Financial market research and analysis

Soothing comments from Fed Powell on Friday, plus an easing of monetary policy by the PBoC overnight has boosted risk appetite, putting equities back on the map after a challenging first few days of the year.

Stocks across Asia kicked the week off on the front foot and European bourses look set to follow suit. US futures are also climbing higher, suggesting that Friday’s rally is likely to roll over into Monday.

Federal Reserve Chair Powell gave the market what is wanted to hear on Friday. Powell confirming that monetary policy was flexible and that officials will be “listening carefully” to the financial markets was music to the ears of traders. Fears that the Fed would charge ahead with rate hikes regardless of cooling global economic growth and tumbling markets, have eased. Equities which have been hit hard over the past month are suddenly looking much more attractive.

The start of trade talks between US and China is helping to lift sentiment, as is a move by the PBoC to ease monetary policy. Easing trade tensions in addition to Beijing proving that it is ready to step in where necessary is tonic to the markets amid fears of a global economic slowdown.

Dollar continues descent following Powell’s comments
Whilst Fed Powell’s comments have worked wonders in the equity markets, the dollar was taking a bashing on the prospect of fewer rate rises. The dollar dropped 0.8% versus the pound on Friday despite non-farm payrolls smashing expectations. The dollar remained on the back foot as trading began for the new week.

Another turbulent week the Brexit obsessed pound?
The pound was higher versus the dollar but remained relatively flat versus the euro moving into the start of a critical week for Britain. With ministers returning to Westminster, Brexit will be at the front and centre of trader’s minds. The Brexit deal will once again be debated in Parliament before being voted on in the week beginning 14th January.

A failure by Theresa May to secure further reassurances from Brussels over the Irish border means the probability of the Brexit deal being voted through Parliament remains extremely slim. However, it is also becoming more apparent that ministers are against a no deal Brexit. A cross party group are urging May to guarantee that the UK won’t leave without a deal. Optimism of Parliament not accepting a no deal Brexit, or even a second referendum being on the cards, is offering the pound support as it begins what promises to be another turbulent week.

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