Europe looks to a mixed start as Asia moves lower

The overnight session in Asia was a relatively quiet affair given that US markets were closed for Presidents Day and that markets in mainland China, Taiwan and Vietnam remained closed for the Lunar New Year. Those Asian markets that were open slipped lower, led by the Nikkei.

The negative spillover from Asia is weighing on the futures across Europe, which are pointing to a an unconvincing, mixed open. Some European bourses are set to verse some of the losses from Monday, which saw the FTSE close 0.6% lower and the Dax shed 0.5%. The FTSE has so far lagged noticeably behind the recovery on Wall Street; even a weaker pound in the past few sessions hasn’t boosted the FTSE, leaving investors questioning what could actually move this market meaningfully higher?

Busy week for the banks
Movement on the FTSE could start to take on a more convincing direction over the coming days as earnings releases pick up and the pound could hit some volatility after a quiet start to the week. On the corporate front, this week sees the banks update the markets, starting today with HSBC, followed by Lloyds on Wednesday, Barclays on Thursday and RBS on Friday. Expectations are running reasonably high after the solid US banks season, with HSBC returning to growth and Lloyds potentially increasing its dividend. Should they perform well the FTSE could see buying interest pick up once more.

Weaker Pound Failing To Boost FTSE
Even though the pound has tumbled over the past two sessions, the FTSE has not appeared to capitalise. The FTSE has also moved lower as the pound has dropped from its recent high on Friday to fall below $1.40 in the previous session for the first time since Wednesday. Whilst the BoE could look to raise interest rates as soon as Spring, this is being overshadowed by Brexit concerns or more specifically confusion from Theresa May’s Brexit cabinet and uncertainties over the post Brexit transition period. As a result, demand for the pound remains limited. Wednesday and Thursday see the release of high impact data for sterling, in the form of wage data and UK GDP, which will attract attention and could prompt volatility in the pound. Whilst a weaker sterling could boost the FTSE, should the selloff in the dollar also resume, its benefits won’t be felt.

EUR/USD in focus with German ZEW release
The euro returns to the radar today. There are a number of important releases for the euro this week, starting with today’s German ZEW data. Given the 6% fall in the Dax over the past three weeks, investor confidence is likely to have been dented which could be evidenced in a softer ZEW reading. Furthermore, eurozone PMI data and Germany IFO numbers will also be released later in the week, with suggestions pointing to weaker readings. EUR/USD is falling lower as markets open on Tuesday. Weak economic data could see the pair move towards its 20 day sma in the region of $1.2350, before extending losses to $1.22. On the other hand, EUR/USD could look to target $1.2550 should confidence in Europe prove to be strong.

Opening calls
FTSE to open 5 points higher at 7252
DAX to open 10 points lower at 12,375
CAC to open 8 points lower at 5248