in profits, as concerns about recessionary headwinds in the UK and France as well as the rest of Europe weighs on the outlook.

U.S. markets opened lower this morning as concerns about Europe continued to preoccupy investors. Stocks in focus include Disney after the company posted results after the closing bell last night that beat expectations of $0.55c a share coming in at $0.58c a share on revenue of $9.63bn. News Corp is expected to report its latest Q3 earnings today with expectations of $0.31c a share, up from $0.26c a year ago.

After the bell Cisco Systems is expected to announce Q3 earnings of $0.47c a share, up from $0.42c a year ago.

The Japanese Yen has once again pushed higher along with the U.S. dollar as investors flee into the twin safe haven plays. This once again gives the Bank of Japan a major problem as the yen appreciates and as a result stifles Japanese exporters.

Once again the Australian and New Zealand dollar have borne the brunt of the selling, along with the Canadian dollar as metal and oil prices drop sharply on fears of a slowdown in global demand.

Rising Spanish bond yields, pushing above the 6% level on the 10 year have reinforced the risk off mentality, pushing the Euro to its lowest levels since the end of January.

The Pound has also slid as disappointing retail sales numbers from the British Retail Consortium for April showed an annual decline of 3.3%, wiping out the rise of 1.3% in March. This decline does have to be set into the context of the timing of last year's Royal Wedding and a late Easter.

There is also a slim chance that the Bank of England may well announce further measures to stimulate the UK economy by more QE at its latest rate meeting tomorrow.

Copper prices have continued their slide from yesterday, closing on levels seen a month ago when it was trading below $3.60.

Crude oil has also continued its recent declines with U.S. prices hitting their lowest levels this year, declining for six days in a row, after crude stockpiles hit their highest levels since 1990. Weekly inventory data also surged putting additional downward pressure on prices as U.S. prices pushed below the 200 day MA joining Brent prices which have been trading below their long term average for the third day in a row.

Gold prices have also slid below the $1,600 level for the first time since early January as investors put cash back into the surging U.S. dollar

Positive company updates in the past 24 hours have helped put concerns about Europe to one side in the short term, while last night’s FOMC statement painted a slightly more positive outlook for the U.S. economy. Earnings are likely to remain in focus again today in the absence of significant economic data.

The Fed upgraded its forecasts for economic growth, and revised downward their unemployment projections. The committee was slightly more hawkish with respect to the timing of further tightening with more members coming to a consensus of 2014 as the earliest date for such measures.

Concerns about inflationary pressures did prompt a slight change in tone from the Fed with respect to rising prices thus making the prospects for further QE much less likely, which could give the U.S. dollar a boost in the near term.

Today’s release of the latest weekly jobless claims numbers are expected to show a small decline from last week’s surprise rise to 386k, dropping back to 375k.
 
Despite the more upbeat tone from the Fed, Europe remains a concern and this is set to be borne out today in Holland as the Dutch parliament meets today in an attempt to try and agree some form of a consensus and pass a budget in time for the EU deadline on the 30th April.

With political divisions opening up across Europe pressure is building on Germany and the ECB to do more and rein back on the current austerity based approach. While this does appear to have prompted a slight shift in tone from Germany’s Angela Merkel, she pointedly ruled out any form of stimulus spending to boost economic growth, due to concerns about inflationary pressures.

Today’s release of German CPI for April is expected to show inflation above target at 2.2%.
 
Yesterday’s surprise news that the UK economy contracted by 0.2% in Q1 appears to have been shrugged off  by investors as a statistical quirk which will get ironed out in the coming weeks, judging by how the news was received across the markets yesterday. The pound initially dropped back but soon recovered its poise.

In data released overnight the latest Nationwide consumer confidence numbers for March showed that confidence levels rose to a nine month high from February’s 44 reading, coming in at 53, and reinforcing the sharp rise in UK retail sales seen last week.
 
CBI retail sales for April are expected to show a slight decline from March’s flat reading, dropping to -4, though given increased consumer confidence there could be an upside surprise.
 
