Focus on the Fed's Beige Book

Economics

This week we expect the US Beige Book to confirm recovery scenario and confirm the improvements in the labour market.

German and Belgian business sentiment should have improved in April while French household consumption edged up in March. In Japan the trade surplus could have come down slightly on higher imports.

Foreign exchange technical

As long as the euro remains below 1.2200, the pressure would remain on the downside with the 1.1750/1.1650 support area as next objective. The USD/JPY price may test its resistance line at 110.80.

This level needs to be taken out to make the outlook further bullish to 112.30. Support at 107.15 should hold to keep the pressure on the upside. Below this level, the underlying downtrend would continue with 105.00 as next support.

Fixed Income

As expected, yields witnessed a further moderate rise in the US given the higher-than expected inflation figures. Contrary to our expectation, yields were also up in Europe.

Key publication this week will be the Fed's Beige Book, which we expect to be upbeat on economic recovery. It will also give comment on inflation trends, which we expect will cool down the expectations of an early rate hike somewhat, leading to stable yields in the coming
week.

Equities

Up to now, excluding exceptions like Nokia and Intel, earnings appear to be rather strong, meaning that most companies can live up to analysts' expectations.

Comments on the outlook remain cautious though, which disappoints some investors. In the coming weeks the focus will be on the Fed policy, even more than on the earnings season and the war in Iraq.