Not a good equity outlook

Economics

This week in the US we expect the trade deficit for April to come down from record highs, producer prices for May to be pushed higher by rising oil prices.

German and French industrial production should have picked up in April. The Bank of England is expected to hike interest rates by 25 basis points. In Japan, machinery goods orders for April probably picked up boosted by rising fixed investment.

Foreign exchange

The outlook remains bullish towards 1.2400/1.2480. The euro should remain above 1.2125 now to keep the pressure on the upside and to avoid a deeper correction with 1.2060 resp 1.1940 as next support levels.

The dollar corrected its April May rise and as the daily indicators suggest, the dollar is now well positioned to rise again with 112.75 resp 115.00 as next targets. The dollar should now remain above 110.00 to keep the outlook bullish and to avoid further losses with 108.30 as next support level.

Fixed income

As expected in our previous weekly market View, government bond yields rose at the end of the week after the strong labor market report.

The rise was however limited as yields already rose quite sharply over recent weeks. In the U.S. yields are not expected to rise much more before the next Fed meeting on 30 June. A similar trend is expected for Europe.

Equities

The renewed concerns regarding the oil price did weight on equity indices despite the very upbeat comments and even a raise of the sales goals during Intel's mid-quarter update.

Investors showed a wait and see attitude with regards to the May job report, which was published on Friday. We fear that 2005 will be a worrisome year for the equity markets.

As markets tend to anticipate, we wouldn't be surprised to see indices come down already in the second half of this year. We would like to move gradually more toward defensive sectors and away from cyclical and high beta stocks.