By Michael Brown Senior Research Strategist at Pepperstone
DIGEST – Steadier tones dominated the equity market yesterday, despite lingering geopolitical risk seeing crude barrel higher, as minutes from the January FOMC meet were shrugged off. Today, a handful of stateside data releases highlight the calendar.
WHERE WE STAND – Fresh catalysts were relatively lacking yesterday, giving markets little by way of food for thought.
Despite that, a distinctly more positive risk tone did take hold, with the tech sector outperforming on the day, as the Nasdaq 100 unwound a decent chunk of recent declines. At risk of sounding like a bit of a broken record, my belief in the solid underlying bull case hasn’t been shaken, and I remain of the view that the path of least resistance continues to lead to the upside for equities, with dips continuing to represent buying opportunities.
Elsewhere, crude traded notably firmer amid continued concerns over an escalation in tensions in the Middle East, though the geopolitical backdrop remains incredibly volatile, and the situation rather fluid. Still, even if geopolitical tensions don’t tend to be a narrative that drives sustainable gains in the long-run, I’d not want to play crude from the short side for the time being, with the balance of risks very much tilting towards a further deterioration in US-Iran relations, as opposed to some sudden dramatic improvement.
Besides geopolitics, as noted, fresh catalysts were somewhat lacking on the day. January’s UK inflation data, though, did point to headline CPI taking a big step down to 3.0% YoY last month, likely enough for the Bank of England to deliver a 25bp cut at the March meeting, especially with inflation still on track to return to the 2% target in the spring.
Meanwhile, minutes from the January FOMC meeting didn’t tell us especially much that wasn’t already known, with ‘almost all’ participants favouring standing pat at that meeting. Although ‘several’ were said to favour adopting a more two-sided description of the policy outlook, there’s probably more chance of pigs flying past the window than of the Fed’s next move being a hike, as disinflation continues stateside, and as the labour market remains rather fragile under the surface.
The lack of any significant reaction in the FX & FI complexes to that line in the minutes probably says it all, in my view, though we have seen the greenback remain well-bid over the last day or so. This speaks back to what I was saying previously, where a dialling down of policy volatility in Washington DC allows participants to re-focus on what remains not only a robust economic backdrop, but also a US economy which continues to vastly outperform that of peers. If the volume of noise emanating from the Oval Office can remain relatively low, then the case for further USD upside becomes a compelling one, though the DXY will probably remain within the broad 96 – 100 range seen since last summer for the time being.
LOOK AHEAD – A few ‘bits & bobs’ on today’s economic calendar, though in truth none of it is likely to impact the price action too much.
US figures highlight the slate, not only with the weekly jobless claims figures, but also with this month’s Philly Fed manufacturing survey, and last month’s pending home sales report due as well. It is worth noting that the initial claims print pertains to the February NFP survey week, though the data itself probably still won’t be especially market-moving.
Besides figures, we’ve got plenty of central bank speakers to digest, including the Fed’s Goolsbee, Kashkari, Bowman, and Bostic. The earnings slate is relatively busy too, with Walmart (WMT) highlighting proceedings, not only given the significant rally in the stock of late, but with the name also being a decent bellwether for the consumer at large.