FTSE -32 points at 7337
DAX -30 points at 12226
CAC -18 points at 5071
Euro Stoxx -11 points at 3470
The US economy grew by 2.1% in the fourth quarter of 2016, slightly higher than 2.0% expected by analysts. Personal consumption rose by 3.5% q/q over the same period versus 3.0% expected, the GDP index increased to 2.1% from 2.0% and the core PCE rose to 1.3% from 1.2%. The strong economic data effortlessly boosted the Federal Reserve (Fed) hawks, especially after several Fed members voiced their hawkish opinions regarding the US interest rate policy earlier in the week.
The CNBC news that the US will pursue the currency manipulators also helped driving inflows into the greenback, an issue that President Donald Trump repeatedly blamed China for. In response, China said to push for a ‘greater balance’ in terms of trading with the US, including softer restrictions on high tech exports from the US to China. Chinese President Xi Jin Ping will meet Trump next week.
The US stocks gained as the solid economic data and the hawkish Fed expectations rejuvenated the Trumpflation trades. The S&P 500 (+0.29%) and the Dow Jones (+0.33%) ended Thursday’s session on a positive note; financials (+0.80%) once again lead gains.
Across the Pacific Ocean, the sentiment was mixed. In one hand, investors appreciate China’s efforts to ease restrictions and improve international and trade relationships. On the other hand, Donald Trump’s reluctance vis-à-vis China is a major concern. We remind that Donald Trump has recently proposed to apply 45 % import tax to Chinese products.
The USD/CNY soared past 6.90. Chinese stocks traded mixed; Shanghai Composite (+0.29%), while Hang Seng (-0.45%).
The euro and the yen retreated on the back of stronger US dollar.
The EUR/USD plunged to 1.0672 in New York. The Fibonacci 50% support at 1.0700 has been cleared; the pair is actually testing the 50-day moving average (1.0670), if broken, should encourage a deeper correction to 1.0623 (100-day moving average).
The USD/JPY extended gains to 112.20. The quarter and fiscal year-end inflows tempered the upside potential, yet the building positive momentum signals a further upside move to regain the 50 and 100-day moving averages, at 112.85 and 114.25 respectively.
Nikkei (+0.49%) and Topix (+0.58%) gained on the back of the yen depreciation.
The pound bulls remain in charge of the market for the second consecutive session. The GBP/USD recovers from its Brexit pullback. Cable holds the ground above the 1.2400, dip-buyers are touted below the 1.2415 (50 and 100-day moving averages). The bullish development could encourage a third test of the 200-day moving average (1.2580), before challenging the March high of 1.2614. The GDP data is due today and the UK economy is expected to have growth at the pace of 0.7%q/q in line with the previously released data.
It is worth noting that downside risks prevail as the European Council President Donald Tusk will issue the draft guidelines of the Brexit negotiations. Tusk’s proposals will set the tone for the upcoming two years of Brexit negotiations, which are expected to be hostile. The ‘hard’ Brexit is already priced in to a certain extent. However, an unexpectedly hard tone could reverse the pound recovery.
The FTSE futures (-0.45%) retreated on the back of stronger pound. The FTSE rolling index remained capped below its 200-day moving average (7365p) in the early trading session. The FTSE is set for a negative open and could extend losses toward the 50-day moving average, 7285p, before the weekly closing bell.
In South Africa, the political environment gets tenser as President Jacob Zuma fired and replaced the finance minister Pravin Gordhan by Malusi Gigaba, the Home Affairs minister who is believed to have little financial experience. Zuma’s strategic move is perceived as an attempt to strengthen his power on the country’s finances and raise tensions at the heart of the government.
The rand plunged by nearly 10% since the beginning of the week. The heavy headwinds suggest the possibility of a further rise in USD/ZAR to 14.00/14.50.