US Open Note – Stocks, currencies in quiet trading as taper concerns take the back seat for now

European stocks could gather interest

What is striking about economic data is that the stronger they become around multi-year highs, the smaller the need for stimulus, and consequently investors are less encouraged to drive stocks higher. But this narrative likely fits the US landscape better, where stock indices are more skewed towards expensive tech and other growth companies.

In Europe, stocks continue to trade in a discount relative to their US counterparts, with the STOXX 600 index trading 16.7x forward earnings versus 21x for the S&P 500 according to Refinitiv estimates – despite the gap narrowing a bit recently. This could be an advantage for European indices, which managed to shrug off the impressive flash Markit PMI figures out of the eurozone and the UK today as well as the sharp rise in the British retail sales for April. In the meantime, US futures tracking the S&P 500, Nasdaq 100 and Dow Jones are pointing to a mildly positive open ahead of the US preliminary Markit PMI numbers (13:45 GMT).

Currencies in quiet trade as taper fears ease

Turning to FX markets, major currencies were making limited movements during the European session as concerns about taper discussions within the Fed took the back seat and global bond yields stabilized, with investors waiting for the next catalyst.

The inflation debate will likely remain a source of volatility as long as there is no real evidence to prove that the rise in prices is transitory and, in this case, it would be interesting to see if those who call for monetary tightening manage to bring central bankers on their side. For now, no one is willing to change the monetary settings although divisions among policymakers seem to be widening, with the ECB chief Christine Lagarde reminding markets today that the economic recovery is still uncertain and upside inflation pressures temporary.

Technical levels to watch

In the absence of any important headlines, technical levels could provide some direction to traders. Dollar/yen and dollar/loonie keep pushing for a rebound near key support levels, with the former aiming for an upside reversal around a tough ascending trendline and the 108.80 level, while the latter refusing to close below the 1.2060 floor. On the other hand, euro/dollar and pound/dollar seem unable to clear resistance at 1.2245 and 1.4200 respectively. Several yen crosses also face heavy boundaries on the upside.

As regards commodities, oil prices returned to the green zone, gaining around 1.60% on the day despite hopes the US could soon lift trade sanctions on Iran.

Gold, the inflation hedge, has a reason to be in bullish mode too given the weakness in the dollar, the slowdown in bond yields, and the sell-off in cryptos. From a technical perspective, the precious metal could seek to rise to fresh highs in the coming sessions after its successful close above the $1,869 ceiling.