Market sentiment improved significantly yesterday on the news that Russia was pulling back some troops from potential front-line positions. There has been a lack of new news overnight and so whilst the recovery continues, it is looking a little more tentative this morning. Markets are likely to be waiting for news for the next decisive move.
Inflation has been the theme this morning. Chinese inflation has come in slightly lower than expected (on both CPI and PPI). Furthermore, although UK inflation was a shade higher than the consensus forecast, there were a few signs of inflationary pressures beginning to ease. However, now the focus turns to US Retail Sales. Traders will also be watching for Canadian inflation and the minutes of the January FOMC meeting.
TODAY’S NEWS
Sentiment is tentatively positive today: The trends of risk recovery have tentatively continued today, although the moves are less decisive. European indices are higher again (US futures have also turned slightly positive now), with a risk positive bias to major forex pairs. However, the corrective move on commodities from yesterday has found support.
Treasury yields are consolidating: Yields on the US 2 year and 10 year Treasury are all but flat this morning. Little direction on yields will allow the focus to be elsewhere. [Risk neutral]
Russia/Ukraine conflict uncertainty continues: Today is the day that (according to the US) Russian will be invading Ukraine. There is little to update on yesterday’s news and for now, the situation is relatively contained.
China inflation misses: The year on year CPI has fallen to +0.9% in January which was lower than the +1.0% expected (+1.5% in December)
UK inflation slightly higher than forecast: Headline CPI increased to 5.5% YoY (from 5.4% in December), with core CPI up to 4.4% (from 4.2% in December). This will firm the case for further Bank of England rate hikes at the next meeting in March. The PPI Input prices were slightly lower than forecast in January. [GBP supportive]
ECB’s Villeroy on APP: The head of the French Central Bank has suggested that asset purchases under the ECB’s APP could end in Q3. However, this would not be linked to any potential rate hikes. [EUR supportive]
Cryptocurrency picks up: The rebound in Bitcoin in the past couple of sessions has continued along the lines of the broader market risk recovery.
Economic Data:
- Eurozone Industrial Production (at 1000GMT). Month on month growth of +0.3% is expected for December, which would slightly improve the year on year decline to -0.5% (-1.5% in November)
- US Retail Sales (at 1330GMT). Headline sales are expected to rebound by +2.0% for January (after a fall of -1.9% in December), with core sales (ex-autos) expected to be +0.8% (after falling by -2.3% in December).
- Canada core CPI (at 1330GMT). The Bank of Canada’s core inflation is expected to increase to +4.6% in January (from +4.0% in December).
- FOMC minutes (at 1900GMT)
MAJOR MARKETS OUTLOOK
Broad outlook: Markets look far more settled today, with risk appetite improving across asset classes.
Forex: JPY and USD are underperforming again, with EUR, AUD and NZD once more performing well.
- EUR/USD has continued to recover from 1.1280 and is now seriously testing the resistance at 1.1360/1.1385. This is an old pivot band within what is now a trading range of 1.1120/1.1495. Decisively above 1.1385 opens the range highs again. Initial resistance 1.1415. Initial support is at 1.1320 and 1.1345
- GBP/USD held support now around 1.3485/1.3500 support and is ticking higher into the middle of the range between 1.3485/1.3645. We are neutral within this mini range and are looking for a closing breakout.
- AUD/USD a positive move early today is building up momentum for recovery. A test of initial resistance at 0.7185 is being seen and a decisive move through here would re-open for moves towards 0.7250. Support at 0.7085/0.7115 is growing.
Commodities: Precious metals are consolidating after yesterday’s sell-off. Oil is also forming support again.
- Gold has unwound sharply from $1879 with a “bearish engulfing” candlestick, but the move has started to consolidate this morning. Reaction around $1847/$1854 (old highs, now supportive) will be key. A failure below $1845 (yesterday’s low) now opens for further unwind towards $1820/$1832.
- Silver is ticking higher from $23.07 this morning following the sharp move lower from $23.99 which formed a bearish key one-day reversal. The outlook is subsequently mixed, but a bull failure and move below $23.07 would open a deeper correction.
- Brent Crude oil has rebounded well from the 8-week uptrend and is improving once more. However, the negative divergence on the daily RSI momentum remains a warning sign of a potential correction. The support is initially at $92.40 with key support remaining at $90.50/$90.90.
Indices: US futures are again ticking higher, with European indices positive too, although the moves are a little more tentative today.
- S&P 500 futures have edged above the initial pivot area 4435/4454 and ticking higher the bulls will be eyeing the lower high at 4520 now. This move will also potentially open the next band of resistance around 4550/4585. Support at 4435 is growing in importance near term.
- DAX is ticking higher again this morning and is now testing the resistance of the six-week downtrend. Daily RSI is back around 50 (where it has struggled in the past two rallies) which means this is an important crossroads. Key resistance is at 15,625/15,740. Initial support at 15,350/15,400.
- FTSE 100 is ticking tentatively higher and is set to test 7640 initial resistance as momentum begins to improve again. Key resistance remains around 7675/7695. Initial support is at 7570/7585.
