The Month Ahead
Welcome to The Month Ahead, our regular overview of what happened in the markets last month and pick of what to look out for over the coming month.
With such an impressive first quarter behind them, markets entered April on a cautious note. As the month has worn on, such caution appears to have been justified. US economic data has slowed, while Spain and Italy appear to be edging towards the abyss, and the lingering worry of a China slowdown is also gnawing away at sentiment.
April saw Greece leave the world stage for a while, with attention shifting to the continuing problems faced by Spain and Italy. However, Athens is set to reappear, with national elections scheduled for the first week in May. A change of government in the eurozone always provokes spasms of worry, and we have the second round of the French presidential election to contend with as well. If Socialist candidate Francois Hollande defeats Nicolas Sarkozy, there could be an almighty row between Paris and Berlin. Not only this, but the Dutch government has just fallen apart following the failure of talks on new austerity measures, which would make it the fifth nation to undergo a change of government as a result of the eurozone crisis.
Euro-sterling hits 19-month lows
The euro steadily lost ground against the pound throughout the second half of 2011, and, aside from a brief spike in late February, the falls have continued in 2012. With the eurozone consumed by its internal contradictions, it is not particularly surprising that investors have come to see sterling as a refuge from the storm. The UK economy might not be in great shape, but at least London has control of its own currency, and doesn't have to deal with a multitude of competing nations and agencies. This makes the pound an attractive proposition when compared to its beleaguered cousin across the Channel.
With Spain and Italy now looking increasingly insecure, and with elections in Greece and France, the pound seems set for further gains versus the euro. For the medium-term, support might come in around 8000, a level not seen since June 2010. Fans of the euro will be hoping for a bounce from this level if worries about the single currency abate, but resistance is likely around 8300.
FTSE 100 continues to lose ground
It seems we may be approaching a crunch point for the FTSE 100. Although the late-2011 uptrend is still in place, it is holding on by its fingernails. Since faltering just shy of 6000 in mid-March, the index has steadily fallen, even with the odd burst of enthusiasm that has caught out more than a few bears. With such a heavy complement of mining companies in the index, nagging fears about China and a reduction in growth in this hitherto-unstoppable economy are bound to hurt London's premier index. In addition, the eurozone crisis continues to take its toll on the major banks, even though the Big Four have been assiduously cutting back their exposure to the single European currency.
A short-term support level for the FTSE might be the April lows around 5550, while beyond that, the December lows in the region of 5300 might be the next stop if the selling continues. Resistance has been fairly consistent in April around 5800, suggesting that the FTSE might find it difficult to push much above this level in the absence of major positive news from China or the US.
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