EURUSD – the range trading within the triangular consolidation continues as the single currency edges beyond the 55 day MA towards the trend line resistance at 1.3300 from the March highs. While there is lower line support on the triangle at 1.3040, there is also trend line support from the 1.3000 April lows at 1.3160. The break of the larger triangle remains the primary pattern and could well signal a 500 point move. To open up the lows this year at 1.2630 we need to see a concerted break below 1.2975. Only above 1.3400 targets the 200 day MA at 1.3495.
 
GBPUSD – despite a short lived dip to 1.6080 yesterday the cable continues to struggle around the 1.6170/80 resistance level and this remains the main obstacle to a move towards 1.6400. A failure to break above this resistance could provoke a deeper sell-off and delay any move towards 1.6400. Only a move below 1.6050 retargets the long term trend line support at 1.5900 from the January lows at 1.5235 which continues to act as support on the downside.
 
EURGBP – as suspected the 0.8220 area capped yesterday’s rally in the single currency and as such keeps the onus on the downside and a move towards the 2010 lows at 0.8065 as the next target. Only above 0.8220 would retarget the larger resistance at 0.8280 as well as trend line resistance at 0.8300 from the February highs at 0.8505.
 
USDJPY – upside momentum remains intact after last weeks close above the cloud support now at the 80.70 level. The yen continues to find support just above the 80.70 level which keeps the upward momentum intact and while above this level on a weekly closing basis the outlook remains constructive for the US dollar despite the low last week around the 80.30 level. A weekly close below 80.70 argues for further losses towards 79.20. The U.S. dollar does need to break back beyond the two weeks highs at 81.85/90 to retarget 83.30.

Despite the preoccupation with all things Europe this week the UK will be in focus this morning ahead of the first iteration of UK Q1 GDP, with hopes high that the UK economy will avoid a double-dip recession and return to growth. Expectations have also been raised by last week’s blow out retail sales numbers for March, which saw a 1.8% rise, well above expectations and pushing the quarterly retail sales performance up to 0.8%. Given that every single sector of the economy has seen robust PMI data in January, February and March it would be somewhat of a surprise if the data were to disappoint, whatever MPC member David Miles suggested yesterday about the risks of a small contraction, due to weak demand in the economy.
 
Expectations vary as to the figure that markets are looking for, but anything between 0.1% and 0.3% is likely to see a fairly muted reaction in line with expectations. Zero growth or a negative number could well see a sharp sterling sell off after the gains of recent weeks.
 
Later in the morning markets will get an early indication as to the start of UK Q2 with the latest CBI industrial trends data for April, with total orders expected to improve slightly from -8 to -6.
 
Back in Europe Germany is starting to find itself increasingly isolated in its calls for austerity as the house of cards that is Europe begins to turn in on itself, in the face of faltering growth and rising unemployment. The loss of a key ally in the Netherlands is a serious blow to Merkel, adding more political uncertainty to the policy mix in Europe when stability is badly needed. The call from the Freedom Party’s Geert Wilders that the forthcoming elections in Holland would be a vote on Europe is unlikely to assuage market concerns about political stability either, especially as the new budget needs to be submitted to the EU by the end of April.
 
In the U.S. the main event of the day will be the press conference after the latest FOMC rate decision. Markets will be able to assess any changes to the latest quarterly growth, unemployment and interest rate forecasts with only minor tweaks expected. Particular scrutiny will be in the unemployment forecasts, especially in light of last month’s disappointing payrolls report and recent rises in weekly jobless claims. There will also be significant interest in the rate forecasts of the individual Fed members and those in particular who favour rate hikes before 2014, in light of some of the hawkish comments from individual members.       
 
Bernanke is likely to reiterate his cautious tone of previous press conferences, but is unlikely to give any clues about the likelihood of further QE, or indicate what circumstances would indicate a change in policy. Whatever is said at tomorrow press conference Bernanke is likely to keep his options open until the June meeting, when “operation twist” is due to expire.
 
EURUSD – the failure to break above last week’s highs at 1.3220 and hold above the 55 day MA keeps pressure on the downside. The 55 day MA continues to remain as resistance just above 1.3200, while trend line resistance at 1.3310 limits the upside. With lower line support at 1.3040, a break of this triangle could well signal a 500 point move. To open up the lows this year at 1.2630 we need to see a concerted break below 1.2975. Only above 1.3400 targets the 200 day MA at 1.3525.
 
