Financial Market Research and Analysis

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Equity indices recover composure

A choppy start to proceedings this morning in equity indices but risk assets have recovered their composure to some extent. Greece occupies the European headlines this morning but is considered only a light event risk in Europe with the Greek bailout review talks particularly with the backdrop of the falling Eurozone unemployment levels to a 4 year low of 10.3%.

EURGBP traded above the 0.80 mark for the first time since December 2014 and is currently consolidating gains – seemingly comfortable at present levels, there is a propensity for a push higher to 0.8170 as long as the 80p mark support holds. EURUSD backed lower from the 1.1438 level hit post-NFP, decent resistance is eyed pre-1.15 hurdle. Given that the ECB’s expanded bond buying programme began on Friday, with monthly purchases rising from €20bn to €80bn - The 10-year Bund yield is down 2 basis points this morning, at 0.119 per cent – we may well revisit the 0.103% level it hit in February for a new 11-month low. . The 0.7% decrease in industrial producer prices in total industry in the euro area in February 2016, compared with January 2016, was due to price falls of 2.1% in the energy sector, of 0.4% for intermediate goods and of 0.2% for nondurable consumer goods.

Executive Board member Peter Praet  has also made his feelings known – that the ECB will act forcefully if required to counter the low inflation levels. Thus far, the reaction in euro crosses has been limited.

Here in London, the FTSE (+5%) has all its sectors trading higher but seems still unable to push through the key 6200 level that has been a significant barrier for the last few weeks. In some respects, a weaker pound may well be the catalyst for this particular move to occur and with Brexit worries likely to ramp up, there may be opportunity here especially since FTSE100 companies derive the vast majority of revenues overseas. The overall picture for the FTSE is one of a downtrend, however, and as long the outlook for the main constituents, namely mining and banking remains subdued, it will be difficult for the UK benchmark to push through the key resistance level of 6450.

Oil prices are lower too, but well off the session lows which is helping risk sentiment to a degree. It has been well documented since the year began that oil prices and indeed the related dollar strength tend to dictate risk assets and it’s unlikely that is set to change.

Nevertheless, we expect the Dow to open above 17800. The 18000 level is possible, but with overbought technical signals and the spectre of the FOMC meeting minutes later this week, it may find it difficult to hold on to the recent gains in the near term. Janet Yellen’s recent speech which indicated that there may be additional slack left in the labour market despite the better than expected Non-Farm Payrolls data last week do tend to overshadow the comparatively stale FOMC minutes.

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