Financial market research and analysis

The UK’s services sector expanded at a solid pace in December, on the back of enhanced activity due to the year-end festivities. Solid data revived the Bank of England hawks.

The FTSE 100 stocks diverged positively from their European peers at the open. Mining stocks (+1.23%) lead the FTSE higher, as commodities firmed on a softer US dollar. The FTSE 100 advanced to 7211p, before plunging below 7200p on better-than-expected December services PMI. Softening copper prices in London could further deteriorate the appetite throughout the day and prevent a daily close above the 7200p.

UK’s homebuilders outperform, amid Persimmon (+4.31%) announced an 8% increase in revenue on the back of solid demand. The average home selling price increased by 4% in 2016, while forward home sales were up by 12%. It is possible that the Brexit concerns are less harmful for the UK’s real estate business than previously thought. Real estate is a good diversification for domestic investors and could act as a safe haven asset to park the cash, or at least cap potential structural losses while Brexit uncertainties loom. The Brexit will most certainly not have the same impact on home prices across the country. The most sensitive areas will of course remain under pressure. Potential capital and human outflows are on the agenda in the coming years; the impact is yet to be seen.

The GBPUSD cleared 1.2300 offers and extended gains to 1.2356. There is room for a further rise to 1.2445 (50-day moving average) and 1.2575 (100-day moving average & minor 23.6% retracement on Jun 23th to Oct 7th fall).


Federal Reserve intrigued by President-elect Donald Trump

The Federal Reserve’s (Fed) December meeting minutes revealed two main concerns: faster growth due to large fiscal stimulus under the new US President Donald Trump’s rule and a stronger US dollar, which could weigh on inflation. The Fed members adjusted their expectations on the upside, highlighting accrued risks for growth and inflation. Policymakers agreed to continue monitoring the economic data and global financial developments. As a reminder, the Fed is expected to hike rates three times in 2017, compared to two anticipated pre-Trump’s victory.

The US dollar sold-off against the G10 and emerging market currencies, as US 10-year yields dipped towards 2.40% for the first time in a month. Though the Fed’s stance was hawkish as expected, the market bought into the decision and sold the minutes. Beyond the first market reaction, the outlook remains positive for the US dollar and US yields. The Fed’s monetary policy will diverge from the rest of the world and the hawkish Fed divergence will certainly be supportive for further appreciation in the greenback.

The attention shifts to the ADP employment report due later in the day. The US economy is expected to have added 171’000 new private jobs in December, versus 216’000 printed a month earlier. Any softness in the data could further dent short-term US dollar appetite.

The US futures trade in the red, hinting at a downbeat start in the Wall Street. The Dow Jones’ 20K dream is slowly fading away. We call the Dow Jones 14 points lower at $19928 the US open, the S&P500 could being the day 2 points softer at $2268.


EURUSD and Gold benefit from softer US dollar

The EURUSD rallied on stops after breaking above the 1.0500 level. The pair is testing 1.0568 (minor 23.6% retracement on Nov 9th US election to Jan 2nd decline), if broken, could encourage a further short-term correction. The key resistances are eyed at 1.0605 (50-day moving average), 1.0652 (Dec 29th algo rally top), before the critical 1.0707 (major 38.2% retrace). The mid-term traders remain seller on rallies.

Gold advanced to a four week high and is currently testing the key resistance at $1175 (major 61.8% retracement on Dec’15 to Jul’16 rise). Investors increase allocation in gold as the post-Trump rally in the US yields gives signs of exhaustion. Surpassing $1175 could suggest a mid-term bullish reversal and hint at a further rise toward the $1200.