Equities maintain their position

Economics

This week in the US we expect the trade deficit for January to narrow slightly. The Fed will publish its monthly Beige book which should confirm that manufacturing activity remains respectable.

In Europe we expect the German trade balance to have stabilised in January, while French industrial production continues to show robust growth. In Japan we expect consumer confidence to have stabilised in February while machinery orders should have rebounded in January.

Foreign exchange

EUR/USD: Resistance at 1.3250/1.3300 and daily indicators that turned bearish again put the odds in favour of the downside with 1.2950/1.2850 as next candidate support.

JPY/USD: The outlook remains neutral: the dollar remains trapped in a sideways range between the January-February support line at 104.30 and the February resistance line at 105.15.

Fixed Income

What a difference one month makes... After testing the all-time lows in early February, European bond yields are sharply up since then, in a rare 35bps upward move in only three weeks.

We briefly review the reasons and confront our views with the market move. Fixed Income intermarket spreads didn¡¦t react to the bear market; spreads stay tight with low volatility.

Equities

Last week markets experienced a tough start, as rising oil and commodity prices fed inflation
fears.

Later on these fears decreased and most markets succeeded to maintain the levels they had reached the week before. Energy stocks performed well and that was not only due to the high oil price, but also to their low financial gearing.

The same factor favoured IT. On the other hand, as long term interest rates continued to rise, the high gearing of the utility, consumer discretionary, consumer staples and telecom sectors proved to be a disadvantage.