Olivia

Due to the artificial bounce in activity in September, we believe the UK will narrowly avoid entering a technical recession in the fourth quarter of 2022. For Sweden, we expect the Riksbank to hike by 50 basis points next Thursday, due to persistent core inflation and uplifts in wage growth. US: Eyes on Jerome Powell's appearance at the Economic Club After last week’s excitement, it is a much quieter week for US data and events. With activity data softening and inflation cooling, the market remains unconvinced about the Federal Reserve’s desire to raise interest rates a “couple more times” as outlined by Fed Chair Jerome Powell this week. A recession appears to be the base case with expectations of policy easing in the second half of the year, which is putting downward pressure on the dollar and US Treasury yields. This is going someway to undermining the effectiveness of the Federal Reserve’s rate hikes at the short end of the curve as it battles to ensure inflation is eradicated from the system. Consequently, the highlight for the week could be Powell’s appearance at the Economic Club of Washington. If he fails to push back meaningfully against the market reaction, the… Read More »Key events in developed markets next week

Europe It’s been a mixed finish to what has been a positive week for European markets, after US non-farm payrolls crushed expectations, adding 517k new jobs in January, while the unemployment rate fell to its lowest level since 1969 at 3.4%. The FTSE100 has outperformed, pushing above last month’s highs to a new 4-year peak, as it looks to close in on a record close, and the previous record high of 7,903. The slide in the value of the pound appears to be helping here with decent gains from the likes of the big US dollar earners, from health care and basic resources which is outperforming with Shell, Reckitt Benckiser and AstraZeneca helping to underpin the UK index. Also doing well is B&M European Retail after being raised to buy by Deutsche Bank with a price target of 580p. US US markets opened lower after their strong session yesterday after a disappointing reaction to last night’s numbers from Amazon, Alphabet and Apple. The latest January jobs report has also weighed a little despite the US economy adding a staggering 517k jobs during the month. The participation rate rose to 62.4% matching the highs seen last year, while the unemployment rate fell further… Read More »US payrolls boom in January sends US dollar surging

The Bank of England and European Central bank, both hiked rates by 50bps yesterday and have signaled another rate hike next month of similar magnitude a inflation still remain elevated. The Dollar Index has recovered from the sharp fall seen yesterday and may trade within 101-103 now while Euro has dipped from 1.1033 but could limit its downside to 1.08. EURJPY and USDJPY look bearish for a fall to 139-138 and 126 respectively while Pound and Aussie too have fallen and could head towards 1.20 and 0.70-0.6950 in the next few sessions. USDCNY has bounced from 6.70 and can now attempt to rise back to 6.80. A range of 6.70-6.80 may hold for now. USDRUB may rise towards the upper end of the 72-68 range. USDINR has managed to close above 82.10 yesterday which is likely to hold and produce a further rise to 82.50. EURINR has declined from 90.44 and could test 88 before pausing. The US Treasury yields have dipped further and are looking vulnerable to fall more unless a strong bounce-back is seen from current levels. The German Yields have declined sharply but have strong support coming up while above which the broader bullish view will continue… Read More »Morning Briefing: Euro has dipped from 1.1033 but could limit its downside to 1.08

Stocks are on the front-foot despite warnings from the ECB and BoE that we could be due another set of rate hikes. UK domestic stocks are particular outperformers, with the prospect of a lacklustre 2023 bringing a potential swift pivot from the BoE, says Joshua Mahony, senior market analyst at online trading platform IG. Central bank warnings bring risk-on push for stocks “European equities have received a shot in the arm today, with investors willing to overlook the prospect of additional rate hikes to focus on the theme of falling inflation and an impending end to this tightening phase. While the likes of Powell, Lagarde, and Bailey refrained from stating that this week’s rate hike is the final twist of the knife, it could yet be one and done for some. Meanwhile, growing optimism that inflation has peaked brings confidence that this year will allow for the dovish pivot theme to build a bullish financial market environment this year.  ” FTSE 250 highlights potential benefit of lacklustre UK growth picture “The FTSE 250 has been a major outperformer today, amid easing fears of a prolonged recession in the UK. BoE projections of an eight-quarter slowdown have been replaced by a… Read More »Stocks surge despite ECB and BoE hikes

Dollar Index and Euro remain ranged within 101-103 and 1.08-1.10 while EURJPY is bearish below 142.50-142 and USDJPY can be ranged around 130. Pound and Aussie can have scope to fall towards 1.22 and 0.6950-0.69 while USDCNY is bearish below 6.80. USDRUB can trade within 71-68 while EURINR can trade within 88-89. USDINR can trade within 81.70-82.25. The US Treasury yields have dipped slightly within its broad range. The outcome of the US Fed meeting tonight can be key in setting the direction of move going forward. The German yields have dipped slightly but continue to remain bullish. More rise is on the cards. The ECB meeting outcome tomorrow will need a watch. The 10Yr and 5Yr GoI may remain volatile today on the back of the Union Budget. Need to see how they settle today after the Budget. For now both the 10Yr and 5Yr have room to dip before rising back again. Dow has rebounded sharply and may advance further in the near term. DAX is stuck between 15000 and 15200. Nikkei unbales to gather momentum to break above 27500. Shanghai is near the key support at 3250. Nifty has scope to break above the resistance at 17800… Read More »Morning Briefing: Euro is ranged within 1.08-1.10

