Upbeat U.S. session to spill over into Europe
U.S. markets rebounded on Wednesday, boosted by better-than-expected earnings, which helped them recover from a heavy two-day sell off at the beginning of the week. The Dow Jones closed 72 points higher, whilst the S&P 500 and the NASDAQ both increased 0.1%. A fitting way to end the month of January, which has seen both the Dow and the SPX post their best monthly performance since March 2016. Meanwhile, the NASDAQ booked gains of 7.3% this month, its best monthly performance since October 2015.
The upbeat U.S. session has spilled across into Asia and Europe, which are heading towards a positive start to trading. Base metals and oil are showing steady gains across the board after Chinese non-manufacturing PMI data surprised to the upside, so we could expect commodity stocks to do some heavy lifting of the FTSE early on. Precious metals, however are marginally lower.
FOMC slight hawkish bias, dollar in recovery mode
Whilst the month of January has been good to equities, is has not been so kind to the U.S. dollar. The currency has notched up losses in the region of 3% during the course of the last month, which took it to a three-year low of 88.27 just last week. The greenback has since been dragged up from these lows by rising inflation expectations.
Last night the FOMC also gave the dollar a small boost. The first meeting of 2018 and the last one with Janet Yellen at the helm was rather uneventful, and the impact on the FX markets was minor at best. Interest rates remained unchanged, and with no press conference or summary of economic projections, there was little for traders to sink their teeth into. Minor changes to the language around inflation in the statement, giving a slight hawkish bias was the most mot traders were going to get, and even this could potentially change under new leadership of Jerome Powell.
The dollar was in recovery mode heading towards the release, and the slightly more hawkish tone resulted in the greenback spiking higher, hitting a peak of 89.16, before closing the session marginally below 89.00. A full calendar for U.S. economic data this afternoon will drive direction, with key releases including ISM manufacturing and jobless claims, ahead of Friday’s Labour department jobs report.
Eurozone PMI’s in focus
EUR/USD dropped from a weekly high of $1.2474 back towards $1.24 following the FOMC’s subtle changes to its monetary policy statement. Data wise, numbers from the U.S. were better than those from the Eurozone, with a shock -1.9% fall in German retail sales weighing on sentiment. Today the focus turns to EZ Markit PMI’s in the European session. Signs of continued expansion in the Eurozone could help push the EUR/USD pair through resistance it is encountering at $1.2425 on towards $1.2480. On the downside, support can be seen at $1.2390.
Can UK manufacturing PMI boost sterling above $1.42?
GBP/USD saw a choppy previous session pulling the pair to a low of $1.4121 as Brexit headlines guided trading, before it rallied to reach a high of $1.4232. Today, the focus will be firmly on UK manufacturing PMI’s before US data takes hold this afternoon. UK manufacturing PMI will give the first signals of business activity in 2018. Expectations point to a reading of 56.5, up from 56.3 in December and still well ahead of the long-run average. A solid reading could see sterling push towards $1.42, before continuing on towards $1.4232, the previous session high. Conversely, disappointing numbers could see the pull back extend to $1.4121, the previous session low.
Opening calls
FTSE to open 26 points higher at 7559
DAX to open 41 points higher at 13,230
CAC to open 17 points higher at 5498