Sentiment has continued to ebb and flow this week, as stock markets continue to get buffeted by concerns about recession against a backdrop of central banks who appear determined to squeeze inflation out of the global economy.

European markets gave back their early week gains, while US markets after initially opening lower, managed to reverse their early losses to push into the green, before closing marginally lower.

One notable takeaway from yesterday’s price action was a bid into the bond market, which sent 10-year yields sharply lower in a sign that bond investors might be looking to generate a little recession insurance.

A slide in oil and base metals prices speaks to a general concern about waning global demand, even against a backdrop of tighter supply due to Russia’s war against Ukraine.

Brent crude prices hit a one month low of just above $107 a barrel, before recovering back above $110 a barrel, but have remained under pressure in Asia trading.

As we look ahead to today’s European open the main focus is set to be on the latest flash PMIs for June from France, Germany, UK and the US with further weakness expected across the board in the face of higher prices and weakening demand.

Ahead of that we have the latest UK public sector borrowing numbers for May which are expected to show a significant improvement on the April numbers due to a combination of higher tax revenues, as well as not having to spend huge amounts of money on NHS test and trace, which was wound up in April.

Borrowing is expected to fall from £18.6bn in April to £12bn as the various higher VAT and business tax rates start to kick back in, along with the extra revenue from higher fuel prices. Today’s borrowing number will also be well below the £20.6bn we saw this time last year.  

CBI retail sales for June is also expected to remain weak, slipping from -1 in May to -3, although we might see a pickup because of the Jubilee bank holiday weekend which could have translated into a bulge in spending at the beginning of the month.

In the past few weeks, US weekly jobless claims have started to edge higher, hitting a 3 month high earlier this month. This has raised concerns that the US labour market might be slowing. Today weekly claims are expected to fall back modestly from 229k to 226k.

Fed chair Jay Powell is due to give another day of testimony to US lawmakers, however it’s not likely to add to what we heard last week at the Fed press conference, or the partisan questioning we saw the Fed chief subjected to yesterday, which by and large was banal and uninteresting.

The one key takeaway from yesterday’s comments was that Powell remained fairly upbeat about the US economy, and that any moves would be data dependant, while he also seemed to come across as much less hawkish than he did last week, in that he was much more even handed about the trade-offs between unemployment and inflation.

Part of the reason for that was probably his audience, given politicians tend to be much more sensitive to the idea of a rise in unemployment levels just before midterm elections. This probably explains why the hawkishness of last week was tempered slightly yesterday.

EUR/USD – Tried to push above the 1.0600 area, before slipping back. We need to see a sustained move above 1.0600, as well as trend line resistance from the highs this year, which comes in at 1.0680, to open up the 1.0800 area. Below 1.0330 targets parity.

GBP/USD – Slipped briefly below 1.2200 before rebounding. The bias remains for a move higher after the failure last week to push below the 1.1950 area. We need to push above the 1.2450 area for this to unfold. Below 1.1950 targets the 1.1500 area.

EUR/GBP – Currently holding above trend line support from the recent lows in April at 0.8520. We need to push through the 0.8630 area to open up 0.8700. A break below 0.8500 targets the 0.8420 area and 200-day MA.  

USD/JPY – Slipped back from the 136.70 area but while above has pushed through the previous peaks at 135.60, putting the US dollar on course for a move towards 137.00 and ergo on towards 140.00. Support now comes in at 135.40.

FTSE 100 is expected to open 17 points lower at 7,072.

DAX is expected to open 14 points lower at 13,130.

CAC40 is expected to open 10 points lower at 5,906.

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