MARKETS STRUGGLE TO FIND THE ENERGY TO RISE HIGHER
CHIEF MARKET STRATEGIST
AS APRIL gives way to May, markets are struggling to find the necessary enthusiasm to push much higher. Unlike last week, when we had plenty of things to worry about in the Eurozone, this week seems to be far less exciting, at least for the moment.
The Eurozone crisis continues to boil away in the background and none of the components of last week’s sell-off, namely Spain and the French presidential election, have actually gone away.
The French election looms on the distant horizon, the second round being scheduled for Sunday, while Monday saw news that Spain had slipped back into recession in the first three months of 2011. Of course, we shouldn’t forget that Sunday also sees a Greek election, which could throw all the Eurozone’s careful planning out of the window.
Still, a busy week for economic data means that there is enough to keep traders’ minds off Europe for now. Manufacturing data from China, the UK and the US, followed by German unemployment data, is rounded off on Friday by the economic indicator par excellence, US non-farm payrolls. As a result, most indices are likely to enter a “wait and see” mode, with traders unwilling to commit themselves too heavily in advance of this avalanche of economic news.
IG clients continue to expect that US markets will run out of steam soon, with Insight data showing them to be even more heavily weighted to the short side than was the case last week, at 83 per cent short.
Curiously, clients are short on sterling-dollar to almost the exact same degree, even as the pound pushes out to highs not seen since last September. The weak UK GDP reading last week, which showed a contraction of 0.2 per cent for the first quarter, instead of the hoped-for growth of 0.1 per cent, provided a nasty surprise, but it seems the pound is happy to keep rising despite this news.
The Bank of England might be appearing to row away from more quantitative easing, but it appears that IG clients expect Mervyn King and his happy band to opt for more money printing in due course in order to revive the flagging UK economy.