European equity markets are expected to open higher on Friday, paring Thursday’s losses and rebounding once again off the range lows they have traded within for most of this month.
Stock markets haven’t really made any progress so far this month, instead they’ve established a new tight trading range and are simply moving between support and resistance – 6,050 and 6,210 in the FTSE for example.
I don’t think we can read too much into the intra-day moves at this point even if they do at times reflect short-term shifts in risk appetite. Yesterday’s selling, for example, was clearly a response to the hawkish FOMC minutes and declines in oil and yet, that range support holds firm and we’re now popping higher again.
Oil is trading higher again today after we saw some profit taking early in Thursday’s session. The first attempt to break through $50 in Brent was unsuccessful but momentum is still with the bulls and given yesterday’s rebound off the lows, we could see another push today. If $50 is pierced today, the next test for Brent would be $51-51.50, a key zone of support and resistance during the decline back in October and November.
The dollar is trading slightly higher today after pulling back off its highs yesterday afternoon. William Dudley, one of the more dovish FOMC policy makers, threw his support behind a hike at the June or July meeting along with the usual caveat that it is dependent on the data performing in line with his expectations. He did also claim that “Brexit” is one variable in the mix when deciding whether to raise rates which some have taken to mean the Federal Reserve would favour July over June, with the meeting coming just over a week before the 23 June vote. However, should the data perform well and Fed believe Brexit risks are slim, I think they could favour a hike in June, with the July meeting not offering the opportunity to explain their decisions in a press conference after. They could of course add one if they wished but this would be very unusual.
It’s looking a little light on the economic calendar on Friday but one notable event taking place is the gathering of the G7 in Sendai, Japan. The main discussion will be around stimulating global growth and avoiding recession but I imagine there’ll be a number of officials passing judgement on the E.U. referendum next month and the risks to global growth that Brexit would pose. This could once again help the remain campaign that has already been backed quite heavily already by the international community. As it stands, based on some of the more reliable polls and the betting odds, it already looks as though the “Remain” camp is quite far ahead as we approach the vote but I’m sure they won’t want to rest on their laurels and risk the U.K. leaving the E.U..