Equities mark time

Economics

We expect a decline in the US overall retail sales in January after strong gains in December. Underlying retail sales will continue to grow steadily.

Industrial production growth is set to have slowed in January. The Philadelphia Fed manufacturing index most probably recovered in February.

Eurozone Q1 GDP growth should accelerate on the back of rising consumer spending. The German ZEW business sentiment index should move up in February. Japanese GDP for Q4 2004 growth is likely to have remained sluggish.

Foreign exchange

EUR/USD: The trend remains down, and as long as resistance at 1.2950 holds, the outlook would remain down to the long term support line at 1.2560. Beware of a break above 1.2950 as this would suggest a further upward correction with 1.3090 as next upside objective.

JPY/USD: After its recent rise, the dollar may now show a downward correction as suggested by the overbought daily conditions and a potentially bearish 'shooting star'. The outlook therefore is lower with 104.85/35. The upward potential should be limited to 106.85/107.25.

Fixed income

This week more will develop on the level of bond yields and why we believe this low interest rate environment is likely to last in the coming months.

As a consequence, we further increased the modified duration of the EMU bond portfolio to slightly below 5 years, which gives an active duration underweight of 1 year versus the benchmark.

Equities

After two nice weeks, time had come for the market to take a little break. A pullback would have been quite logical after the steep rise in the week before, but supported by a further slowdown of long term interest rates and a persistent flow of mainly good quarterly results markets succeeded in maintaining a status quo.