US markets continued to hit new records yesterday, this time led by the Nasdaq which in turn now appears to be lifting more boats with the German DAX finally making a new record high above 13,500, joining a party that has seen the FTSE100 and Hang Seng post new records this year, along with the Nikkei 225 which this week hit new 26 year highs, though the strength of the Japanese yen has caused it to slip back below 24,000 this morning.
The DAX appears to have unshackled itself somewhat from the restraints of a rising euro in the past few days helped by rising investor confidence, along with the prospect that the broader European economy is likely to retain its buoyancy.
Today’s French and German flash PMI’s in manufacturing and services for January are expected to reinforce that this morning with both expected to post strong numbers, as the single currency made another three year high in Asia. For France manufacturing and services are predicted to come in at 58.7 and 58.9, while Germany is predicted to see an even stronger performance of 63.2 for manufacturing though services could well lag at 55.6.
The pound has continued to go from strength to strength over the past few days particularly against the US dollar, pushing above the $1.4000 level yesterday for the first time since the day after the Brexit vote in June 2016.
One of the factors helping has been the continued weakness in the US dollar which hit a fresh three year low against a basket of currencies in Asia this morning, and falling below the 90.00 level for the first time since December 2014.
Confidence in the US dollar has been on the slide for a while now and this week’s news that the US government decided to impose tariffs on solar panels and washing machines has raised concerns that these measures could herald a wider move towards additional trade tensions, particularly between the US and China.
The pound is set to face a further test to its upward progress later today, after yesterday’s better than expected public finance numbers for December, with the latest data for wages and unemployment for the three months to November.
Unemployment is expected to remain steady at 42 year lows of 4.3%, however it is on the wages numbers that are likely to be analysed particularly closely.
Having seen headline inflation for December give conflicting signals last week, with CPI slipping back to 3%, but RPI pushing further away from 4% it is more important than ever that wages growth starts to show further signs of edging higher in the three months to November, and more importantly towards the end of Q4.
The omens ought to be positive given the recent significant increases in the minimum wage which should start to show up in the numbers, and help the numbers push back up towards the 3% level.
London wages have risen in excess of 4.5%, in the past few months, while elsewhere in the country we’ve seen rises of up to 3.6%, for up to 150k workers, and this really ought to start pulling the headline rate higher, given the skills shortages being reported in both the manufacturing and services sectors, which according to the CBI are at multi decade highs.
Predictions are for weekly earnings excluding bonuses to rise by 2.3%, and 2.5% with bonuses for November, unchanged from October.
EURUSD – the euro continues to push higher, through its previous high at 1.2320 keeping the prospect of further gains towards the 1.2600 area very much on the table. The support above the 1.2160/70 level remains a key level and while we remain above this level the bias remains for a move towards the 1.2600 area and 61.8% retracement level of the 1.3995/1.0340 down move. Below 1.2160 argues for 1.2090.
GBPUSD – another post Brexit vote high at 1.4049 would suggest the current rally has further to go with the next level up at 1.4590 which is the 38.2% retracement of the 1.7190/1.1950 down move. Any move higher is unlikely to be in a straight line but while above 1.3850 momentum remains positive, with interim resistance at 1.4330.
EURGBP – managed to find support at 0.8760 in the short term but we would need to see a move back through the 0.8800 area to stabilise and suggest a return to the 0.8850 area. The bias remains to the downside and the 0.8735 area while below 0.8800.
USDJPY – has slid below the 110.10 area in Asia this morning and a four month lows opening up the prospect of a move towards 109.50. We need to move get back above 110.30 to stabilise and target a return towards the 111.00 area.
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