Europe set to open higher, against backdrop of US, China tension

The increasing prospect that a slowing infection rate and falling death count will see economies start to slowly reopen next month has seen equity markets across the globe get off to a flying start this week, building on the gains we saw last week.

After weeks of lockdown markets appear to be betting that consumers may well go off on a summer spending splurge, as pent up demand gets unlocked, as we head into the summer months.

Big gains in travel and leisure stocks, as well as retailers yesterday appear to be predicated on the assumption that after weeks of lockdown people will head off to sunnier climes, as the southern European economies of Spain, Italy and Greece look to roll out the red carpet in an attempt to salvage what is left of their holiday season, and industry.

The prospect of non-essential retailers opening in mid-June also gave that sector a boost as preparations start to be made for UK retail, as well as travel and leisure look at a phased return to some semblance of normal.

US markets also started the week on the front foot, closing the day strongly higher, however in a sign that the current rally still looks fragile the S&P500 was unable to close the day above the psychologically important 3,000 level and the 200-day MA. Only time will tell whether that inability to close above these key levels is significant.  

This inability to hold onto the bulk of yesterday’s gains appears to have come about as a result of concerns that US officials are mulling sanctions against senior Chinese officials and businesses over recent Chinese efforts to impose new security laws in Hong Kong in an attempt to crack down on dissent.

This pullback from the intraday highs of 3,021 in the S&P500 doesn’t appear to be holding markets in Europe back this morning as we get set for a higher open this morning, with the main focus set to be focussed on Brussels and speculation that the European Commission might be about to unveil a new stimulus plan sometime today to help address the crisis in Europe.  

We’ll also get the latest Federal Reserve Beige Book for May, which may paint a more optimistic one than the one in April.

The last Beige Book in April saw US businesses retrench sharply, with leisure, hospitality, and manufacturing seeing some of the biggest declines. Employment declined in all districts as employees were either furloughed or let go. Today’s Beige Book is unlikely to paint a markedly different picture to the one in April, though we might see some optimism start to creep in as the US economy gets set to re-open in a number of key states and areas. 

EURUSD – the key resistance remains at last week’s high and the 200-day MA, above 1.1010. The 1.0770/80 level remains a key support level. A break above 1.1035 is needed to argue for further gains towards the upside and the 1.1200 area.

GBPUSD – the break above the 1.2250 area and 50-day MA has seen the pound move back towards the 1.2400 area.  A move through 1.2400 reopens the recent highs up near the 1.2650 area. The 1.2250 area now become support once more.

EURGBP – yesterday’s weakness saw the euro fall back towards the 0.8870 area, which for now appears to be holding. This area now becomes a key support, and needs to hold if we are to see further gains. Below 0.8870 targets the 0.8820 area.

USDJPY – slipped back yesterday with the 200-day MA at 108.30 likely to be a tough nut to crack. A move through 108.30 targets the 109.00 area. Currently has support at the 107.30 area.

FTSE100 is expected to open 30 points higher at 6,097.

DAX is expected to open 56 points higher at 11,560.

CAC40 is expected to open 24 points higher at 4,630.