Olivia

The focus this week is the Federal Reserve meeting, the Bank of England rate decision and Monetary Policy Report and the ECB meeting. This troika of central bank decisions could set the tone for the rest of the year: the Federal Reserve passing the baton of global leader when it comes to tightening monetary policy. The Fed is now expected to hike rates by 25 basis points, the market is convinced that the Fed will slow the pace of rate hikes further, CMC Fed watch is predicting a 98% chance of a 25 bp rate hike to 4.5% – 4.75% on Wednesday. The Bank of England decision will be closely watched to see if they hike by 25bps or by 50bps, while the ECB is expected to continue with super-size hikes and raise rates by 50bps.  The Fed passes the baton to the ECB and the BOJ  As the Federal Reserve is fading as the key driver in central bank policy, this is having a major impact on the FX market. The dollar is no longer king, after having a stunning ascent in 2022. Instead, the euro, yen and the pound are catching up after falling sharply last year; for… Read More »Central bank fest as dollar continues its decline

WTI Oil The WTI oil advances for the second consecutive day and probing again through strong resistance at $81.91, provided by the top of thick daily cloud and 50% retracement of $93.72/$70.09, where recent attacks failed several times to register firm break higher. The price is standing comfortably above psychological $80 level, now acting as solid support, with fresh advance being underpinned by optimism about Chinese demand recovery, while the latest better than expected US GDP data, additionally brightened the outlook. Technical picture on daily chart is bullish and contributes to positive fundamentals, though strong bullish momentum has lost traction, adding to warning that bulls continue to face strong headwinds at $81.91 pivot and may again fail to clearly break this barrier. Another upside rejection would keep the price within the recent range, but biased higher while above $80 level. On the other hand, weekly close above $81.91 would signal extension of the bull-leg from $72.44 (Jan 5 low) and expose targets at $83.32/$84.69 (Dec 1 high / Fibo 61.8% of 93.72/$70.09 descend). Traders shift focus towards the next week’s meeting of OPEC+, though the cartel is unlikely to make any change to its current production policy. Res: 82.70; 83.32; 84.38;… Read More »Oil outlook: Oil probes again through key barrier, underpinned by upbeat US GDP data

AUDUSD is set for its third monthly gain, having been trading bullish almost every single week since the slump to a 30-month low of 0.6169 in mid-October,

Outlook: We get a flood of data today but the important bits are the University of Michigan Jan consumer sentiment and inflation expectations, and personal income and spending and the associated PCE price index, with core expected up 0.3% m/m and 4.4% from 4.7% in November. We also get the Atlanta Fed’s first estimate of Q1 GDP, which will be fun. A big drop in core PCE inflation would buttress the consensus viewpoint that the Fed is nearing the end of the road with only 50 bp to go, in two tranches, then a pause and then a cut in late Q3 or Q4. Never mind what any other central bank is going to do—this is dollar negative. If the core comes in closer to 4.7% again, however, all hell will break loose. Should traders cover dollar shorts? To make matters more complicated, we will get trimmed means and sticky prices from a bunch of regional Feds, too. For kicks, see the last data from the Cleveland Fed, which explains that its median PCE inflation is the rate of those things whose expenditure weight is in the 50th percentile of price changes. In other words, not some vastly expensive thing… Read More »Wage hikes will end removing “wage-push” inflation worries

Outlook: We get a flood of data today but the important bits are the University of Michigan Jan consumer sentiment and inflation expectations, and personal income and spending and the associated PCE price index, with core expected up 0.3% m/m and 4.4% from 4.7% in November. We also get the Atlanta Fed’s first estimate of Q1 GDP, which will be fun. A big drop in core PCE inflation would buttress the consensus viewpoint that the Fed is nearing the end of the road with only 50 bp to go, in two tranches, then a pause and then a cut in late Q3 or Q4. Never mind what any other central bank is going to do—this is dollar negative. If the core comes in closer to 4.7% again, however, all hell will break loose. Should traders cover dollar shorts? To make matters more complicated, we will get trimmed means and sticky prices from a bunch of regional Feds, too. For kicks, see the last data from the Cleveland Fed, which explains that its median PCE inflation is the rate of those things whose expenditure weight is in the 50th percentile of price changes. In other words, not some vastly expensive thing… Read More »Wage hikes will end removing “wage-push” inflation worries

