Financial market research and analysis

The European markets surf on the positive vibe amid Yellen disregarded speculations on Trump’s fiscal policy. Banks extended gains as prospects of higher US rates boosted the revenue expectations.

The FTSE approached the 7300p mark at the open, as the pound consolidated below 1.25 level against the greenback. The UK’s labour data will be the key macro highlight in London. While the unemployment rate is seen steady at 4.8%, the wages will give a better insight on the underlying consumer dynamics as the inflation nears the Bank of England’s (BoE) 2% target. A disappointing income growth could bring the BoE doves back in charge and push the pound lower against the US dollar and give support to the positive development in FTSE stocks. With the positive momentum losing pace, we remain neutral between 1.2410 and 1.2575.


US stocks: Records are meant to be broken

The US dollar rallied and the US stock indices renewed record as the FOMC Chair Janet Yellen said that a ‘rate increase will likely be appropriate in upcoming meetings’ if the economic recovery stays on course. Yellen added that the FOMC wouldn’t base the current policy on speculations about what may come down on the fiscal leg under the Trump administration. Although the Chair did not mention whether the increase would come in March or June, the hawkish tone revived the risk-on traders in New York.

As it appears, Janet Yellen seeks investors’ approval for a tighter monetary policy and to increase odds for the March Fed meeting. Although we expect the Fed to bypass a March interest rate hike, Janet Yellen’s hawkish stance is a clever move. It is much harder to get the market’s support for unorthodox policy than for an accommodative one. The Fed’s hawkish shift will give the Fed a precious option to loosen the belt in case of a disappointment regarding Donald Trump’s ‘phenomenal’ stimuli to come.

In summary, Janet Yellen aim to decouple the Fed’s monetary policy from highly speculative fiscal policy under the Trump administration.

As of today, the market gives 34% probability for a Fed rate hike in March, 73.5% probability for June. The Federal Reserve (Fed) remains on the track for two to three rate hikes in 2017.

The Dow Jones spiked to a new all-time high of $20504.41, the S&P500 traded at $2337.58 for the first time, as Nasdaq hit the record high at $5783.089. Financials lead gains on prospects of higher rates, hence higher revenue margins for the financial business. Goldman Sachs traded at a record high of $250.

The US futures remain well bid and suggest that the US stocks would attempt to refresh record at Janet Yellen’s second day of testimony before the House Financial Services Committee today.

The Dow Jones is set to renew record with 30 points advance to $20534, the S&P500 is seen 3 points higher at $2340 at the open.


China fuels hope as lending surges to record

Major Asian markets joined the US based risk-on rally. Nikkei gained 1.03%, Topix added 0.95% as the USDJPY climbed above 114.00. Hang Seng and Shanghai’s Composite were bid, as Chinese H shares (shares of a company incorporated in mainland China that is listed on the Hong Kong stock exchange) gained the most amid the new credit surged to a record high in January (3.74 trillion Yuan ($545 billion) vs. 3 trillion yen expected). The data was in line with the rising inflation over the same period. The Chinese New Year has been prosperous this year and fueled optimism on the Chinese recovery despite tightening monetary conditions and the US dollar appreciation.