By Michael Brown, Senior Research Strategist at Pepperstone
DIGEST – Trading conditions were predictably subdued as the week got underway with US and Asian centres offline for public holidays. Today, UK jobs data highlights the docket.
WHERE WE STAND – Public holidays stateside are a good opportunity for us here in Europe to do many things, especially all the admin that we’ve been putting off for weeks (or longer!).
One thing they’re not a particularly good for, though, is providing anything interesting to talk about in terms of price action, given the typically thin conditions that we see with NY desks away. Of course, yesterday was actually a ‘double whammy’ on that front, with the majority of Asia centres also offline due to the Chinese New Year holidays, thinning liquidity even further, and ensuring that trading volumes were even lighter.
Suffice to say that markets did little more than meander about as a result, with a distinct lack of impactful news- and data-flow also not helping matters much. Consequently, we endured a day with very subdued volatility indeed, with pretty much all assets just plodding along, a rounding error away from where they ended the day on Friday.
This, clearly, gives us relatively little worth pondering this morning, and also gives me little reason to shift from my present views. Hence, I remain an equity bull amid both solid earnings and economic growth, coupled with ample monetary and fiscal tailwinds to further underpin sentiment as the year goes on. Elsewhere, I still like playing gold from the long side, as both retail and reserve demand combine to see the fundamental bull case remain a solid one, while a steeper Treasury curve is also still my base case as the Trump Admin seek to ‘run it hot’. That, in turn, should boost the buck, though any sort of significant USD gains will likely require a notable decline in policy volatility, which seems far from imminent, meaning that turgid trade in G10 FX will probably continue for a while yet.
LOOK AHEAD – Not only do US desks return today, hopefully livening things up a little, but a busier economic docket awaits as well.
Highlighting things will be the latest UK labour market figures, with unemployment set to have held steady at a cycle high 5.1% in the three months to December, as earnings pressures continue to gradually ebb. The more timely PAYE payrolls metric, though, is set to point to around 20k jobs having been lost in January, which would represent a fifth straight monthly decline. All in all, the data should do little to deter the BoE from delivering a 25bp cut at the next MPC meeting in mid-March, though tomorrow’s CPI figures will also have a pivotal role to play on that front.
Elsewhere, the latest round of ZEW sentiment surveys are due from Germany, while Canada provides last month’s inflation figures, where headline CPI is set to have held steady at 2.4% YoY. US desks, meanwhile, return to a light-ish docket, featuring only the NY Fed’s monthly manufacturing survey, and a couple of Fed speakers, none of which is likely to be especially market-moving.