Are we seeing the first indications of stimulus being withdrawn and central banks positioning themselves to raise interest rates to keep inflation in check? Policy setters bother here and across the pond gave hawkish statements about the prospect of interest rates and as a result the markets are pausing for thought.
For this morning however markets are shrugging off the news flow and price action of the last few days and enjoying a bounce with the FTSE back above 5500 and the Dax around the 6000 level. Last night the Dow benefited from a decent Beige Book which continued to show an improving economy in the majority of US districts. On top of this it mentioned unemployment will still rise and this did just enough to give investors the confidence that this are getting better, but not so much that interest rates will have to rush higher any time soon.
On the subject of interest rates the ECB rate decision is today. They aren’t expected to provide any great surprises when it comes to decide on interest rates today. Policy announcements will most certainly remain unchanged with the market more interest in what they have to say about the fiscal difficulties suffered by Greece and other potential fallouts.
December US retail sales are expected to be weaker than November, mainly due to the inclement weather across large swathes of the US, but the number shouldn’t be dismal as US shoppers still dup into their wallets during the Christmas period.
US initial jobless claims are also due as usual at 13h30, with expectations for a rise, but more on a seasonal basis than anything else.
Sterling had a good day after the hawkish comments from BOE policy setter Andrew Sentance. This gave cable in particular a boost heading back to the 1.6300 level. Currently at 1.6285 this morning, upside targets will be 1.6375 and then 1.6400 and to the downside bears will be looking at the hourly upward trend line with support coming in around 1.6235 and then the past resistance of 1.6200.
Andrew Sentance takes a more bullish stance on the UK economy than most and one has to remember that his job is to keep inflation under control. Since inflation in the UK is the highest of all other Western economies it’s understandable that he would want to see interest rates rise sooner rather than later, even if it is at the cost of dipping back into recession (we’ve got to get out of this one first though!). Either way I think we know which way he’ll be voting at the up and coming MPC meetings!
Gold had an interesting session oscillating between 1120 and 1137. We looked like we were going to record the second decline in a row before a late surge, bouncing neatly off the 20 day moving average. This morning we’re at 1142.5 and gold is a hard one to call at the moment as the uptrend is still in tact, but with the equity rally just stalling at the moment any further risk aversion will seriously hamper the precious metal’s advances. Indian demand for gold is also being affected by such extortionate prices which are another fundamental reason for capping gold’s gains.
Feb crude contracts are expiring (Brent went last night) and so we’re onto March with Nymex around $80.55. As mentioned in yesterday’s comment the inventory numbers provided plenty of volatility with a build initially leading to a sharp decline in crude prices only for them to recover later in the session.