Whatever political problems President Trump maybe having on the staffing front with resignations and the like financial markets remain largely ambivalent, choosing to focus on last week’s promise to deliver something “phenomenal” in a couple of weeks’ time, as US markets hit new record highs for the fifth day in a row, driven by banks and financials.
Both Goldman Sachs and JP Morgan shares have hit record levels, with the financial sector up 22% since the 8th November, while here in the UK the FTSE250 has also managed to post record highs five days in succession, as UK stocks appear to be becoming a haven from political concerns in Europe.
Optimism about the global outlook is improving as economic data continues to improve and inflations starts to take hold, and last night’s positive US finish is set to wash through into another positive open this morning.
The Greek bailout negotiations look no nearer any sort of resolution with hopes of a deal by the Monday deadline diminishing. EU creditor and IMF officials want further budget cuts of 2% of GDP which the Greek government has refused to do. The IMF have insisted its either cuts or debt relief which the EU has refused to countenance.
After two days of testimony from Fed chief Janet Yellen to lawmakers on Capitol Hill and a raft of positive economic data, the odds of a move on rates in March has risen to over 40%. Her comments that it would be “unwise” to wait too long before raising rates has clearly resonated with a market that for some inexplicable reason thought that the prospect of a move in March would be discounted by the Fed chief.
This would always have been an unlikely outcome and while her comments on the economy were upbeat she still gave herself enough wriggle room to pull back from a decision to raise rates next month.
The big jumps in US CPI and retail sales in January will certainly have emboldened the hawks on the FOMC, but it was interesting to note that real average weekly earnings declined 0.6% and were flat year on year, which also serves to reinforce the weak numbers seen on payrolls day. The arguments for a rise in rates are certainly becoming much more difficult to ignore, but as in the UK wages are struggling to keep up.
When the Bank of England reduced its estimate of the equilibrium unemployment rate to 4.5% from 5% at the last inflation report a couple of weeks ago, they probably couldn’t have imagined that the UK unemployment rate would start to head in that direction so soon.
While most people chose to focus on the three month rolling headline number of 4.8%, which remained unchanged in December for the fourth month in a row, the single month rate for the month of December saw a drop from 4.9% in November to 4.6%. If this pattern were to be repeated in the coming months then it would be much harder for the central bank to push back against a rise in rates, particularly if wages growth is able to hold up, or increase from current levels. This may account for the fact as to why the pound wasn’t able to follow through on its declines yesterday.
EURUSD – slipped down to 1.0520 yesterday, with broader support at the 1.0460 area. We need to get back above the 1.0600 area and 50 day MA to retarget the 1.0720 resistance.
GBPUSD – another dip below the 50 day MA at 1.2410 was again rebuffed yesterday, before the pound rebounded. The 1.2400 level remains a key support, with a close below targeting 1.2250. A move above the high last week of 1.2580 retargets the 1.2700 area.
EURGBP – currently trading between support at the 200 day MA at 0.8450, and resistance at the 50 day MA at 0.8540, which is a nice resistance level. A break of the 200 day MA retargets the 0.8300 area. Only a move back through the 0.8570/80 area has the potential to stabilise.
USDJPY – fell short of the 115.00 level yesterday with broader resistance at the 115.20 area. It feels like we could be trading in a broad range between 111 and 115.50 in the medium term. Support remains back down at the 111.60 area.
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