GBPUSD – the cable continues to struggle around the 1.6170 resistance level and November highs which remains a key barrier. A failure to break above this resistance could provoke a deeper sell-off and delay any move towards 1.6400. Last week’s close above the 200 week MA for the first time since August 2008 points towards further gains along with the 50/200 daily MA golden cross over which also improves the odds of a move higher. Only a move below 1.6050 retargets the long term trend line support at 1.5870 from the January lows at 1.5235 which continues to act as support on the downside.
 
EURGBP – a 20 month low yesterday keeps the onus on the downside and a move towards the 2010 lows at 0.8065 as the next target. Any rallies should now find some semblance of resistance at the 0.8220 area, while behind that at 0.8280. While below the 0.8280 level the risk remains for further losses towards the 2010 lows at 0.8065. A move back above 0.8280 opens up risk for a move to 0.8310 trend line resistance from the February highs at 0.8505.
 
USDJPY – upside momentum remains intact after last weeks close above the cloud support now at the 80.70 level. The yen continues to find support just above the 80.70 level which keeps the upward momentum intact and while above this level on a weekly closing basis the outlook remains constructive for the U.S. dollar despite the low last week around the 80.30 level. A weekly close below 80.70 argues for further losses towards 79.20. The U.S. dollar does need to break back beyond the two weeks highs at 81.85/90 to retarget 83.30.

Yesterday’s sharp sell off in equity markets across Europe has seen uncertainty once more again return to the forefront of investors thoughts as political factors in Europe once again make for an uncertain outlook. The collapse of the Dutch government over austerity budget disagreements has stoked fears that one of the few remaining European triple “A” countries could not only lose its prized rating, but also see any future co-ordinated response undermined by local political difficulties. This fear was reinforced late last night by ratings agency Moody’s who said that the collapse of the government should be considered “credit negative”.
 
Bond markets will put this new political backdrop to the test this morning when the Dutch look to sell a 2037 bond and a short dated bond. While the two issues look likely to get away, the yield on the issuance could well be higher, given the sharp rise in yields seen yesterday. Yields shot up not only on Dutch bonds but on Spanish, Italian and French 10 year bonds as well.
 
In the UK the pound hit its highest levels since mid 2009 as it continues to enjoy somewhat of a haven status from the turmoil in Europe. This could well be put to the test this morning with the publication of the last set of borrowing figures for 2011, with expectations that the March figure could well increase to £14.2bn, an increase on February’s £12.9bn. while it remains likely that the Chancellor will likely meet his fiscal targets for 2011 it will be tomorrow’s first look at Q1 GDP data that could well be key to any further sterling gains.
 
In the U.S. concerns about the U.S. recovery continue to make investors nervous especially with respect to the prospects of further QE, however the current state of the data, such as it is, isn’t likely to prompt the Fed to act in the near term. A key barometer of investor sentiment for April is likely to give some indications as to confidence about the U.S. economy with consumer confidence set to slip slightly from 70.2 to 69.5. New home sales for March aren’t likely to offer much comfort, though they are expected to rise 2.2%, reversing the 1.6% decline seen in February.
 
EURUSD – the lack of any follow through above 1.3200 prompted a drop back towards 1.3100 as the single currency continued to remain stuck in the broader triangular consolidation. The 55 day MA once more becomes resistance just above 1.3200, while trend line resistance at 1.3310 remains intact upside remains limited. With lower line support at 1.3040, a break of this triangle could well signal a 500 point move. To open up the lows this year at 1.2630 we need to see a concerted break below 1.2975. Only above 1.3400 targets the 200 day MA at 1.3525.
 
GBPUSD – the failure yesterday to break through the 1.6170 resistance level and November highs of last year remains a key barrier. Yesterday’s hanging man daily candle could provoke a deeper sell-off and delay any move towards 1.6400. Last week’s close above the 200 week MA for the first time since August 2008 points towards further gains along with the 50/200 daily MA golden cross over which also improves the odds of a move higher. Only a move below 1.6050 retargets the long term trend line support at 1.5870 from the January lows at 1.5235 which continues to act as support on the downside.
 
