The result of the first round of the French Presidential election will set the tone for the start of the week while central bank meetings in Japan then Europe will likely dominate the end of it. First quarter earnings season is also in full-swing with some big names reporting results.
Indices
The most dramatic stock market moves last week were in the FTSE 100 (traded as UK100 on the LCG Trader). The surprise calling of a snap general election by PM Theresa May sent the pound flying and stocks plummeting on the lost value of foreign earnings.
Political uncertainty has eased on hopes of a landslide Conservative victory which should help soften the Government’s Brexit stance. The logic goes that if Theresa May has a bigger majority she won’t need to rely so much on the votes of Brexit hardliners. This would come in handy for things like ‘The Great Repeal Bill’ which transfers all EU law into UK law, cutting out the jurisdiction of the European Court of Justice.
If the strength in the pound continues, that will be a negative force on the FTSE.
Daily candlestick chart of the UK 100
Source LCG, 21/4/17
The UK100 is undergoing a correction within a longer term uptrend. A significant support at 7085 has held so far but it is too early to tell if the correction is over.
The other major indices including Wall Street and the Germany 30 have slipped into sideways ranges within the broader uptrends. We will be looking for breakouts either way, with a bias towards expecting the existing uptrend to continue.
Alcoa (NYSE:AA) kicks off US Q1 corporate earnings season on Monday. The return to earnings growth for the S&P 500 thanks in large part to a stabilisation in the oil sector has played a large part in the record highs in Wall Street and the US 500. The consensus estimate for Q1 2017 profit growth vs Q1 2016 is around 10%, that would be the strongest since Q4 2011. On top of that, revenues are rising too, currently around 7.5%- and that’s despite the sluggish GDP growth estimate of around 0.6%.
Forex
The British pound was the standout mover last week for the all the same reasons we discussed with the FTSE 100. At over 1.29 GBP/USD reached a 6 month high before pulling back to find support at the old range resistance of 1.276. We have been anticipating this breakout since mid-January but some caution is warranted while below the big 1.30 level that could attract some more selling.
The euro caught some election relief last week as Emmanuel Macron kept hold of his lead in election polls over Marine Le Pen. Economic data has been strong in Europe – France recorded a near 6-year high in its Composite PMI reading for services and manufacturing last week. If the election passes without any upset, the fundamentals dictate a stronger euro.
With USD/JPY still well above 100, we don’t think the Bank of Japan will be panicking yet – so they are unlikely to change policy at this week’s meeting. Still, Donald Trump talking down the dollar as well as the Fed perhaps pausing its rate hikes to shrink its balance sheet later this year is negative for the dollar. We are expecting another consolidation around 110 in USD/JPY before another decline in line with the downtrend.
Commodities
The oil market remains in a choppy uptrend with Brent crude supported by the 200 DMA. The next big hurdle is the OPEC meeting on May 25 when the cartel could announce an extension of its output cut for another 6 months. The assumption is that production cuts will be extended so the bigger risk comes from a downside shock if they aren’t. An extension to OPEC cuts should see Brent touch $60 per barrel – but with US inventories at record levels, we suspect gains may not extend much further.
Political uncertainty in the US over Donald trump’s policy agenda and UK and French elections is keeping gold well bid. $1300 per oz is the next psychological barrier for the current uptrend to take out. Since we envisage there will probably not be any fallout from French elections, the uptrend in gold will probably need a weak US dollar to be sustained.
Economic data highlights (BST)
FOMC Kashkari speech
Bank of Japan interest rate decision
UK GDP Q1 2017
US GDP Q1 2017
Corporate Earnings
USA
Alcoa, Halliburton (NYSE:HAL), T-Mobile, 3M, AT&T (NYSE:T), Caterpillar (NYSE:CAT), Chipotle, McDonald’s, Shutterfly, PepsiCo (NYSE:PEP), Twitter, Boeing (NYSE:BA), PayPal Holdings Inc (NASDAQ:PYPL), American Airlines Group (NASDAQ:AAL), Ford, Domino’s Pizza Group Plc (NYSE:DPZ), Alphabet (NASDAQ:GOOGL) (Google), Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN), Exxon (NYSE:XOM), General Motors (NYSE:GM), Chevron (NYSE:CVX).
UK
Punch Taverns (LON:PUB), Boohoo, Fiat Chrysler, Lloyds (LON:LLOY) Bank, WPP (LON:WPP), AstraZeneca PLC (LON:AZN), Barclays (LON:BARC), Royal Bank of Scotland (LON:RBS), GlaxoSmithKline,
Europe
Volvo, AB ser. B (ST:VOLVb), Novartis, Credit Suisse (SIX:CSGN), Banco Santander (MC:SAN), Daimler, Peugeot, Deutsche Boerse (DE:DB1Gn), Nokia (HE:NOKIA), Lufthansa AG VNA O.N. (DE:LHAG), Bayer (DE:BAYGN), Orange, Deutsche Bank (DE:DBKGn), Airbus, Sanofi (PA:SASY), UBS
That’s it from LCG’s week ahead. Thanks very much for reading and good luck trading this week.
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