Equity markets – (technical) obstacles removed
A week ago we pointed out that actually the worst might be behind us when it comes to market sentiment in general and equity markets in particular. Futures for the S&P500 flirted with a key 1292 pts. level early in the week signaling an end of a correction and a fresh upward potential. Yesterday’s cash session on Wall Street came as a final confirmation bringing the futures above 1310 pts. – within 3% of the ’11 highs. The highs should be now an immediate target for the bulls.
It took slightly more time to see a similar signal in Germany. As recently as yesterday we noted that the bulls were still struggling with the key resistance of 6845 pts. (local lows from January and a closing point for the gap recorded between March 14th and 15th. That level was broken yesterday and as one could have expected – this was followed by a buying spree. With ’11 highs still some 6% away, German bull will be targeting 7100 pts. first.
EURUSD – Portugal losing rating, but bulls still in the game
After failing to introduce fiscal measures and losing a government, Portugal took a well deserved hit from rating agencies – this time Fitch and S&P – which lowered their ratings (both by two notches, but while S&P has now BBB on Portugal, Fitch still maintains optimistic A-). Portugal seems to be bound to ask for aid but right now this fact is discounted and unless there is more bad news in a “euro zone debt crunch” pipeline (and there sure might be), this issue might be relatively neutral for the EURUSD.
The EURUSD continues to perform well within an upward trend and another “use” of a previous resistance as a support (this time at 1,4035, previously at 1,3860 and 1,3750) suggest that despite fresh troubles in Portugal and (too) elevated expectations regarding the monetary policy, the bulls aren’t giving up. So far, buyers failed to move the pair above 1,4247 (local high), probably in respect for a stronger resistance at 1,4280 but that doesn’t mean much yet. Only moving below 1,4035 and a trendline could signal some possible reversal from the technical point of view.
Events to watch – Ifo, final US GDP, EU summit and Fed’s Plosser
German Ifo index (5.00 ET, 10.00 CET, consensus 110,5 pts.) is the key macro release today, followed by the final US GDP release (8.30 ET, 13.30 CET, consensus 3%) and US UM sentiment index (9.55 ET, 15.55 CET, consensus 68,2 pts.).
Investors may await news from the EU summit as officials may want to react to rapid development in Portugal in order to stop any contagion. In US a speech from Fed’s Plosser might be interesting (12.15 ET, 17.15 CET). This moderate hawk might be more inclined (that the chairman) to unveil the patch towards normalization on the monetary policy.
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Przemysław Kwiecień PhD, Chief Economist |
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