EURGBP – we continue to make new 19 month lows and this keeps the onus on the downside and a move towards the 2010 lows at 0.8065 as the next target. Any rallies should now find some semblance of resistance at the 0.8220 area, while behind that at 0.8280. While below the 0.8280 level the risk remains for further losses towards the 2010 lows at 0.8065. A move back above 0.8280 opens up risk for a move to 0.8310 trend line resistance from the February highs at 0.8505.
 
USDJPY – upside momentum remains intact after last weeks close above the cloud support now at the 80.70 level. Yesterday’s dip to the 80.70 level still keeps the upward momentum intact and while above this level on a weekly closing basis the outlook remains constructive for the U.S. dollar despite the low last week around the 80.30 level. A weekly close below 80.70 argues for further losses towards 79.20. The U.S. dollar does need to break back beyond the two weeks highs at 81.85/90 to retarget 83.30.

The extra $430bn worth of funds agreed by the IMF at the weekend appear not to have come a moment too soon, if the weekend events in Holland and France turn out to be as politically disruptive to a coherent European policy response to further deterioration in Europe’s debt crisis, over the coming weeks. The newly promised funds came with a demand from the IMF for much more decisive action by European leaders to implement economic reforms designed to draw a line under the crisis burning in Europe. It would, given weekend events that such reforms, are as far away as ever.
 
Political disarray and discord in the peripheral countries has been pretty much par for the course over the past few months, and have certainly made life difficult enough for European policymakers to contend with. This disarray and discord, it would appear, is now spreading to the triple “A” core and is bound to add an element of even more uncertainty to any coherent political response to tackle the European sovereign debt crisis over the coming weeks.
 
The prospect of the collapse of the Dutch government over budget cuts demanded by the EU in line with the terms of fiscal compact agreed at the end of last year has created severe political uncertainty within a key ally of the German led approach to austerity. Apparently austerity is fine when it’s demanded of somebody else.
 
Of more importance is the fact that yet another country is liable to renege on its budget targets, following Spain and Italy last week and as such leave the much vaunted fiscal compact, which was agreed in December in a smoking ruin.
 
A failure by Dutch politicians to come to an agreement is likely to lead to a call for elections, probably as soon as September in what is likely to turned into a vote of confidence in the euro itself.
 
If that wasn’t enough weekend events in France and the likelihood of a Francois Hollande win over President Sarkozy in the coming weeks is likely to undermine the fiscal compact even more, given the formers pledge to renegotiate it if elected.
 
Investors will be hoping the release of updated April manufacturing and services PMI for France, Germany and the Euro zone as a whole brings some positive news with respect to potential growth in these sectors, however expectations aren’t that high, with only slight improvements expected in most of the measures.
 
French and German manufacturing figures are expected to be adjusted slightly higher to 47.4 and 49 respectively, with Eurozone equivalent also higher at 48.1.
 
EURUSD – Friday’s move above the 55 day MA took out a few stops above 1.3200, however while the trend line resistance at 1.3320 remains intact the triangular consolidation remains in place. With lower line support at 1.3040, a break of this triangle could well signal a 500 point move. To open up the lows this year at 1.2630 we need to see a concerted break below 1.2975. Only above 1.3400 targets the 200 day MA at 1.3525.
 
GBPUSD – the 1.6170 resistance level and November highs of last year remains the key level and barrier to a move towards 1.6400. Last week’s close above the 200 week MA for the first time since August 2008 points towards further gains along with the 50/200 daily MA golden cross over which also improves the odds of a move higher.
1.5865 trend line support from the January lows at 1.5235 continues to act as support on the downside.
 
EURGBP – last week’s break below 0.8200 to 19 month lows keeps the onus on the downside and a move towards the 2010 lows at 0.8065 as the next target. Any rallies should now find some semblance of resistance at the 0.8220 area, while behind that at 0.8280. While below the 0.8280 level the risk remains for further losses towards the 2010 lows at 0.8065. A move back above 0.8280 opens up risk for a move to 0.8330 trend line resistance from the February highs at 0.8505.
 
