Growth and cyclicals led the way with Tech especially buoyant and the Nasdaq now posts small gains for the week with the index trading above its 100-day SMA. Sentiment and volatility appear to have stabilised although the VIX remains above 20 and gold is still holding its recent gains.
On the flip side, the dollar sunk back to its lowest levels since February with US bond yields are also fading back to near the lows for the week. The market now believes there will be little action from the Fed over the next few months, with the potential for more taper talk only later this year, perhaps at the Jackson Hole symposium in late August. This means deeply negative real rates will linger and with it the dollar may struggle to retrace meaningfully in this environment.
Bouncing retail sales end a good week of UK data
Allied to the strong employment and inflation figures out earlier in the week, the UK enjoyed another set of robust retail sales data. The headline came in at +9.2% versus the expected 4.5% m/m although there were lower revisions to the previous reading. The reopening of non-essential stores saw consumers flock back to physical stores and this rising consumer confidence should remain solid over the summer. The recovery in the UK is taking shape and this may add pressure to the Bank of England to begin tapering, although the Indian variant of Covid-19 is grabbing the headlines.
EUR/GBP – tale of the vaccines
EUR/GBP is at an interesting juncture, trading around its 50-day SMA at 0.86. After the big move higher at the start of April, prices have been stuck in a 100- point range, give or take, as the vaccine rollouts in both regions has taken on several twists and turns, but mainly positively for Europe. Bears are desperate to reassert their authority so need to see 0.8560 broken to head for the recent lows below 0.85, while the euro supporters will be cheered by the just released PMI data which beat forecasts as the region continues to reopen from restrictions.
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