24.05.13 Friday Morning

European markets started the week by opening up relatively tentatively as investors searched for a sense of direction following the incredible rally seen in global indices. Whilst the momentum has obviously been on the bullish side, it was clear that traders were developing a feeling that the rally had limited upside potential.

Ben Bernanke’s latest testimony, delivered on Wednesday, definitely had the potential to act as the catalyst that would either send global indices past highs last seen in Jan 2000, (FTSE 6932), or see the retracement that so many bears had been hoping for.

The major talking point revolved around the Fed’s stimulus programme. Any clues that QE would be imminently withdrawn would have spooked investors; however, Bernanke initially spoke of a need to be cautious when winding down QE in order to maintain the progress that has been made so far.

Whilst markets rose on the back of these comments, Bernanke went on to suggest that the Fed's massive bond purchases could be scaled back in the next few policy meetings if the economy improves further, triggering a reaction across a swathe of markets and lifting the dollar to a three-year high versus a basket of currencies.

Following highs seen on Wednesday afternoon, the Dax 30 and FTSE 100 are trading some 2.5 percent lower on the back of these latest developments. Going forward it is expected that any good data will in-fact send the markets even lower, as this would give more ammunition to those who want a more imminent withdrawal of QE.

Despite US durable goods orders increasing more than forecast in April, US futures were pointing to a lower open on Friday, which would have meant a retreat for a third day in a row.

To heap further bad news on the markets, China’s manufacturing output unexpectedly contracted resulting in the yen strengthening. Japan’s Nikkei index is down some 7 percent, the most since the aftermath of the 2011 earthquake. JGB prices dived as a surge in U.S. Treasury yields added to the woes of Japan's bond market.

Encouragingly, a German business climate survey this morning suggested the outlook for Europe’s largest economy may be improving. The gauge came out at 105.7, beating the 104.6 estimate with the euro immediately rising to a session high of $1.2987.

As we approach the bank holiday weekend, it seems many market participants are using the recent Fed comments as an excuse to take profits and close positions ahead of the weekend. Significantly, next Thursday we will see the release of the latest quarterly U.S GDP figure. It's the broadest measure of economic activity and the primary gauge of the economy's health.

Marks and Spencer has reported a big fall in profits, despite rising sales across the group. Pre-tax profits fell to £564.3m, down from £658m last year, despite group sales rising 1.3% to £10bn for the year to 30 March.

While underlying sales of food rose 1.7%, sales of general merchandise - which includes clothing - fell 4.1% in the year. Chief executive Marc Bolland described the market as "challenging".

M&S's clothing division, which has an 11% market share in the UK, has been struggling in recent years as sales have fallen.

Economic data:
 

Monday:

• UK and US bank holiday

Tuesday:

• USD - CB Consumer Confidence

Wednesday:

• JPY - BOJ Gov Kuroda Speaks
• EUR - German Unemployment Change
• USD - FOMC Member Rosengren Speaks

Thursday:

• USD Prelim GDP
• USD Unemployment Claims
• USD Pending Homes Sales

Friday:

• EUR German Retail Sales
• EUR Unemployment Rate
• USD Core PCE Price Index
• USD Revised UoM Consumer Sentiment

Earnings data:
 

Monday

• Smith’s Group Interim Management Statement
• Pursuit Dynamics Earnings Release

Wednesday

• De La Rue Earnings Release
• Telford Homes Earnings Release

Thursday

• Sounds Oil Earnings Release