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‘Patient’ Fed boost stocks

Equity traders shrugged off the uncertainty in relation to Brexit yesterday as the FTSE 100 outperformed in Europe. 

To an extent, the London market is still playing catch up, as it has underperformed its eurozone equivalents since Christmas. Firmer oil and metal prices stood to the British benchmark.  

The major US indices had a positive run thanks to strong corporate earnings from Boeing, McDonalds and Alibaba as well as Apple. It is worth remembering that Apple and Boeing have high contributors to the Dow Jones and S&P 500 in terms of index points. The Russell 2000 underperformed the big equity benchmarks. After the close, Facebook shares rallied as the company posted fourth-quarter earnings and revenue that topped forecasts. Tesla shares slipped after the firm’s EPS missed forecasts, but revenue exceeded estimates. The company also revealed that Deepak Ahuja, the CFO, will leave the company sometime this year.

The Federal Reserve kept interest rates on hold, between 2.25% and 2.5%, meeting expectations. The US central bank dialled down its language, and dropped the phrase ‘further gradual increases’ in relation to rate hikes. The Fed also said they would also be ‘patient’ when it comes to hiking rates. Regarding the balance sheet, the Fed aims to operate with an ‘ample supply of reserves’, and that helped lift investor sentiment too.

The ADP employment report showed that 213,000 jobs were added in January, which topped the 181,000 forecast. The latest jobless claims repot will be announced at 1.30pm (UK time) and the consensus estimate is 215,000. At the same time, the PCE report will be released, and economists are expecting the reading to remain unchanged at 1.9%, but that depends if the Bureau of Economic Analysis weren’t impacted by the government shutdown.  

Overnight China released the latest PMI manufacturing report and it came in at 49.5, while dealers were expecting 49.3. The December reading was 49.4 – the lowest level since 2016. The non-manufacturing reading was 54.7, and that compares with the previous reading of 53.8. Asian stock traded higher on the news.

The pound bounced back a little in the wake of Wednesday’s sell-off. The British government have made their position clear, and they don’t want to leave the EU without a deal, but at the same time they want the backstop to be replaced. The EU have made it clear the backstop can’t be renegotiated, so not much has changed.

The oil market pushed higher on account of the US imposed sanction on Venezuela. The South American country has seen its oil production fall considerably in the past 20 years, but the prospect of tighter supply has prompted traders to snap up the relatively cheap energy. The Energy Information Administration report showed an increase in US oil stockpiles of 919,000, while gasoline inventories dropped over 2.23 million barrels – while traders were anticipating a build of 1.8 million barrels

At 10am the eurozone will reveal the fourth-quarter preliminary GDP reading, and on a yearly basis economists are expecting a reading of 1.2%, and on a quarterly basis the consensus estimate is 0.2%. The unemployment rate is tipped to stay at 7.9%.   

EUR/USD – has been broadly pushing higher since mid-November, and if the positive move continues it might retest the 1.1570 area. A break below the 1.1300 region might bring 1.1216 into play.

GBP/USD – has been pushing higher for over one month, and if it holds above 1.3000, it might bring 1.3361 into play. Support might be found in the 1.2815 region.

EUR/GBP – has been pushing lower since the start of the month, and support might come into play at 0.8620. The 200-day moving average at 0.8863 might act as resistance.

USD/JPY – if it manages to hold above the 108.00 area, it might target 110.00 or 111.25 – 200-day moving average. A drop below 108.00 might clear the way for further losses.  

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