S&P 500 hits a fresh record high, weighs on USD
* Hamas gives positive response to Qatar on hostage release deal
* Banking concerns were stoked again after another plunge in NYCB shares
* Fed comments generally do not want to rush rate cuts
* Gold recovers modestly on easing dollar demand
FX: USD traded lower below 104 before paring losses through the US session. There was little news to drive price action. The US regional banking sector remains in the spotlight after Moody’s cut New York Community Bancorp (NYBC) to junk. The 50% retrace level of the Q4 sell-off in the DXY is 103.86.
EUR nudged higher despite soft industrial production data in Germany and Spain. Hawkish comments from ECB’s Schnabel were in keeping; she wanted caution against shifting policy too soon. The halfway mark of the autumn rally is 1.0793.
GBP is modestly outperforming for a second day. The potential false breakdown out of the recent range in cable shows sterling resilience. The base of that range at 1.26 sits just above the midpoint of the second half sell-off at 1.2589. Focus will soon be on the mid-month UK data deluge next week.
USD/JPY slipped mildly before gaining in the US as yields stabilised. Strong resistance resides just below 149 and this year’s highs. Reports were out that the BoJ is possibly on track for a policy shift by April.
AUD rose briefly above its 100-day SMA at 0.6532 before paring gains. A major Fib retracement level (61.8%) of the Q4 rally is at 0.65. USD/CAD continued lower for a second straight day. Improved risk sentiment helped, along with a small upleg in crude oil prices. BoC Governor Macklem recently commented that officials would need more time for policy to do its job.
Stocks: US equities made more record highs. The benchmark S&P 500 gained 0.82% to settle at 4,995. The tech-laden Nasdaq 100 closed 1.00% higher to finish at 17,748, just shy of its best ever finish. The Dow Jones underperformed, up 0.40% to settle at 38,677. Meta bounced back adding 3.27% to close just below last week’s all-time high close. Ford rose as the carmaker increased its dividend. The KRW regional banking index turned positive after falling over 2% earlier in the session. New York Community Bancorp shares bounced back, shaking off an early drop of more than 13%.
Asian futures are mixed. APAC stocks traded mostly in the green on the back of softer global bond yields and more Chinese support measures. The Hang Seng eventually turned negative after initial gains from targeted efforts at helping real estate financing and new energy vehicles.
Gold tipped into the red after spending most of the day in positive territory. Prices continue to track around the 50-day SMA at $2034.
Day Ahead – China CPI
Deflation woes have beset China and that is expected to continue with the inflation release today. The prior December prints came in at -0.3% (vs -0.4% in November) and the monthly at +0.1% (vs +0.2% in November). The Lunar New Year is likely to have an impact. High-frequency data indicates that food prices edged up, but at a slower pace than the two previous months.
Moody’s meanwhile strips out the volatility from food and fuel and suggests core consumer prices have been creeping higher. That said, the Caixin Manufacturing PMI for January highlighted weak prices. Certainly, excess capacity is putting pressure on upstream prices and consumer demand remains soft. A weak set of data, with one eye on the PPI figures, could see selling in AUD and NZD.
Chart of the Day – GBP/JPY consolidates near highs
The long-term weekly chart shows a strong uptrend from the spike low all the way back in March 2020 at the start of the pandemic below 124. Since then, the cross has climbed to highs last seen in November 2015 around 188.80, before backing off over the last few weeks. That is unsurprising when prices hit a major long-term level and resistance.
The pair is currently tracking sideways holding around the August 2023 top at 186.76. Prices dipped sharply last week but buyers stepped in quickly showing underlying strength. If we lose that spike low at 185.22, prices will roll over towards 184. Otherwise, this pattern could be bullish consolidation before another attempt at breaking the long-term zone just below 189.