The events of the week have been quite focused on the UK as well as investor’s keeping an eye on Europe, but the economic data seems to be painting a mixed picture for consumers and businesses.
Earlier in the week inflation came in higher than expected and this complimented the producer prices from last week. High oil prices continue to remain an issue and are having an effect on the real economy. Even the Bank of England has admitted that inflation is going to remain high only a few weeks after having said that prices are due to plummet back below their target.
So whilst businesses and consumers are struggling to deal with stubbornly high commodity prices the other major piece of economic data has indicated that the private sector is starting to employ people again. The moves in financial markets have shown renewed confidence in the UK with sterling rising to month long highs against the euro and dollar. In terms of the euro the pound has hit its highest level since August last year, and whilst we are a long way off seeing any rise in interest rates we are unlikely to see a huge increase in QE when compared to the eurozone, where expectations are rising for the ECB at some point to look at other forms of stimulus to assist in propping up the banking sector.
The picture might be looking a little rosier than had previously been expected for the UK labour market yet the FTSE still continues to be held back. It’s still impossible for investors to get really excited about equity markets when so much is at stake in the eurozone, and this morning the index is hovering around break even at 5740. Even though a little bit of an uptrend has been building for the FTSE the near term resistance looks like quite a hurdle to get over. Levels at 5835 and 5880 will be closely watched to the upside whilst support is seen at 5700, 5650 and 5540.
This picture is also painted by the UK corporate sector where retailers are having to deal with the same headwinds as consumers, and whilst firms are attempting to expand and invest more, there’s still a vast amount of capital sitting on the side lines with a home to go to. The problem is that the outlook continues to look uncertain and so this cash is being kept under the mattress as opposed to being risked.
Today the focus remains on the UK high street as retail sales are released this morning. The good weather throughout March is due to give sales a boost but this is by no means a change of the longer trade trend
GBP/USD remains above the 1.6000 level after the change of tone at the BOE and the less dovish stance with Adam Posen dropping his calls for a round of QE4. The pound hit 5-month highs of 1.6078 yesterday as it ran into stiff resistance and at the time of writing is at 1.6065. Traders will be keen to see how the pound trades at this level, not seen since November, to see how well the big figure of 1.6100 is defended by the bears.
Gold traded in an undecided manner yesterday. With a wide range of $23 the precious metal in the end gained $1.4 an ounce to close at $1642.9 as neither the bulls nor bears could take control of the day. At the time of writing the yellow brick is lacking direction at 1643 with major near term support and resistance seen 1610 and 1680 respectively.
Brent crude oil futures pared early gains as disappointing US economic data fuelled ongoing worries of demand. Brent closed barely changed at 118.00 up 0.03 cents a barrel. With little sign of the bulls this week, traders will be keen to see if near term support at 117.46 holds. This morning though it looks like the bulls just have the upper hand as Brent trades back above 118 at 118.30.