FTSE +26 points at 7260 DAX +28 points at 12555 CAC +14 points at 5315 Euro Stoxx +4 points at 3590
The UK and European markets are set for a positive open; the FTSE rolling index consolidated near its 100-day moving average in the early trading hours. Cheaper pound against the greenback is tempting for some investors, while softer commodity prices (iron ore futures -7%, copper futures -2.3%) could limit the upside at the open, before the UK’s services PMI release. Analysts expect slightly slower expansion in the UK services in April. Soft data could weigh on the pound and underpin the intraday trend in the equity indices.
HSBC (NYSE:HSBC) reported $5.94 billion profit beating $5.30 billion forecast by analysts. The cost saving program is on track according to the bank, it will return low-return, risk-weighted assets. HSBC disappointed investors, who were hoping a new share buyback announcement.
The final PMI services data from the Eurozone should be no surprise for the euro traders. The EUR/USD traded below the 1.0900 in Asia due to a broadly stronger US dollar. Wednesday night debate between Macron and Le Pen gathered little attention from the markets.
In fact, Emmanuel Macron faced Marine Le Pen in the final televised debate before the second round of the election due on May 7th. Both candidates attacked each other aggressively, yet nothing unknown to us came out of the duel. According to the opinion polls, Macron has been the winner of the final debate. The overall expectations have not changed: 60% of participants are expected to vote for Emmanuel Macron on Sunday.
The US dollar appreciated on slightly better than expected ADP report that showed that the US economy added 177’000 private jobs in April versus 175’000 expected, and hawkish Federal Reserve (Fed) expectations following this week’s FOMC meeting.
The Fed maintained the rates unchanged as expected and delivered a more hawkish than expected accompanying statement. According to the Fed, the US consumer spending is solid, the business investment is firm and the inflation is "running close" to the policy target. US policymakers see the soft first quarter growth (advance Q1 GDP +0.7%) as "transitory" and remain optimistic on recovery.
Although there has been no hint regarding the timing of the next move, all elements point at a Fed action sooner rather than later. The probability of June interest rate hike is now priced in at 90% by the US sovereign markets. This means that there is a tacit settlement between the Fed and the market that the next interest rate hike is due on June, unless there are new developments on the fiscal and political legs that would require a big step back from the FOMC members.
The April nonfarm payrolls data is due on Friday. According to analysts’ forecast, the US may have added 190’000 new nonfarm jobs last month, versus the unexpectedly low figure (98’000) printed a month earlier.
The US final durable goods orders data is also due today. Softness has already been factored in the prices at the preliminary read and should trigger little price action at the release.
The broad-based appreciation in the US dollar instigated a bearish reversal in gold and a bullish reversal in the USD/JPY.
Gold broke the $1,257/1,252 support, took away the $1,245 (50% retracement level on March – April rise) and tanked to $1’235, a stone’s throw higher than the 1’233 Fibonacci support (61.8% retracement). The MACD (Moving Average Divergence Converge) is about to step into the bearish zone following this year's biggest decline, suggesting a stronger negative momentum. The next natural target for the short gold positions is the $1,220/1,218 (100-day moving average / minor 76.4% retrace). Offers are touted pre-$1,248/1,251 (50 and 200-day moving averages respectively).
The USD/JPY cleared offers at 112.15 (major 38.2% retracement on December – April decline) and rallied past the 100-day moving average (112.50). The MACD gains positive momentum, suggesting that the rise could gather further momentum to 113.37 (50% retrace), 114.60 (major 61.8% retrace) before the 115.00 mark. Intra-day support is eyed at 111.80. Japan is closed today and tomorrow due to bank holiday.
In Australia, the trade surplus fell faster than expected in March, due to the sharp downside correction in commodity prices. The AUD/USD tanked to 0.7405 (100-week moving average) on solid USD demand and softer-than-expected trade terms. The negative momentum suggests an extension of losses toward 0.7384 (major 61.8% retrace on December – March rise). Light 0.7400-put options are due at today’s expiry. Resistance is eyed at 0.7500/0.7540 (option barriers / 200-day moving average).
Last but not least, Facebook (NASDAQ:FB) topped the first quarter sales estimates and recorded a significant 17% jump in monthly users to 1.94 billion. This means that 25% of the world population is part of the Facebook community.
However, FB shares dropped 4.2% in extended trading as the company warned that revenues could be ‘meaningfully’ lower as it will stop increasing the frequency of the commercial spots in the news feed. There is indeed a natural limit to the number of ads that Facebook could add on its feed; too much ad would simply drive users away. On the other hand, we could think that investors may have overreacted to the warning, given that Facebook is increasing the size of its community, which means that the ads will be seen by an increasing number of users all over the globe. Hence, focusing on quality rather than the quantity of ads could keep the positive income trend in place.
Facebook is still a widely treasured company. According to a Bloomberg survey, 89.6% of analysts from the world’s leading financial institutions including J.P. Morgan, Nomura and Macquarie overweight the FB shares, 8.3% remain on hold with a twelve-month average target price of $164.49.
Quick glance at technicals on LCG Trader:
EUR/JPY intraday: further advance. Long positions above 122.35 (pivot) with targets at 123.25 & 123.75 in extension. Below 122.35, downside potential to 122.05 & 121.65.
AUD/USD intraday: downside prevails. Short positions below 0.7455 (pivot) with targets at 0.7385 & 0.7360 in extension. Above 0.7455, upside potential to 0.7480 & 0.7500.
GBP/USD intraday: under pressure. Short positions below 1.2900 (pivot) with targets at 1.2860 & 1.2840 in extension. Above 1.2900, upside potential to 1.2930 & 1.2950.