USDJPY – upside momentum remains intact after last weeks close above the cloud support now at the 80.70 level. While above this level on a weekly closing basis the outlook remains constructive for the US dollar despite the low last week around the 80.30 level. A weekly close below 80.70 argues for further losses towards 79.20. The U.S. dollar does need to break back beyond the two weeks highs at 81.85/90 to retarget 83.30.

Yesterday’s claim by IMF chief Christine Lagarde that an agreement on an extra $400bn of funding should be reached this weekend is rapidly becoming beside the point. Even if a promise of more funds is agreed from some members it is extremely unlikely that any money will be forthcoming from the U.S. anytime this side of the election in November, if at all, or from Canada for that matter. In any case the amount would be totally inadequate if Spain’s fiscal situation, with respect to its banks were to deteriorate to such an extent to require some form of bailout in the coming weeks and months, let alone by the end of the year.
 
A spat last night between Canadian finance minister Flaherty and German ECB member Asmussen highlights the differences simmering beneath the surface among a number of countries who believe that Europe has not done anywhere near enough to deal with its own problems, and resent being asked to put their hands in their pockets when Germany seems unwilling to go the extra mile for a currency that has benefitted them enormously.
 
The reluctance of Germany to accept the urgency of the situation unfolding in Spain and the rest of southern Europe can probably be traced to the fact that the German economy is not experiencing the hardships or harsh realities of the austerity measures being imposed on the rest of the squeezed European economies.
 
According to a report published yesterday from the German IFO, companies in Europe’s largest economy are at their most competitive for 30 years. This more than anything perfectly illustrates the problems facing the rest of Europe, as they strive to improve their competitiveness, and yet this is what the EU is proposing in Spain, Italy and the rest of Europe, without any form of currency adjustment whatsoever.
 
Today’s German IFO business climate and current assessment predictions for April are expected to remain near their March levels with business climate slipping from 109.8 to 109.5, while current assessment is expected to decline slightly from 117.4 to 117.
 
In the UK this week’s rally in the pound could face a significant test today with the latest retail sales figures for March which are expected to show a small rebound of 0.4%, after the sharp fall of 0.8% seen in February. There is a concern that the hotter than expected rise in inflation seen in the March figures earlier this week could see the retail sales figures undershoot expectations, especially in a month that saw fuel prices hit record highs in sterling terms, crimping consumers ability to spend on discretionary items. On the other hand the unusually warm weather could have had the opposite effect and prompted a significant bounce back in the retail sector. Today’s numbers will determine which factor had the most influence.
 
EURUSD – the triangular consolidation remains intact as the Euro continues to range trade, despite another attempt lower yesterday. Upper line resistance is located at 1.3330 while support lies at 1.3040. A break of this triangle could well signal a 500 point move. The 55 day MA continues to act as resistance at 1.3210. To open up the lows this year at 1.2630 we need to see a concerted break below 1.2975. Only above 1.3400 targets the 200 day MA at 1.3525.
 
GBPUSD – trying to pick the top in cable has proved to be a rather tricky task of late but so far it has resisted the temptation to race away higher.
A marginal new high for the year yesterday brought the pound nearer to the November highs last year at 1.6170, which remains a key level for a test towards 1.6400. We also got the 50/200 daily MA golden cross over which the odds of a move higher. We still need a weekly close above the 200 week MA at 1.5975. 1.5850 trend line support from the January lows at 1.5235 continues to act as support on the downside.
 
EURGBP – this week’s break below 0.8200 to 19 month lows keeps the onus on the downside and a move towards the 2010 lows at 0.8065 as the next target. Any rallies should now find some semblance of resistance at the 0.8220 area, while behind that at 0.8280. While below the 0.8280 level the risk remains for further losses towards the 2010 lows at 0.8065. A move back above 0.8280 opens up risk for a move to 0.8330 trend line resistance from the February highs at 0.8505.
 
