Good news can't drive the markets higher

Economics

This week we expect US business indicators (ISM) for April to confirm topping out near cyclical highs. The Federal Reserve should keep interest rates unchanged but could move to balanced risks on inflation.

The key April employment report is expected to continue showing substantial job growth. In Europe we expect the ECB to keep monetary policy unchanged while the Bank of England could raise rates by 25 basis points to 4.25%.

Foreign exchange

First target at 1.1750 has been reached. However, as long as the euro remains below 1.2050 based on the downtrend, the pressure would remain on the downside with the 1.1650 support area as next objective.

The USD/YEN has run up above its resistance trendline at 110.45. Note that this trendline has been broken; the outlook becomes more bullish to
112.30.

Former support at 109.90 should now act as support to keep the pressure on the
upside. Below latter level, the underlying downtrend would continue with 107.45 as next
support.

Fixed income

Yield curves were slightly up over the week in both U.S. and EUR. The main driver was still inflation fears. Expectations of a change in tone in the speech of the Fed this week are high and lead to high volatility.

We expect some topping out by key leading indicators while employment data in the U.S. is expected to have remained strong but much less compared to the exceptional figure last month.

10-year yields in the U.S. are slightly above our target for the next three months and we see little further upside in the short-term. European yields are expected to remain stable.

Equities

Good (mostly earnings and macro related) news can't drive the markets higher, the contrary
happens dramatically on disappointing news.

We recently decreased our cyclical exposure ahead of the storm of the three C's and other topping out leading indicators. For now, this seems to be the right strategy and we stick to that view (look for more in the most recent
strategy flash).

This week we are looking forward to the 100 remaining S&P 500 related earnings proclamations (370 already did with on average a growth rate of 26%, 76 % of them surprised to the upside).