Over the weekend, geopolitical risks took centre stage after the US, France and the UK launched military strikes in response to the Syrian leader Bashar al-Assad’s suspected chemical attack on civilians. Initial financial market responses were as expected with US equity markets closing lower in response to rising fear indicators. However, already this morning most European bourses are opening mildly in the green which suggests the fallout from the missile strikes will be limited. Equity markets are already gearing up for the rest of the earnings season with the big US financials of Goldman Sachs and Morgan Stanley amongst the companies reporting.
From a currency perspective, we saw a similar reaction in that safe haven currencies initially benefitting on Friday but no real further changes since. EURUSD is a good indicator which saw highs hit at 1.2365, putting 1.24+ firmly into focus. The one constant theme in major currency pairs has been that of sterling strength in recent weeks. EURGBP broke lower again on Friday, finally breaching the much talked about range in place since June 2017. Last week saw lows of .8631 (GBPEUR1.1586 high) which now opens a path for potential progression back to .8510/20. GBPUSD also moved too, surging up to 1.4270 also putting the post-Brexit result high of 1.4346 on the radar.
Looking ahead to this week, I feel markets may be heavily influenced by risk sentiment driven by the tentative geo-political environment. Data wise and today’s US Retail Sales is the headline release. Tomorrow we have key UK earnings inflation figures followed by CPI data on Wednesday and Retail Sales on Thursday, all having potentially a bigger importance than normal ahead of May’s Bank of England’s interest rate decision with markets currently pricing the probability of another 0.25% hike at over 60%.