USDJPY – the weekly close remains important here with the cloud support now at the 80.70 level. While above this level on a weekly closing basis the outlook remains constructive for the U.S. dollar despite the low this week around the 80.30 level. A close below 80.70 argues for further losses towards 79.20. The U.S. dollar does need to break back beyond last weeks highs at 81.85/90 to retarget 83.30

European markets have had a markedly softer tone today with Spain and Italian markets bearing the brunt of the sell off with the main drag on sentiment being the financial sector.

Banks had already been on the slide, with the European banking sector spooked over concerns about the number of non-performing loans on the books of Spanish banks, as property prices continue to fall and unemployment in the country continues to rise. French and Italian banking stocks have also fallen sharply as well.

This weakness was reinforced by an IMF report warning of a severe credit crunch as banks look to slash their balance sheets in the face of the crisis in Europe. The IMF warned that Spain and Italy would be most affected, as banks cut back on lending.

On the downside, financials have taken a step back after yesterday's rally, with Resolution (RSL LN) and Old Mutual (OML LN) sliding the most after going ex-dividend.

Despite this negative tone, the FTSE has outperformed its European peers with mining stocks among the better performers on speculation that China will follow in the footsteps of other emerging market central banks in easing monetary policy, especially in light of this morning's Chinese home sales data which showed a sixth successive monthly decline. Given that GDP came in slightly below expectations last week, speculation is growing that the Chinese authorities could well ease back on the fiscal brakes.

Positive Q3 numbers from mining giant BHP Billiton (BLT LN) also helped the sector as the company reported record levels of iron ore production, while Mexican miner Fresnillo (FRES LN) also reported a strong start to 2012. Technology shares are also performing well with ARM Holdings (ARM LN) up on the day.

U.S. markets opened lower today weighed down by the softer tone in European markets but also by technology stocks as slowing revenue and narrowing margins hit profitability for both Intel and IBM in earnings statements released late last night.

In other earnings news, oil services company Halliburton posted Q1 earnings that beat expectations of $0.86c a share, coming in at $0.88c with revenues increasing by 30%. Yahoo, on the other hand, is higher as markets react positively to a rebound in sales. After market close, American Express is expected to announce Q1 earnings of $1 a share, following in the footsteps of its sector peers in beating expectations.

The Pound has been the main outperformer today after the Bank of England minutes showed, somewhat surprisingly, that long term easing advocate Adam Posen had rowed back from further asset purchases marking the first occasion that he had voted against additional stimulus in many months. This left David Miles as the only policymaker maintaining calls for a further £25bn worth of stimulus. It would appear that the continued stickiness of UK inflation could have persuaded Posen that further stimulus could pose too many risks, and as such this has seen the pound rise sharply as the likelihood of further QE in the short term diminishes sharply. Unemployment numbers also came in slightly better than expected which helped the more positive tone.

The Yen is the biggest faller on speculation that the Bank of Japan may raise its inflation forecast after deputy governor Nishimura indicated additional easing may well be on the cards.

The Euro has also slid back after EU construction output for February plunged 7.1% on a monthly basis with the biggest falls seen in Germany and Italy.

A slightly stronger U.S. dollar has seen commodity prices slide back today.

Brent oil prices have dropped sharply today, narrowing the WTI/Brent spread to 3 months lows as tensions ease in the Middle East after Iran agreed to further talks over its nuclear program. This morning's disappointing European construction data hasn't helped either on the basis that a European slowdown will crimp demand.

The rally in the mining sector today certainly hasn't been reflected in copper prices which remain lower on the day.

Gold and silver prices are also lower on the back of a firmer U.S. dollar.

Earlier this month the Bank of England unsurprisingly kept monetary policy unchanged and this morning’s publication of these April minutes should give some guide as to whether this particular move was unanimous, especially given that last month’s minutes showed that both Posen and Miles favoured an extra £25bn worth of QE.
 
It will be of particular interest to see whether MPC dove David Miles has rowed back on his desire for more QE in light of the recent improvement in data, though it wouldn’t be unexpected to see fellow policymaker and uberdove Adam Posen reiterate his belief that the economy needs more juice staying with his previous call for an extra £25bn of asset purchases. Since those March minutes the economic data to date has continued to improve, notwithstanding the poor industrial and manufacturing production data, which surprised the markets earlier this month.

