Good morning,

  • Today’s UK opening call provides an update on:

  • European indices tracks US counterparts higher on Monday;

  • US consumer sentiment highest since July 2007;

  • Italian industrial orders to fall again in March;

  • Fed’s Charles Evans speaks later in Chicago.

European markets are forecast to open higher on Monday after the S&P and the Dow posted to record highs again on Friday.


US markets rallied on Friday following the release of the UoM consumer sentiment figure, which rose to its highest level since July 2007. This is extremely encouraging for the US, especially when you consider how much consumer spending contributes to GDP. On top of that, there have been concerns that we may see a pull back in consumer spending as a result of the rising oil prices.


Until now, consumers haven’t really felt the full impact of the payroll tax increase, due to the fact that it was accompanied by a fall in energy prices. There is a strong possibility that once these energy prices hit last year’s levels again, consumers will feel the pinch and this number will be one of the earliest warning signs. For now at least, this is clearly not an issue, which is why US stocks hit record highs on Friday and indices in Europe are tracking them higher.


The economic calendar is looking pretty empty this week, leaving very little to drive market sentiment. On Monday, the only noteworthy economic release will be Italian industrial orders and sales for March. Orders are expected to have fallen by 2.5% from a month earlier, with sales down 1%. Compared with a year earlier, this represents a staggering fall of 7.9% and 4.7%, respectively. Given these figures, it’s no surprise the country is now in its worst recession since records began.


Given the light economic calendar and the Fed’s apparent willingness to phase out its asset purchases, potentially as early as this summer, there’s likely to be a lot of attention on Federal Reserve Bank of Chicago President Charles Evans later, when he speaks at the CFA Society in Chicago. Comments from two non-voting members last week really spooked the markets. If Evans suggests that these comments are correct, we’re likely to see a very negative reaction in the US markets, in particular.


Aside from that, there’s going to be very little driving market sentiment today, although that doesn’t mean there won’t be direction. What we could see, as we saw last week, is investors using any signs of weakness as an opportunity to buy on the cheap and continue to drive the markets higher. While markets were pushed to all time highs on Friday off the back of positive data, negative data appears to produce similar results, with investors instead just buying the dips and waiting for them to inevitably move back into the green. That said, that can’t go on forever and eventually investors are going to get burned.


Ahead of the open we expect to see the FTSE up 20 points, the CAC up 14 point and the DAX up 59 points.