The world had just seen the biggest fiscal and central bank recovery package in history after the Covid-19 pandemic – and was about to digest it – when the energy shortages as a result Russia’s invasion of Ukraine sent prices to dizzying heights. Eurozone inflation peaked at above 10% in November and it seemed that the world economy would slide straight into recession. While prices have started to decline moderately, they’re still nowhere near any economically reasonable level. So, the question remains whether a recession is inevitable. If it is, how severe will it be and is there anything retail investors can do to protect themselves? We asked Martina Hoffard from Spectrum Markets, for her opinion.   Martina, the European Central Bank (ECB) raised rates four times in 2022 and is obviously committed to follow its set course in 2023…  Yes, the ECB raised rates by 0.5 percentage points in July which was the first 50 basis points hike in eleven years. Shortly after, in September and November, interest rate hikes of 0.75 percentage points followed. In December, they were raised by a further 50 basis points. The September and November steps were totally unprecedented. We saw the ECB cutting rates by… Read More »On the brink of recession? ECB, inflation and what should investors do

Investors have a full plate this week that includes the US Federal Reserve’s latest policy decision and a slew of big-name corporate earnings. Wall Street widely expects the Fed to deliver a 25-basis point interest rate hike at the end of its two-day policy meeting on January 31-February 1 (Tuesday-Wednesday). Economy This expectation was further cemented on Friday by another monthly decline in the PCE Prices Index. The headline rate for December slowed to a year-over-year rate of +5.0% from +5.5% in November while the “core” rate (excludes food and energy) came in at +4.4% versus +4.7% previously. This marked the third straight monthly slowdown in the “core” rate, which is one of the Fed’s preferred inflation gauges. The rate is still more than double the Fed’s preferred inflation rate of +2% but it has also slowed from +5.2% as recently as September 2022 and is now the slowest pace since October 2021. Bulls believe the latest PCE slowdown, combined with other data showing slower economic growth and a pullback in both corporate hiring and consumer spending justify a policy adjustment by the Fed. Expectations Many bulls are hoping the Fed on Wednesday will signal one final 25-basis point interest… Read More »Break it or make it week: Fed, earnings, OPEC

US stocks are selling off in what will be a massive week of corporate earnings, three major central bank rate decisions (FOMC,ECB, and BOE), and an employment report that should keep wage pressures alive. The January rally has hit a wall and probably won’t have a chance of returning until we get beyond Wednesday’s Fed press conference and Apple’s results after the Thursday close.  Spain Treasury yields are rising after Spanish inflation unexpectedly surged, delivering its first acceleration with the annual pace in six months. For the most part, disinflation trends have been firmly in place across the US and Europe, so Spain’s hot inflation report is a big red flag that the rest of the eurozone might show inflation is already proving to be stickier than what the market was expecting.  ECB hawks won’t have trouble pushing for a half-point rate rise this week.  If inflation pressures for the region remain elevated over the next two months, the ECB will need to remain aggressive at the March meeting.  Germany Germany’s preliminary GDP reading for the fourth quarter was very disappointing and suggests Europe’s largest economy is technical recession bound this quarter. The outlook is darkening quickly as the economy… Read More »Stocks lower ahead of week filled with massive macro risks

Most currencies look stable. Dollar Index and Euro are ranged within 101-103 and 1.08-1.09 region. Pound can trade within 1.22-1.25 while EURJPY can trade within 143-140. USDJPY can limit its downside to 129 while upside can be capped at 130/131. Aussie is bearish below 0.72/0.7150. USDRUB has dipped within the 68-70 region. USDINR can trade within 81.40-81.80 while EURINR can be bearish while below 89. The US Treasury sustains higher but needs to get a strong follow-through rise from here to avoid a fall again. The German yields look bullish in the short-term while they continue to sustain above their support. The 10Yr GoI has room to rise further while the resistances can cap the upside on the 5Yr GoI and keep it pressured to fall again. Dow sustains higher and remains bullish. DAX is bullish while above the support at 15000. Nikkei lacks momentum to rise above 27500 but has scope to target further upside while above the support at 27200. Shanghai is coming off sharply from a high of 3310 but has immediate support at the current level. Nifty downside could be limited to 17500-17400. Commodities remains ranged. Brent and WTI may remain sideways within $90-85 and $82.50-77.50… Read More »Morning Briefing: Dollar Index and Euro are ranged within 101-103 and 1.08-1.09 region

While the entire global investment community is apparently very excited about the US Federal Reserve slowing its rate increases to 25 point increments, there are strong reasons for arguing why another 50 point rate hike, or two, are still on the Fed menu. It was all about last week’s data of course, and while inflation has mostly slowed, it will not go un-noticed by the Fed that the PCE Core Inflator actually rose last month! Adding fuel to the argumentfor the Fed maintaining its 50 point approach for at least another meeting. GDP slowed, but not as badly as feared, and Durable Goods data leapt higher for the month. While the market has been celebrating weak economic data as a force to generate slower rate hikes, the data may in fact not have been weak enough? Chairman Powell has reiterated time and time again that demand needs to be drastically reduced and he is not afraid of economic pain. In fact, quietly, he sees this as the solution. If the run of data is not weak enough, there is no solution, and therefore rates have to continue going higher. One aspect of the economy the Chairman has repeatedly singled out… Read More »Big risk this week Fed hikes 50 points