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Sentiment mixed before busy Thursday
The European equity markets opened flat to negative on Wednesday, following a quiet trading session in Asia. Investors will certainly remain in wait-and-see mode before Thursday’s busy eco-political agenda including former FBI director Comey’s testimony, the UK snap general election and the European Central Bank (ECB) meeting.

The big story of today is Banco Popular’s take-over by Santander amid the EU’s Single Resolution Board said that the bank will likely be bankrupt. Banco Popular lost more than 50% in a week.

Santander shares (-3.00%) sold aggressively to €5.60 at the open on surprise news. Popular’s riskiest bonds fell near zero and the legal costs will not be included in structuring costs, which may increase the investor anxiety vis-à-vis the deal.

On the other hand, Popular’s take-over could provide interesting business extension opportunities for Santander, especially in the SME-lending and credit card fields. Bad loans and the real-estate exposure that have irremediably weakened Popular’s capital have already been taken into account in the value of the deal.

Santander will seek to raise 7 billion euros to complete the transaction and Popular is said to continue operating under ‘normal business conditions’ once the transaction is done.

European banks started the day under pressure following the Banco Popular take-over.

The FTSE 100 traded mixed at the London open. Energy stocks (+0.16%) recovered on improved oil prices. Mining (-0.49%) and healthcare stocks were offered at the early minutes of trading.

The WTI crude gained more than $1/barrel, as the American Petroleum Institute revealed that the crude inventories contracted by 4.62 million barrels last week. This is the fifth consecutive week of fall in US crude inventories. The EIA’s weekly report is due today and is expected to confirm the falling inventories. Analysts expect 3.1 million barrel contraction last week, versus -6.4 million printed a week earlier.

Pound mixed before Thursday election

The pound trades with a mixed sentiment before Thursday’s general snap election. The narrowing gap between Tories and Labour in the latest election polls has mainly increased the volatility in the pound market. A no-winner outcome is expected to be negative for the pound, given the complication it would add to the Brexit negotiations. Cable will likely remained capped by the solid 1.3045 mid-term resistance before the election and consolidate within the 1.2765 - 1.3045 area, which has been the trading range posterior to the positive breakout on PM Theresa May’s election announcement on April 17.

No surprise expected from the ECB meeting

Germany is raising its voice on the ECB’s monetary policy. German Chancellor Angela Merkel reminded that the Eurozone’s monetary policy is a ‘challenge for German savings banks’. This being said, German discontentment should have limited to no impact for the ECB’s decision. The ECB is expected to maintain the policy rates unchanged and could again skip a detailed discussion about its Quantitative Easing (QE) exit policy.

The European Central Bank meets tomorrow is expected to stick with its actual Quantitative Easing (QE) program until December 2017 and start unwinding its asset purchases gradually through 2018. The size of the QE tapering is what investors are curious about. Yet, the ECB will likely remain silent on this particular point, which could lead to disappointment among the euro-bulls this week and trigger a temporary downside correction against the greenback after two-month appreciation.

The EURUSD lacks momentum to push through the 1.1300 barrier, the Trump Election Day high. With the US yields seen bottoming, the EURUSD could be tempted for a short-term correction. Support is seen at 1.1115 (minor 23.6% retracement on April – June rise) and 1.1011 (major 38.2% retrace).

Against the pound, the failure to beat the February resistance triggered a short-term downside correction into Thursday’s busy eco-political calendar. The UK election and the ECB decision could give a boost to the euro against the pound. Surpassing 0.8786 (50% level on October – April decline), the EURGBP could extend gains to the next critical resistance, 0.8897 (major 61.8% retrace). Buyers are presumed pre-200-day moving average (0.8595).

Gold down after hitting 2017 high

Gold softened after trading at a fresh 2017 high of $1’296 on Tuesday. The appetite in the yellow metal remains solid for a renewed attempt to the $1’300 level and the current positive trend should see support at $1’277 (minor 23.6% retracement in May – June rise) and $1’265 (major 38.25 retrace). On the topside, the market reaction to Tuesday’s rally suggests a stronger resistance pre-$1’300 mark. The yellow metal could bump into sellers on expectations that the US yields could recover into the Fed’s June meeting, or thereafter.

Some colour out of Asia Pacific

The Australian dollar rallied past the 200-day moving average on the back of a better than expected GDP data. Growth in the first quarter fell to 1.7% year-on-year from 2.4%, slightly better than 1.6% expected by analysts. Soft US yields certainly play a role in the AUDUSD’s current rise. A pick-up in the US yields could harm the Aussie’s recovery. Solid resistance is eyed at 0.7588 (major 61.8% retracement March – June decline).

Shanghai’s Composite (+1.23%) has been the front-runner in Asia. China fixed the yuan midpoint at the strongest level since Nov 9th, 6.7858 against the US dollar.