EURO BEARS STILL DOMINATE AS CONTAGION RISKS SPREAD
CHIEF MARKET STRATEGIST
The past week was very much a case of “wait and see,” given the US non-farm payrolls data and a slew of economic figures from around the world. In general, the picture was mixed, with stronger figures from the US and China for their manufacturing sectors, but Eurozone and UK data still lagging behind. In a further worrying development, German unemployment rose during April, raising concerns that Germany too is being infected by the crisis. The elections in Greece and France over the weekend were also a key point to watch, keeping traders on edge all week as markets mulled over the potential consequences of new governments in both Paris and Athens.
Losses for the euro during the course of the week, as a result of the poorer economic data, caused clients to trim some of their short positions on the single European currency, with Insight data showing that sentiment had moved from being 71 per cent short to 61 per cent short by Friday. However, clearly the euro bears still had the upper hand over the optimists. The question is now whether the new governments in Europe will look to cooperate with their partners or instead opt for outright confrontation. Should it be the latter, there could well be further losses in store for the euro, and we may see euro-dollar sentiment become more negative as time goes on.
Interestingly, the weakness in the FTSE 100 over the past few days has brought out the optimists among our clients. Last week, our client sentiment indicator was showing clients to be generally short, but this has now neatly reversed itself, and clients now seem to be a bit more optimistic on the prospects for the UK’s leading index. With RBS and Lloyds reporting better first quarter figures, and Chinese growth still looking fairly healthy, there may well be further gains in store for the banks and miners that are such an important part of the index as a whole.