Stocks are edging to the downside as Friday’s session draws to a close in London, as some bullish momentum fades into the weekend, says Chris Beauchamp, chief market analyst at online trading platform IG. Stocks mixed but on track for weekly gains “Despite the best efforts of various parties, the monthly PCE index never seems to quite generate the excitement of the CPI reading, despite the former being the Fed’s preferred measure. Thus today’s data passed largely without much notice, but then with three big central bank meetings, a payrolls report and major tech earnings next week the market has much bigger fish to fry. Stocks have managed to notch up a decent performance for the week, shrugging ff Microsoft’s earnings, and it is now up to the FANGs to provide fresh bullish momentum.” Dollar pushes higher “Given the decline in the greenback this month, it may well be that markets are being too dovish in their expectations for next week’s Fed decision. While the 25bps hike is more or less nailed on, it is the commentary around it that provides the potential to trip up the unwary. Risk assets have done well so far this month, but next week’s… Read More »Equities weaker at the end of a positive week

EUR/USD rallies as ECB may remain firm The euro climbs as the ECB is catching up with its policy normalisation. The central bank is set to raise its key rate by 50 bps this week. The main driver of volatility will be its forward guidance as the debate on the pace of tightening is still open among policymakers. Officials have said that the rate outlook is data dependent, and easing CPI and positive PMI last month could fuel rate hike speculation. The market is currently split between 25 and 50 bps in March, so hawkish statements out of the press conference would prompt participants to price aggressively. The pair is heading towards 1.1180 with 1.0780 as a fresh support. GBP/USD steadies as BoE to raise by 50bp The pound retreats as the market repositions ahead of the BoE meeting. The dollar’s broader weakness does not mean that Sterling is in a better shape with UK inflation still in double digits in December. The BoE is expected to lift its rate by 50 bps then another 25 bp in March. What rattles traders is that Britain's economy is more brittle than its US counterpart. Contraction in the latest GDP and PMIs… Read More »Risk taker – Market sees a smaller rate hike as tipping point

Europe While US markets have raced ahead this week European markets have undergone a pause with the FTSE100 struggling to build on this month’s early gains, while the DAX has also struggled for momentum this week.  The early year enthusiasm appears to have given way to a little bit of caution as we look to next week’s trifecta of central bank meetings, and what sort of outlook is painted by the Federal Reserve, ECB and Bank of England, and more importantly how many more rate hikes can we expect to see after next week.   Sainsburys share price is higher after Bestway Group announced it had taken a 3.45% stake in the business and suggested it could take a larger stake. Understandably this has prompted the inevitable speculation that Bestway might have larger designs on the UK’s second biggest supermarket, and what the future might hold for it going forward. While concerns about a takeover might have some merit one only has to look across the High Street at what’s happened with Morrisons and Asda to realise how any bid if it were to happen might end up becoming a very expensive proposition, in what is an incredibly competitive marketplace. Bestway… Read More »Equity markets pause, as central banks loom next week

S&P 500 charge higher continued, and high beta plays didn‘t disappoint. Energy, financials, Russell 2000, emerging markets – all on fire. After Thursday‘s climb of bear market rally wall of worry (we‘re rather to meet recession and not soft landing – the contraction will be mild till Q3 2023), we‘re in for a daily deceleration today as I don‘t think yesterday‘s complacency would last till the closing bell. The weakness will likely show up in bonds first, underpinning the dollar – and the rest would be history. All on a daily basis – you can look forward for extensive pre-FOMC analysis next week! Keep enjoying the lively Twitter feed serving you all already in, which comes on top of getting the key daily analytics right into your mailbox. Plenty gets addressed there (or on Telegram if you prefer), but the analyses (whether short or long format, depending on market action) over email are the bedrock. So, make sure you‘re signed up for the free newsletter and that you have my Twitter profile open with notifications on so as not to miss a thing, and to benefit from extra intraday calls. Let‘s move right into the charts. S&P 500 and Nasdaq… Read More »Big week ahead

What will ECB Governing Council signal? Next week, the ECB Governing Council will meet and will most likely decide on the next 50 basis point (bp) rate hike. The key interest rates will then be 2.5%, 3.0% and 3.25%. What will be more exciting is what outlook the ECB Governing Council will give for the further course of action. The markets' attention will focus on whether there are any changes compared with the wording in December. At that time, the Governing Council had put in place ‘significant further rate hikes’ at a ‘steady pace’. This was a clear indication that a 50bp rate hike was likely, at least for the February meeting. Since then, however, there have been mixed messages from members of the Governing Council about what might happen thereafter. While some members were clearly in favor of an unchanged pace, there were also voices that brought a 25bp hike into play at the March meeting. Thus, it is foreseeable that there will be heated discussions within the Governing Council next week on what to signal to the markets for the then upcoming March meeting. We assume that there will be an agreement on an unchanged wording compared to… Read More »ECB and US Fed decide on interest rates