Yesterday’s European session turned out to be a rather subdued affair, bringing the curtain down on a very positive month and quarter, with the main focus on the prospects for an economic reopening and while that prospect is much closer in the US and the UK, there is rising concern after French President Emmanuel Macron’s decision to announce a four-week lockdown nationwide from Saturday, in an attempt to bring infections, hospitalisations and deaths in France under control.
The main concern is he may well have left it too late after 59,038 new infections were reported yesterday, and with so much vaccine scepticism across the country, particularly over the Astra/Oxford jab, as well as the rest of Europe, it’s hard to see and end point to the current crisis in Europe.
While markets in Europe ended the month in a fairly quiet fashion US markets had a much more positive end to proceedings, with the S&P500 edging to within touching distance of the 4,000 level, and a new record high, as a Nasdaq and Russell inspired surge saw US stocks finish the quarter in more or less the same fashion, they started it.
Optimism over the impact of a further $2trn stimulus package in infrastructure spending merely served to add more fuel to the fire of last month's $1.9trn stimulus bill, that came on top of the $900bn that came at the beginning of the year.
There was some concern over how it would be funded, including a corporate tax hike to 28%, and other tax raising measures, however for now markets appear fairly sanguine about these, with the likes of Microsoft leading the gainers after signing a $21.9bn deal with the US Army for augmented reality headsets.
US 10 year yields once again pushed higher closing at their highest levels in 14 months at 1.73%.
Ordinarily markets in Europe would have been expected to get a decent read across from such a strong finish, and they are set to open modestly higher, however given the current state of affairs with respect to virus infections there is a fear the region could well get left behind, despite manufacturing numbers that by and large are holding up well.
Manufacturing PMI has been one of the main bright spots amidst the gloom of the economic rebound in Europe, as businesses adapt to the restrictions around them, and show resilience in the face of a changed environment that has for the most part been in place in some form or other since October last year.
With no prospect of an imminent easing, political leaders across Europe’s big four economies will be hoping this resilience continues for a while longer, when the services sector across the continent continues to struggle with the continued closures in their respective sectors.
In France this resilience is expected to be sustained after last week's flash numbers saw a rise from February’s 56.1 to 58.8, while Germany also surged, rising to 66.6, from 60.7. Italy and Spain are also expected to strengthen further to 59.8 and 56 respectively.
The US ISM manufacturing report for March is also expected to come in stronger at 61.5, with particular attention likely to be on both prices paid, which hit 86 last month, and a 12-year high, and the employment component, which rose to its highest level in two years. A strong number here would raise expectations further for a strong payrolls report, either tomorrow or in a months’ time.
Weekly jobless claims are expected to fall further to 675k, from 684k.
There is also the small matter of an OPEC+ meeting today, with the cartel getting together to decide whether or not to extend the current level of production caps beyond April. Oil prices have seen a very decent start to the year, driven higher by expectations of higher global demand, however these have taken a knock in the past few days as it becomes apparent that extended restrictions across Europe, as well as an utterly shambolic vaccine rollout would temper these expectations.
These events prompted OPEC+ to lower its demand forecast by 300k barrels per day earlier this week, which means it is probably unlikely that they will change their quotas quite yet.
EURUSD – with the 1.1750 area giving way the bias remains for a move towards the previous lows at 1.1615. Yesterday we found some resistance at the 1 1760 area, while behind that we also have 1.1870.
GBPUSD – having failed to push above the 50-day MA earlier this week the pound has slipped back and is currently finding support at the 1.3710 area. Below that we also have last week’s lows at 1.3670. We need to push back and close above 1.3850 to reopen the 1.3920 area.
EURGBP – a move below the 0.8500 level opens up the potential for a move towards 0.8400, and then on to the lows last year at 0.8280. We need to see a move above 0.8570 to stabilise.
USDJPY – looks to be on course for a move towards 111.20, as well as the 2020 highs at 112.20. The move through the 200-week MA opens up the prospect of further gains with support now back down at the 109.80 area.