Europe Sees a Strong Start But Will It Last

Indices across Europe have kicked the new week off on the front foot, talking the lead from a rebound in the US on Friday. Whether this proves to be anything more sustainable than a dead cat bounce remains to be seen. Still the FTSE is up over 100 points or 1.4% pushing it towards 7200, whilst the Cac up trading over 1.6% higher and the Dax has tagged on an impressive 2.2% taking it comfortably above 12,350 and en route to 12,400. The US futures markets are also pointing to a stronger start for the Street, but its too early to get complacent that this correction has bottomed out. 

Pound & Euro Tentatively Higher Versus Dollar 

Movements in the forex markets are much more subdued. The pound continues to hover around resistance at $1.3860, after falling on Brexit nerves at the end of last week. Brexit fears are unlikely to be disappearing anytime soon, especially given that a series of key note speeches are expected in the coming days, over how UK Prime Minister Theresa May and her war cabinet see the future relationship between UK and EU. May is under pressure from Brexit hardliners for a clean break Brexit and signs of this in these speeches will keep the pressure firmly on the pound potential dragging it back towards $1.38, before opening the doors to last week’s low of $1.3750. 

Meanwhile the Euro is seen moving marginally higher against the dollar although struggling to break above $1.2280. With little to work with on the economic calendar, the forex markets could be short of volatility until Tuesday or Wednesday with the release of inflation data for the UK and the US respectively. 

US CPI to ease fears? 

The key focus of the week will be the US CPI inflation figures. Investors will be keen to see whether the fears of rising inflation and potentially sooner and faster interest rate rises are substantiated. These concerns have caused the massive selloff and swings that we have seen last week so any signs of higher inflation not materialising, ie a softer reading, could give the market cause to rebound, over the coming weeks and bring volatility levels back down into what is considered a normal range. On the other hand, even a slight surprise on the upside could have a large impact on the market.