Higher open expected after US markets post best win streak this year.
By Michael Hewson (Chief Market Analyst at CMC Markets UK)
Last week the S&P500 posted its best week since July last year, and yesterday in the absence of European markets went on to close higher for the fifth day in succession for the first time this year as investors continued to put to one side concerns about geopolitics and slowing earnings, focussing instead on the prospects of further M&A activity as reports filtered through that US pharmaceuticals giant Pfizer had been, and is still, exploring a potential offer of $101bn for UK pharmaceutical giant AstraZeneca. This revelation is likely to make for an interesting Q1 trading update on Thursday.
As long as the situation in Ukraine manages to stay contained to the occasional fire fight then market attention is likely to be more focussed on the latest company earnings reports from both side of the Atlantic, with particular attention on the technology sector with both Apple and Facebook set to post their latest numbers in the US, particularly after Google disappointed last week, while Apple supplier and UK chipmaker ARM Holdings is also due to post its most recent numbers.
If the situation in Ukraine escalates and prompts some form of Russian incursion on Ukraine’s eastern border, where tensions remain high, then investor appetite for risk could well take a hit.
While optimism continues to rise in the US about a spring time rebound in economic activity, concerns about European economic expansion continue to worry European investors where investor appetite has been less exuberant.
This week’s manufacturing and services flash PMI data for April from France and Germany could well give some early indications as to whether last month’s sharp rebound in French economic activity was a one-off or the beginning of a turnaround in the sclerotic French economy.
German economic activity has shown some signs of a plateau recently particularly in light of the recent problems in China and Russia, two key export markets.
Indeed tomorrow morning’s Chinese HSBC April manufacturing data could well reinforce those concerns.
For now though European markets look set to play catch up with the US after the gains seen yesterday, with markets set to open higher this morning, but still well within the ranges of recent weeks, and below their recent highs. This week’s latest trading updates could well play a big part in whether we see a revisit of those highs.
EURUSD – the euro continues to find it difficult to rally with any conviction remaining well short of the recent highs at 1.3970, peaking at 1.3865 last week. As such continue to look as if we could well start to drift lower, but for now we appear to be finding support at 1.3780. There is also long term trend line support from the lows last year coming in at 1.3745. A break below the April lows at 1.3675 could well see a move towards 1.3500.
GBPUSD – continues to look well supported but the 1.6820 level continues to cap despite a pop to 1.6845 last week. The move higher continues to lack conviction, meaning that we continue to have some resistance here. As such this level continues to remain important with respect to further progress. We need a move above 1.6880 to put the pound above its November 2009 highs. While below the risk of a pullback towards 1.6555 remains a possibility, on a break below 1.6670.
EURGBP – the pressure remains on the downside with a cap currently around the 0.8300/10 level. Only a move below the March lows at 0.8205, argues for a move towards the lows this year at 0.8158.
The resistance at the 200 day MA at 0.8410 remains a key obstacle to further gains.
USDJPY – the US dollar continues find itself well supported but we need to see a move back through the 102.80 level to suggest a move back to the highs at the beginning of the month at 104.10. We have solid support at the 101.20 area and the March low. A move through 101.20 opens up the 200 day MA at 100.80, a break of which could well see a move towards 98.60.
Equity market calls
FTSE100 is expected to open 28 points higher at 6,653
DAX is expected to open 62 points higher at 9,472
CAC40 is expected to open 26 points higher at 4,458
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