FTSE 100 -17 points at 7285
DAX -9 points at 11785
CAC +3 points at 4927
Euro Stoxx 50 -2 points at 3321
The Dow Jones and the S&P 500 consolidated gains as FOMC Chair Janet Yellen testified before the House Financial Services Committee yesterday, yet the New York session saw no new record levels on Wednesday.
This time, global stocks traded at a record high. The MSCI All World index hit a record for the first time in 18 months, as the Federal Reserve (Fed) hawkishness and faster US inflation fueled optimism across the global equity markets.
The small business optimism advanced to the highest since 2004, as the US inflation hit a four-year high.
Rising US inflation further rejuvenated the Fed hawks; the expectation of a March Fed rate hike rose to 44% from 30%. The VIX, also known as the S&P 500’s volatility index, rose by 11%.
At this point, we have a preference for status quo at the March meeting, while June, with 78.6% probability, increasingly appears as an appropriate timing. We remind that the Fed is expected to hike rates two to three times before the end of 2017.
As such, the appetite for the US dollar is expected to remain firm in mid-term; pullbacks could be interesting opportunities for greenback lovers to strengthen their position.
Asian markets traded mixed, as the US dollar pared yesterday’s gains against all of its G10 counterparts. The yen (+0.26%) gained the most against the greenback. Stronger yen dented the appetite in the Japanese stocks; Nikkei (-0.47%) and Topix (-0.17%) were slightly softer.
The Australian dollar remained on the back foot as the employment figures disappointed in Sydney. Although the overall employment change was better than expected in January, it was mostly due to part-time job gains (+58.3K), whereas full-time employment took a significant hit (-44.8K). The sluggish mood could cap the topside in AUD/USD. Resistance is eyed at 0.7775/0.7800.
The EUR/USD saw a strong resistance before the 1.0625 in Asia, yet the positive momentum suggests a further advance toward the 1.0650 (200-hour moving average), before the critical 1.0705 (major 38.2% retracement on post-Trump decline) comes back in radar.
The pound is little changed. Cable traded in the tight range of 1.2455/1.2473 in Asia, as the Bank of England (BoE) expectations got somewhat confused by the recent inflation and labour market data. Higher inflation, yet combined to slower wages growth kept the BoE hawks contained as Governor Mark Carney said the economy is approaching the full employment, which could mean that the labour market could further tighten with decreasing upside pressure on salaries, hence the inflation. We keep our neutral stance in GBP/USD between 1.2410 and 1.2575. Solid EUR/GBP resistance is eyed at 0.8580 (200-day moving average).
The FTSE 100 advanced to the highest since January 17, yet the rolling index sharply pared losses after the closing bell in London, hinting at a softer open on Thursday. The FTSE is called 8 points lower at 7294p at the open.
Finally, gold was better bid in Asia, as the US 10-year yields were capped below 2.50%. The ounce of gold traded at $1236. The key short-term resistances are eyed at $1244 (Feb 7 – 8 double top), before $1250 (Fibonacci 50% on July – December decline). Breaking above would move the attention to the 200-day moving average, $1262. Failure to clear $1250 offers could encourage a correction to $1220 (major 38.2% retrace).