European markets are taking their orders from the US selloff on Wall Street on Friday, with a sea of red across the board on Monday.

In early trade the FTSE 100 had blown through the 7200 support level, encountering rising trend support around the 7170 region. Ultimately bulls will be looking for a move back to the 7200 handle, the 50% retracement of the peak-to-trough decline last year, but first this channel trend support needs to hold or we may face a return to the March swing lows around 7080.

Look for defensives, utilities etc to outperform cyclicals and growth. With bond yields depressed again I think you once again see the hunt for yield play out with investors seeking returns from higher yield defensive stocks. The FTSE 100 dividend yield at 4.61% has seldom been higher due to Brexit uncertainty leaving investors generally underweight – look for a Brexit resolution to see this revert to the mean.

Investors should be prepared for a tough week as we close out March and the first quarter. Global stocks have taken a battering in the last couple of sessions as bond yields have sunk across the board. The slide in yields last week was a red flag for equities; the bond market loudly proclaiming that it’s not confident about the growth outlook.

The bond market has been trying to speak for a while now but it’s been shouted down by the equity market rally – until now. Although allocations were suggestive of a lack of animal spirits driving the rally as investors were long low growth/low inflation plays, and short inflation/growth.

Things could get worse from here. Bond yields are the worry here – the US 10yr has fallen to 2.44%, while bunds are negative again. Across the piece global bond yields are faltering. On Friday the market paid attention as the 3m-10yr yield inverted – this was a big flashing warning light.

…out like a lamb 

Investors should be prepared for further selling after Friday’s session saw the March gains on the S&P 500 wiped out. Closing at 2800 for the week, SPX is flat for March and with a strong chance of further downside from here, we may well see the market finish the month lower, going out like a lamb.

Having acted as a line of resistance previously, 2800 should provide some round number support but it does look like the market has turned course. Look for the 23% retracement at 2740 and then the March lows at 2722 on the downside.

Brexit: plus ca change

As they say on the continent, plus ca change, plus c’est la meme chose.  We’re not really further forward with Brexit – lots of noise but ultimately nothing concrete. May has survived a coup according to some reports – not much of a coup to be honest. Sterling will remain volatile

GBPUSD has shifted a bit lower to trade around 1.3160 but remains in a broad uptrend and looks fairly well supported above 1.30 for now. Rising trend support kicks in around 1.3040. The question is timing – when do we get resolution? Votes this week may not tell us much more – we may need to wait until April. There is now a risk that Parliament ‘takes control’ of the process and we endure further uncertainty with the prospect of a General Election and/or second referendum.

Oil sold, gold bid

Oil is down on the global growth story. Increasingly the market is pricing the OPEC+ cuts – the real unknown is demand growth and so this is what will drive prices over the coming weeks, at least until the June meeting of OPEC. Brent was sub $66.50, with bears eyeing a move back to the March 8^th low at $64.

Gold is higher as yields decline on the global growth story – declining rates and real yields will support gold. At last look gold was holding around a previous resistance point at $1317, on the 76% retracement of 2018’s peak-to-trough move. Once cleared bulls will be eyeing a return to $1350.”