Geopolitical Tensions Ease; Attention On Stock Performance & Central Banks

Geopolitical Tensions Ease; Attention On Stock Performance & Central Banks

An easing of geopolitical tensions is once again boosting sentiment as the new week begins pointing European bourses in the direction of a mildly stronger open. Signs that Washington will reach an agreement with Beijing has put US-Sino trade war fears on the back burner. Meanwhile, North Korea agreeing to suspend missile testing and closing a nuclear site has lifted sentiment, as the US North Korea summit looms. After weeks of pressing geopolitical issues taking centre stage, investors are starting to return their gaze to stock performance and central bank action.

Eurozone PMIs to encourage more dovish ECB?

An impressive Eurozone economic recovery was one of the big stories of 2017. This year so far has proved to be less encouraging and markets are concerned that eurozone growth is losing momentum at best or stopped altogether at worst. Today’s purchasing managers index (pmi) survey data should throw some light on the subject, showing whether or not the run of soft data is continuing after 18 months of uninterrupted growth.

PMI’s are an important gauge of confidence, which climbed steadily across 2017. However, they have been sliding so far this year, dropping from December’s peak of 60 to a level of 57 in March, with a level of 50 separating expansion from contraction.
Today’s pmi readings come ahead of the ECB rate decision on Thursday, where the ECB are expected to leave policy unchanged. Since the March ECB meeting eurozone economic data has worsened, inflation has been revised lower and a potential global trade war has surfaced, all of which point to an even more cautious tone expected from the ECB.

EUR/USD peaked last week at $1.24 before ending the week at $1.2287. With weakness anticipated from today’s pmi’s and QE remaining in place following the ECB meeting on Thursday, we could see the euro come under pressure again this week. A move below $1.2250 could open the doors to $1.2215 prior to $1.2180. A solid bounce back in pmi’s could see EUR/USD target $1.2335 on its way to $1.24.

Oil up despite Trump Tweet ahead of oil majors reporting

The price of oil remains elevated at just below $75, rallying 10% over the past 2 weeks and a 9% jump across the year. The focus on oil is expected to stay this week as European oil majors Shell, ENI and Total report earnings, in addition to US producers Exxon Mobil, Chevron and ConocoPhilips. The rally in oil price is expected to boost profits, however the price of oil is also nearing inflation boosting levels, making it fall onto President Trump’s radar. Yet even a tweet from the President that OPEC are keeping the price artificially high, hasn’t dragged the black stuff lower. Oil majors are expected to report bumper earnings and the highest cash flow in a year.

Opening calls

FTSE to open 11 points higher at 7379
DAX to open 34 points higher at 12574
CAC to open 15 points higher at 5427