Geopolitics rattle global equities

Economics

This week we expect US consumer confidence to have held up in May backed by an improving labour market. GDP growth in the first quarter is expected to have been revised upwards due to higher stock-building and investment.

The German Ifo business confidence for May is expected to remain flat. The flash estimate from eurozone CPI in May should have risen on higher oil prices.

In Japan we expect industrial production to rebound in April in line with official projections.

Foreign exchange

The euro tested successfully its long term support line at 1.1775 and is now on the rise again with 1.2180 and 1.2400 as next targets.

The long-term support at 1.1775 is now crucial support to sustain the bullish outlook - below this level, the euro would risk falling back to 1.1400. The USD/YEN did not manage to overcome the resistance at 115.00 and overbought daily indicators suggest that a downward correction may be seen now with the 111.00 level as target.

Only an unlikely move above 115.00 would make the outlook further bullish to 117.50, but it is the downward view that prevails.

Fixed income

Yields in the Unites States and in Europe were again quite stable over the past week, as largely expected. We expect no major trend in the bond market this week.

Equities

Geopolitical fears once again rattled the market in the beginning of last week. However, as from Tuesday investors were able to take heart from some strong earnings, the Greenspan FED re-nomination and promising OPEC news.

In our opinion the subsequent technical rebound on very oversold will only be short lived and should be seen as an opportunity to get gradually more defensive.