After a quiet-ish Monday, the markets have started Tuesday’s session in a similar fashion with the major European indices edging lower and the dollar higher. The FTSE was once again flat as it continues to coil inside narrowing ranges – is a breakout on the cards? Like Monday’s session, we may see risk appetite turn positive again as the day progresses.
The economic calendar is fairly light again today, suggesting the early weakness may be due to profit-taking. We did however see some weakness in Eurozone data as German ZEW Economic Sentiment dropped to 79.8 from 84.4, while German Industrial Production fell 1% month-over-month and Italian Retail Sales dipped 0.4%.
Overall, sentiment towards stocks and other risk assets remain positive, and negative towards the US dollar, after Friday’s publication of a weak US jobs report revived the reflation trade and caused the dollar to slump, with investor concerns about inflation and tapering being put on the back burner.
Investors are awaiting bigger events later in the week, which may spark some more movement in the markets. On Thursday, the European Central Bank is likely to quell any calls for early tapering of its bond purchases programme, and this could see European indices extend their gains. In the US, all eyes will be on CPI inflation. Unless this comes in well ahead of expectations, the Fed’s stance will not change materially, meanwhile equities could simply continue drifting higher until the FOMC meeting next week.
FTSE about to break out?
While most major indices have been rising, the FTSE has not moved much in the past few weeks. But I think it is gearing up for a big breakout. The longer the consolidation, the bigger the eventual breakout is likely to be. So, keep a very close eye on the FTSE here:
Source: ThinkMarkets and TradingView.com
Here’s what’s on tap for the remainder of the week:
- Chinese CPI
- Bank of Canada policy decision and press conference
- European Central Bank policy decision and press conference
- US CPI and jobless claims
- UK GDP, construction output and manufacturing production
- US UoM Consumer Sentiment and Inflation Expectations
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