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From a wine dark sea of red to green across the board: US and European equity markets recovered on Tuesday, with the S&P 500 climbing 0.8% as markets recovered from the steep sell-off on Monday. 

The Dow recovered 200 or so points of the 600+ lost on Monday. European futures are looking positive again as markets cement the gains from yesterday. All sector rose as we saw a broad risk-on recovery. The FTSE was up 1% yesterday and is now looking to push on up from the 7240 level to break 7300 again. 

A series of comments and tweets from the President has markets behaving a little more sensibly, but risks still seem skewed to the downside until there is clarity and a ‘deal’. There is obviously still room for the US and China not to raise their tariffs. Mr Trump sought to play down the tariff hikes and talk up the prospect of a deal again.

Trump factor

The problem right now is that this market is trading on the whimsy of Donald Trump all the time, which makes it a tough place to be.  And yesterday’s rally has not wiped out the losses from Monday. One can only say that we should expect more volatility ahead and more shaking of the tree from Donald Trump. Still don’t discount the prospect later in the year of the Fed raising rates – markets are currently betting big on a cut and if a hike came it would be a major shock.

With that in mind, on tap today we have US retail sales figures. The strong PCE print suggests US consumer spending is strong and we may well start to see the retail sales numbers print higher over the next few months. The US consumer is in fine shape and this could drive the dollar north. 

Alibaba results in focus later with Chinese retail sales growth falling to its weakest in 16 years. Sales rose 7.2% in April. Other China data may also weigh – industrial production fell to a relatively meagre 5.4%, well off the 6.5% estimated.

German economy rebounds

Data just out this morning suggests Germany’s economy is showing some resilience – the economy grew by 0.4% in the first three months of the year.  Some relief perhaps but there is still little to get excited about in terms of the Eurozone economy.  

EURUSD is holding just above the 1.12 level – a breach here could bring in 1.1170 and then the early May lows at 1.11350. 

Brexit talks

News on Brexit – the government will table a vote in June with Theresa May apparently clinging on for dear life and a magical Brexit moment. It’s hard to see it panning out the way she would like. Eurosceptics will scupper anything that she can bring to the table (given the EU won’t renegotiate) and Labour won’t help her out. This is going nowhere – odds on General Election and a second referendum are shortening. 

The Brexit noise is putting some pressure again on the pound. GBPUSD has given up the 1.30 handle and was last holding onto 1.29 and below its 200-day moving average. A breach below 1.2860 would be bearish, before then the dips may seem attractive. 

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