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Poor economic data triggered significant selloffs in US stocks last Friday, leading to steep losses in the major indices. The Dow and S&P 500 both lost around 1.7% while the tech-heavy Nasdaq fell 2.2%. Not the greatest of days. Not the greatest of weeks. A glance at the futures markets this morning does paint a more optimistic picture, with the big three currently up around 0.4%. The Dollar remained relatively isolated from all the drama, with the DXY making a slight gain on the day. Gold was similarly unmoved, losing no more than a handful of Dollars on Friday. Crude oil prices on the other hand fell over 3% late last week as tensions in the Middle East continued to dissipate. The latest S&P global PMI report stoked fears that US business activity is stalling. While the manufacturing sector remained firmly in expansion and even exceeded expectations, the US service sector on the other hand unexpectedly fell into contraction with a 49.7 print – the lowest in over two years. Fundamentals may have to take a step back for the time being. The German election has just concluded and as usual the event provided no clear winner. The leading parties will now have to wrangle out a coalition for the years ahead. The Euro rose 0.5% against the Dollar this morning and is currently hovering around $1.05. The economic calendar is utterly devoid of content early this week, so expect politics to be the main driver behind any market movements. The drought won’t really end until Friday, with the release of the PCE price index. The core index, which excludes food and energy costs, has long been the Fed’s main weather vane to gauge US inflation. US GDP may also provide a surprise on Thursday, but until then, better to keep an eye on the news.
Gold notched its second record high of the week yesterday, touching $2,955 an ounce before making a small pullback. Safe-haven inflows have resumed once again in light of trade tariff posturing and the threat of a wider global trade war. For now, such talk remains no more than a threat, to the frustration of many Dollar bulls. As Donald Trump begins his second month in office, many expected such tariffs to be set in stone at this point. The delays and uncertainty are leading to many traders losing patience with the long Dollar trade. The Greenback hit another yearly low yesterday, dragging the DXY down 0.77% to the low-106 range. The Japanese Yen in particular took advantage of a weaker Dollar, which fell below 150 Yen on Thursday. Murmurs behind the scenes suggest the Bank of Japan could increase rates on the Yen during the summer. Recent data out of Japan certainly backs up such a possibility. On Monday, Japanese GDP crushed expectations, coming in far higher than anticipated. Data published this morning also suggests an uptick in inflation within the island nation, further bolstering the argument for a rate hike. A reminder that Japan is in a completely different situation to most countries in this regard. For decades, the BoJ has maintained rates in and around 0% in a bid to stimulate growth, with mixed results. Current rates are the highest they have been since 2008 and unlike much of the rest of the world, are looking to go higher as opposed to lower. The latest FOMC minutes did nothing to shift sentiments, as board members once again reiterated the need to see progress on inflation before committing to a rate cut. FedWatch did not budge an inch following the release, steadfastly clinging to a 95%+ chance of no change at the next meeting. Yawn. The week is not over yet. The European session opens with UK retail sales and a slew of European manufacturing and services figures. Later on, Canadian retail sales and US PMIs wrap up the day’s events. One last push before the weekend.
US stocks had little to work with yesterday following market closures on Monday due to Presidents’ Day. That did not stop the S&P 500 from edging to a new all-time high of 6,129 in the last few minutes of trading. The Dow and Nasdaq just about managed to close higher after spending much of the session in the red. For once, record highs in stock indices were not only limited to the US. Last Thursday the FTSE 100 also hit a fresh all-time high, a feat mirrored by the German DAX just yesterday. In Hong Kong, the Hang Seng Index climbed 1.6% yesterday before the daily close to come within 100 points of beating its own all-time high. The move came off the back of positive sentiment in China’s technology sector, with Tencent and Alibaba in particular displaying a decent amount of strength. Not wanting to be left out of the action, gold also put in a solid performance yesterday, gaining the better part of $37 to reach $2,935 an ounce by the close. This morning the precious metal made a short-lived attempt to push higher still but has since retreated at the time of writing. In increasingly stark contrast, the display from the crypto markets has been completely lacklustre as Bitcoin continued to meander around $95k this week. In the absence of much else going on, traders are patiently awaiting the latest FOMC minutes, set to be published much later in the day. No one is expecting a rate cut on the next meeting, set for the 19th of March, but market participants will still want to know what the Fed is thinking.