Yesterday’s surprise rise in UK inflation numbers certainly make the case a lot more difficult for the doves on the committee, given the rise in particular in core prices, as well as the rises in fuel and food costs. To reinforce the squeeze on consumer spending the release of February three month average earnings numbers are expected to slow even further, dropping from a rise of 1.4% to 1.2%.
 
The release of the latest UK unemployment numbers aren’t likely to make for pleasant reading either, with expectations that claims for March will rise by 6k, while the ILO unemployment is expected to remain unchanged at 8.4% and 17 year highs.
 
In Europe the picture remains less than rosy despite a sharp fall in Spanish 10 year bond yields yesterday back below 6% yesterday, after a relatively successful short term debt sale, albeit at much higher yields than previously. It is tomorrow’s 10 year auction that is likely to prove to be much more of an acid test, though given the longer term concerns about the effects the recent budget cuts will have on Spain’s fiscal sustainability.
 
Italy’s finances are also a cause for concern given Italian PM Monti’s difficulties in trying to push through labour market reforms in the face of political as well as union opposition. The IMF’s prediction that Italy will miss its deficit reduction targets in 2012 and 2013 is expected to be confirmed today by Mr Monti.
 
The announcement yesterday by Japan, as well as Denmark, Norway and Sweden to make more money available to the IMF, to the tune of $86bn collectively, has raised expectations ahead of this week’s IMF spring meeting that more money could well be forthcoming from other countries.
 
IMF chief Christine Lagarde is hoping that the U.S. can be persuaded, as the fund’s largest contributor, to help boost IMF resources by an extra $400bn to supplement this month’s earlier agreement by the EU to boost their own bailout fund. This is likely to be a tough, if not impossible ask given the meagre increase in the European bailout fund announced earlier this month.
 
EURUSD – the Euro is currently playing out a triangular consolidation from the highs this year from the February lows at 1.2975. Upper line resistance is located at 1.3330 while support lies at 1.3035. The 55 day MA continues to act as resistance at 1.3210. To open up the lows this year at 1.2630 we need to see a concerted break below 1.2975. Only above 1.3400 targets the 200 day MA at 1.3525.
 
GBPUSD – trend line support from the January lows at 1.5235 continues to act as support on the downside. This support line currently sits at 1.5835, and would require a break below 1.5800 to open up the 1.5700 level again. The possibility of a golden cross 50/200 daily MA cross over could signal the possibility of a move higher, but the 1.6000 level as well as a close above the 200 week MA really needs to be sustained to reinforce that direction.
 
EURGBP – the Euro currency continues to find rallies difficult to sustain despite the marginal new lows for this year early this week at 0.8210.
While below 0.8280 the risk remains for further losses towards the 2010 lows at 0.8065. A move back above 0.8280 opens up risk for a move to 0.8330 trend line resistance from the February highs at 0.8505.
 
USDJPY – the weekly close remains important here with the cloud support now at the 80.70 level. While above this level on a weekly closing basis the outlook remains constructive for the U.S. dollar despite the low this week around the 80.30 level. A close below 80.70 argues for further losses towards 79.20. The U.S. dollar does need to break back beyond the 81.30 level to open a retest of the 81.90/82.00 area.

European shares edged higher today, after a very choppy morning, as investors weighed up the uncertain outlook for Spain against the strong start to US earnings.

Investors appeared to take advantage of the perceived value in stocks following last week's plunge albeit that the defensive and utilities sectors garnered the most interest.

International Power (IPR LN) led the way on the UK Blue chip index following news that it had agreed to the improved bid of $10bn from French energy giant GDF Suez. The financial sector lagged with RBS (RBS LN) and Lloyds Bank (LLOY LN) out of favour as investors awaited the delayed review from Moody's in the run up to Spain's bond auctions.

French Oil company Total SA saw a bounce following the announcement of a rise in first quarter refinancing margins from the previous quarter. Significant progress has also apparently been made in stem the gas leak on its Elgin field platform

Further extension in gains was facilitated by mixed but for the most part stronger fundamentals from the US which helped to ease worries about Q1 growth.

The better than expected US Retail Sales data saw a rise of 0.8% against an expectation of 0.4% which initiated a fairly broad based rally in US futures prior to the opening bell.

