Stocks Bought in April, Breakout in May, No Euro Bounce

“Sell in May and go away” has proved fruitless so far this month as the S&P 500 closed at a record Monday. Risk appetite pushed the yen broadly lower while the pound led the way. Chinese industrial production, the Australian budget and US retail sales are the keys in the day ahead.

Declarations of separation hardly raised an eyebrow in markets as stocks ripped higher with the S&P 500 up 18 points to an all-time closing record. The index is also just a fraction of a point from the intraday record set in April.

The market was reluctant to break higher ahead of Tuesday's US retail sales report. The market badly wants to see signs of consumer strength in the Spring and a poor report could undercut sentiment.

Newsflow was light to start the week but it was notable how the euro failed to rally once again. EUR/USD finished unchanged on the day at 1.3757 after two unsuccessful forays above 1.3770. We were inundated with research reports advising to sell on a bounce to 1.38 or higher. The startling consensus makes us weary of chasing a crowded trade so perhaps there will be no bounce at all or the euro will rip back to 1.40.

The main event in the day ahead is the Australian budget. The government has promised a transformatory document with investments in infrastructure and harsh measures to cut the deficit. In cases like this the fear is often worse than the reality so the AUD bias may be to the upside.

It will need to be factored against Chinese data on retail sales and industrial production at 0130 GMT. The latter is the more market moving with economists looking for a 8.9% y/y rise. On Friday, China announced some liberalization in capital flows and commodities markets in a move that could also underpin AUD.