Happy Valentine’s Day. US inflation data tugged market sentiment one way then the other over the past couple of sessions. Wednesday’s CPI print caused some degree of panic after both the headline and core rates came in higher than expected, pushing the Dow and S&P 500 to minor losses. The data release made for a volatile day in currencies but ultimately the Dollar closed flat. Before markets had a chance to fully process the implications of higher inflation, the following day’s PPI numbers considerably softened the blow. Although still higher than expected, the figures suggest that the rate of appreciation has slowed down from December. A small sign, but markets were all too happy to seize it. The first whiff of hope that the Fed may have grounds to cut interest rates in the not-too-distant future. Wishful thinking or not, the Dollar plummeted to the downside, dragging the DXY down 0.84% on the day. Gold took the other side of the equation, gaining an equal percentage to reach $2,928 an ounce. US stocks also took the news well, with all three major indices making decent gains, the S&P 500 in particular closing just shy of a record high. There is still a long way to go before the next Fed meeting on the 19th of March, and a lot of fresh economic data along the way to orient their decision. Crypto markets are eagerly waiting a new era of lower rates, but for the time being are somewhat penned in. Bitcoin has still not convincingly broken and held above $100k and a lot of the major cryptos have displayed even weaker price profiles since the start of the year. The bulk of the week’s drama is likely behind us at this point, but US retail sales could step in later today to provide one last bump in the road before markets settle down for the weekend. Buy flowers.
Bulls managed to push gold all the way up to $2,942 an ounce yesterday before ceding ground ahead of Jerome Powell’s first round of comments on Capitol Hill. The Federal Reserve Chair faced the Senate Banking Committee on Tuesday, taking the opportunity to reiterate that there was no rush to lower interest rates on the Dollar. Powell stated that the US economy is strong overall with a solid labour market, but inflation remains above the Fed’s 2% target. Many investors would love to see some extra liquidity pumped into the system, but given the current strength of the US economy the Fed simply has no reason do so. Powell will no doubt repeat much of the same in front of the House Financial Services Committee later today. A reminder that the next interest rate decision is still five weeks away and markets are currently pricing in no change with a 96% probability. The economic calendar has very little to offer until much later in the day, at which point US inflation data will shake things up a little. Attentions may also shift to oil markets this evening as we get the latest on crude inventories. Brent crude and WTI both saw decent buying pressure early in the week based on supply fears but the latest reports suggest US stockpiles have in fact risen. American Petroleum is now reporting an increase of over nine million barrels last week. Brent Crude now hovering in the mid-$76 range and WTI just under $73 a barrel.
The latest round of NFP data provided traders with plenty to work with last Friday. Although the headline figure fell short of expectations, coming in at 143k new jobs versus 170k expected, the report provided grounds for optimism. Unemployment fell to 4% from 4.1% in December and figures for previous months were revised heavily to the upside, more than mitigating the most recent shortfall. As many economists were quick to point out, January is hardly the most aggressive month in terms of hiring. Gold made a push towards new highs on Friday but the effort was thwarted in the end. By the looks of things, markets are eager to resume the battle this morning, carrying the price of gold up to $2,880 at the time of writing. Gold bugs will have enjoyed recent reports that the People’s Bank of China continued to expand its gold reserves for the third straight month in January. The question of gold’s trajectory ultimately lies with the Dollar, which will face no small degree of scrutiny this week. Starting tomorrow, Fed Chair Jerome Powell will testify before Congress, where the main topic of conversation will undoubtedly revolve around interest rates. Attentions will not be limited to Powell either, with many Fed board members delivering speeches throughout the week. Wednesday will provide an update on the latest inflation metrics in the US, followed by retail sales on Friday. On top of all the above, tariffs are still very much on the table, as Trump prepares to enact reciprocal measures on a number of nations, including China.
