Europe set to open higher after US tech rebound
Concerns over a global economic slowdown driven by rising covid infections in China, saw the FTSE100 hit their lowest levels in a month yesterday, while other markets in Europe also saw steep declines, with no rebound of Macron for the CAC40, which fell more than 2% to its lowest level since March 14.
China’s strict zero covid policy has raised concerns that the Chinese government will struggle to come close to its target of 5.5% of GDP this year. Omicron’s increased transmissibility has always suggested that a zero covid policy was in danger of failing, with Australia and New Zealand admitting defeat and throwing in the towel.
For China, however, this might be the least bad option given the vulnerability of its health care system to rising cases, which means we could see citywide shutdowns that last for weeks. It is these concerns that appear to have driven yesterday’s decline, as well as a sharp decline in commodity prices.
On the positive side, these concerns about demand destruction may well provide a welcome respite for time-pressed consumers in the form of lower fuel prices at the pump, after Brent prices fell below $100 a year. barrel yesterday.
US markets, despite opening lower, ended the day higher, led by the Nasdaq 100 as tech stocks rose strongly on optimism about the upcoming earnings numbers, starting later in the day with the release of Q3 figures from Microsoft and Q1 figures from Alphabet.
Twitter also ended the day higher after the board accepted Elon Musk’s offer to buy the company for $44 billion and then take it private, subject to shareholder approval and regulators.
With the late recovery in the US, markets here in Europe are set to open higher, with Asian markets also rebounding, gaining respite from two days of heavy losses, prompted by concerns over the Chinese economy and calendars. central bank tightening.
As the UK economy prepares for another tough fiscal year, final public sector borrowing figures for March are expected to show the UK government borrowed £19billion in the final month of last fiscal year, an increase £7bn from £12bn in February.
In the year to February the government borrowed £138.4billion, £25.9billion less than the Office for Budget Responsibility forecast and £152.5billion pounds less than the same period a year ago.
The improvement was driven by better-than-expected self-assessment tax receipts in January, which beat the OBR forecast by £7.8bn, to £26.8bn sterling.
Today’s March figures, while high, are still expected to be well below the OBR’s total forecast of £183bn. This is despite rising debt interest costs which have risen sharply due to large increases in RPI over the past few months.
This is the tightrope the Chancellor is navigating as he tries to balance the risks of rising tax levies against the rising costs of servicing existing debt.
Despite the better-than-expected numbers, Sunak has not been persuaded to reverse the tax increases that began this month, and while he has taken some steps to mitigate the impact, the steps he a imposed could have the unintended consequence of reducing tax revenue. as people cut spending.
While consumer confidence in the UK fell sharply, in the US it was just as uneven, although retail sales were slightly more resilient. Nonetheless, we have seen signs that the US consumer has become slightly more cautious in recent months. We could see a modest recovery in April to 108.50 from 107.20 in March, while the preliminary durable goods for March should see a modest rebound after a sharp decline in February.
EUR/USD – Broke lower yesterday, below the 1.0750 area and awaits on track for a retest of the March 2020 lows at 1.0635. To lessen the risk of these moves occurring, we need to see a recovery above the 1.0820 area.
GBP/USD – The break below the 1.2800 area opens the prospect of a move towards 1.2490 and the 61.8% retracement of the move from the 2020 lows at 1.1410, to last year’s highs at 1 ,4240. We now have resistance in the 1.2820/30 area.
EUR/GBP – Holding above the 0.8400 area, the next resistance is at the 0.8470 area and the 200-day MA. Support comes in at 0.8380 area. It looks like we are in a range between 0.8500 and 0.8200.
USD/JPY – The failure to break above the 129.00 area has resulted in some profit taking as we look to move back towards the 125.80 area, on a break below the 127.40 level. Major support is at the very bottom near the 124.70/80 area.
FTSE100 is expected to open 95 points higher at 7,475.
DAX is expected to open 206 points higher at 14,130.
CAC40 is expected to open 90 points higher at 6,539.