Macro: Sandcastle economics
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Market sentiment is on the edgy side this Friday amid a slew of risky data points and developments including a key danger zone in the S&P, US average hourly earnings, a ratings downgrade of Turkey and the latest verbal volleys in the China-US trade spat.
"The euro is quite weak as we saw Eurozone CPI not meeting expectations yesterday. We're wondering if that ECB target [inflation below, but close to 2%] will ever come into being before they hit the next recession. But in any case a weaker euro would certainly help and that's what we're seeing," says John J Hardy, Saxo’s head of forex strategy. The 200-day moving average has been in focus and also the 61.8% retracement in eurodollar: "That was the exact low yesterday and we're waiting for the next key US figure to see if this dollar rally can continue to drive higher".
The numbers which the market eagerly awaits are the April nonfarm payrolls stats, particularly the average hourly earnings element, which Hardy expects to come in at a 2.7% gain y-o-y – anything significantly outside this would pose a challenge.
Elsewhere, the S&P 200-day moving average took a downturn yesterday but subsequently reversed into a strong close, preventing, as Hardy puts it "the whole risk-off train from leaving the station completely". Still, "there's an awful lot of suspense around that technical level and whether equities are going to sell off and what the risk appetite picture is".
Another pressure on equities is the state of the China-US trade standoff. "There were rumours of a deterioration in relations but this was denounced overnight with US trade secretary Mnunchin were progressing well in Beijing," says Peter Garnry, Saxo’s head of equity strategy . However, if the negative reaction of Asian equities to this is anything to go by, it looks like the market just didn't believe him.
Finally today, Althea Spinozzi, from Saxo’s bond trading desk , tells us she'll be publishing a trade bond view later today on Alpha Bank 2½, 2023 maturity. [Alpha Bank is the largest Greek bank by market cap.] "We are positive on Greece, we see some signals of a recovery. Unemployment is declining and there are talks regarding ending the bailout programme, so we believe we'll see rating agencies upgrade Greece".
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