- US stocks continue strong performance despite weak US consumer confidence.
- Asian stocks rise on strong Korean production and positive sentiment.
- All eyes on the Fed today. We expect a continued soft tone in the statement.
Risk appetite continued to be strong yesterday
despite weak data on US consumer confidence and technically overbought markets. The Dow Jones Index reached a new 5- year high and is now up 6.5% so far this year. Equity markets continue to be underpinned by earnings reports as around 70% of companies reported so far have beaten expectations. Yesterday Pfizer led blue-chip stocks higher after reporting Q4 earnings that beat estimates. Shares are technically overbought on short-term measures but so far better earnings and a strong investor flow into equities have supported the strong performance.
A weak report on US consumer confidence was not able to ruin the positive market sentiment. Confidence among US consumers fell more than expected in January from 66.7 to 58.6 – most likely related to the increase in the payrolls tax on 1 January.
In Asian markets the positive sentiment was underpinned by strong data on Korean industrial production adding to the picture of a decent recovery in Asia. Industrial production rose 1.0% m/m in December (consensus -1.5% m/m) and has increased at the fastest pace over a three-month period since February 2011.
All eyes now turn to the Fed meeting tonight where markets look for a continued soft statement from FOMC. We do not expect any big changes in the statement as the Fed is likely to stick to the easing bias given the mixed data at the beginning of the new year – see FOMC Preview: Too early for the Fed to change bias, January 28. The US economic surprise index has fallen from fairly high levels to below zero over the past month showing that on balance key figures have been weaker than expected lately.
The rise in risk appetite pushed the 10-year yield in the US higher overnight, above 2%, whereas 2-year yields have been broadly stable in anticipation of a continued soft statement from the Fed today.
In the FX markets EUR/USD climbed higher again yesterday but has stayed unchanged overnight just below 1.35. USD/JPY is up in Asian trading to just below 91. EUR/SEK fell below 8.60 in late afternoon and has stayed there overnight.
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