The increased confidence saw US equity markets jump as investors chose to ignore the Empire State Manufacturing Index which came in well below expectations with general business conditions falling 14 points.

US Business Inventories also met with expectations increasing by 0.6% in February.

The ongoing challenges facing the housing market were still notable as Builder Confidence was seen to decline for the first time in seven months slipping back to 25 from the consensus 28.

The February TIC data showed much lower than expected figure; coming in at $10.1bn on expectations of a $42.5bn increase.  With foreign investors making up the majority of buyers of long term US financial assets, what was notable is that while China remains the largest foreign holder of US treasuries, Japan is a very close second.

Citigroup was on the up as the company reported a $2.93bn Q1 profit, with EPS at $1.11 against an expectation of $1.01.

Apple dropped below the significant $600 level as profit taking took finally hold.

Currencies:

The Canadian dollar was one of the strongest currencies today as traders await the outcome of the Bank of Canada interest rate decision tomorrow which is expected to remain at 1%

The Euro declined against most of its counterparts while the Japanese Yen was the best performer on the day as it benefitted from its safe haven status.

Sterling was fairly flat on the day although did print an intra-day 18 month high against the euro.

Commodities:

Oil, specifically Brent Crude dipped below the strong support line of $120/bbl today as a boosted dollar and pullback in risk appetite shifted sentiment. The weekend talks with Iran also helped trim the risk premium in the price

Copper, has retraced some of its recent fall, but remains below its recent range finding support at $3.60/lb which is the 50% retracement of the December/February upmove.

Gold has failed to sustain a move above the $1657 level which is the 50% retracement of the late December lows to February highs. Support at $1625 must be maintained to see further upside.

European equity markets started the day with a cautious uneven tone but have since moved northwards - at a mixed pace - as dovish comments from the Fed's Lockhart helped underpin risk appetite.

The diminished demand for periphery debt was exposed as Italy saw its three year borrowing costs rise by more than 1% and the bid to cover ratio down to 1.435 from 1.565 in contrast to the mid-March sale.

The mining sector was in demand following Alcoa's recent earnings release and, in part, down to some late bargain hunting following Tuesday's sell off.

The World Bank forecasting a slightly lower growth for 2012 of 8.2% from a previous figure of 8.4% for China has not inhibited investors and is also helping to support the basic resource sector.

GlaxoSmithKline (GSK LN) topped the FTSE blue chip today following an upgrade from Credit Suisse.

Conversely, Man Group (EMG LN) was stuck firmly on the bottom rung following Moody's decision to place the UK asset manager's debt ratings on review. Investors will be closely watching the company's next financial results in early May.

The UK saw its trade gap widen by more than expected in the 3 months to February, with the deficit widening to £8.8bn against expectations of £7.7bn as the sharp slowdown in the Eurozone along with weakened domestic demand took its toll.

US markets opened slightly higher despite the fairly mixed economic news.

The US initial jobless claims showed an unexpected rise last week to 380,000 stoking concerns that the American labour market may be losing pace.

The American trade deficit narrowed by a much greater degree than was expected coming in at $46.bn in February as a result of an unexpected decline in imports while exports gained to a record $181.2bn.

The pull back in gas prices was credited with US producer prices surprising to the upside, coming in unchanged against a consensus of a rise of 0.3%.

Equity wise, tech-Giant, Google is set to release its earnings after the bell.

Commodity currencies were on the front foot today with the Aussie dollar soaring following news that Australian payrolls had risen by 44,000 in March- almost 7 times that forecast. The Kiwi was also saw strength as the nation showed an expansion in manufacturing.

Reserve currencies took a back seat as the US dollar traded at 6 day lows.

The Japanese Yen was out of favour after the BOJ's governor stated that the central bank may continue its easing policy.

Reports of an increase in the already robust demand for gold from China have seen the precious metal price climb today. The price may find resistance around $1688 coinciding with the 144 Day MA.

Copper has also seen a bounce today as risk appetite improved but the price per pound still remains below its recent 3 month range.

Oil prices have tracked equity markets and edged higher today owing to a weaker dollar.