Financial market research and analysis

European bourses are pointing to a positive start, extending a positive session in Asia and despite a subdued close on Wall Street at the end of last week. Despite a flurry of strong earnings, the S&P eked out a close just 0.1% higher. The weaker pound and supermarket merger excitement is pushing the FTSE back towards its highest level since early February.

Asda Sainsbury £15 billion merger announcement at 7am Traders will be bracing themselves for volatility in the retail sector and particularly in J Sainsbury when markets open this morning. Given that shorting retailers has been a huge trade over the past two years, news of potential tie up between Sainsbury, the UK’s 2nd biggest supermarket and 7th most shorted stock, and Walmart subsidiary Asda could see many caught on the wrong side of the bet in early trade on Monday.

The timing of this deal is key. It comes potentially as a response to the Tesco and Bookers merger, which passed through the competitions agency without remedies and at a time when pressure from Amazon has stepped up following their purchase of high end supermarket Whole Foods. Given the more challenging outlook for the sector in the face of recent Tesco/Booker and Amazon/Whole foods tie up, Sainsbury and Asda were in danger of losing significant market share.

This £15 billion deal, if agreed and approved by the Competition and Markets agency, potentially with just some disposals at local level, could change the landscape of the sector dramatically creating a more powerful rival to market leader Tesco.

A further announcement is due this morning at 7am.

GBP/USD remains sub $1.38

GBP/USD saw an acceleration in recent losses as weak UK GDP data successfully killed off any last remaining hopes of a May interest rate rise from the BoE. The pound is trading quietly at the start of the new week around familiar territory of $1.3780 after plummeting 1.6% across the previous week and 4% since April’s peak of $1.4375.

This week sees little potential for sterling bulls to take back control with no high impacting data due in the European session and just a scattering of PMI readings across the week. A continuation of weaker than forecast UK figures will see traders punish the pound, which could be a little shaky anyway on news of the resignation of the Home Secretary, Amber Rudd. US Personal Consumption Expenditure (PCE) the Fed’s preferred measure of inflation could derail the pound further when released at 13:30 BST.

US PCE in focus ahead of busy week for the dollar After a good previous week for the dollar, there is plenty to keep traders focused on the greenback this week. First up Core PCE today is expected to have moved higher in March closer to the Fed’s 2% target at 1.9%, up from 1.6% in February. This reading comes ahead of the Fed rate decision and US non-farm payrolls later in the week.

Widening US German yield keeps pressure on EUR/USD EUR/USD is having a quiet start to the week, continuing with a consolidative mood after the Asian session. Euro traders are looking ahead to fresh impetus from German inflation figures just prior to US PCE numbers, meaning EUR/USD could experience increased volatility around 13:00/13:30 BST.

Also piling the pressure on EUR/USD is the widening of the US – German 10 year yield spread, which is at the widest level since 1989 on divergent central bank policy & inflation expectations. Strong US readings and a hawkish sounding Fed could widen the difference in yields further, piling pressure on the pair.

EUR/USD

A test of $1.2160 could be in line on the upside; support can be seen at $1.21 prior to $1.2060 and $1.2120.

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