The FTSE skyrocketed to the fresh all-time high of 7200p. A softer pound, firmer oil and commodity prices and solid appetite in the stock markets hint at the possibility of a further rise towards fresh historical highs.
Energy (+0.87%), utilities (+1.22%) and financials (+0.77%) lead gains at the 2017 open.
Cable reversed earlier gains and broke below its 200 and 100-hour moving averages (1.2285 and 1.2273 respectively). The softening US dollar suggests limited downside potential and the possibility of a deeper upside correction. Yet the mid-term bias remains negative. The key GBPUSD resistance is seen at 1.2420 (the major 38.2% retracement on Dec 12th to Dec 28th decline), before 1.2500 (optionality). US has a busy calendar
The US dollar softened across the board. The US dollar index slid 0.13%. The US has a busy economic calendar for the first trading week of 2017.
The Federal Reserve (Fed) December meeting minutes are due on Wednesday and are expected to reveal further details on Fed members’ outlook for the future of the US’ monetary policy. At its December meeting, the Fed raised the Federal funds rate by 25 basis points and predicted three rate hikes in 2017, versus two forecasted earlier. The US sovereign yield curve shifted significantly higher as a result of the hawkish stint in the US’ rate policy. The curve slightly came off last week. The US 10-year yields closed the year below 2.45%, as the Fed hawks realized gains before the year-end holiday seasons.
This week, the US labour market data will be key. The ADP employment report, due on Thursday, is expected to be softer in December. The consensus is 175’000, versus 216’000 released a month earlier. The nonfarm payrolls, due on Friday, are forecasted at 178’000 as last month. Overall, the performance of the US labour market is expected to have softened in December.
Therefore, as the Fed’s tighter policy has been mostly priced in, we could see a further temporary easing in the US dollar and US yields depending on the economic data. However, we note that 2017 is expected to be a profitable year for the greenback lovers.
As it seems today, the Fed’s positive divergence vis-à-vis the rest of the world should remain supportive of the US dollar throughout 2017. Some colour out of Asia
China made an optimistic start to the year as Caixin’s manufacturing PMI hinted at speeding expansion in December (51.9 vs. 50.9 expected and printed a month earlier). The economic activity in China is expected to expand at a higher pace moving into the Chinese New Year, which is due earlier this year. People’s Bank of China (PBoC) advisor’s estimated the country’s growth at 6-7% for the coming year.
Chinese and Australian stocks lead gains in Asia. ASX 200 rallied 1.19%, as technology stocks (+2.12%), industrials (+1.73%), miners (+1.17%), financials (+1.05%) and energy stocks (+0.92%) all saw solid demand. Hang Seng (+0.71%) and Shanghai’s Composite (+0.83%) gained. Japanese stocks benefited from an extra holiday.
The Aussie (+0.63%) was among the leading gainers against the greenback as the US 10-year yields closed 2016 below 2.45%. Easing US yields could revive the carry appetite and encourage a rise to 0.7245 (minor 23.6% retracement on Dec 14th to Dec 23rd decline), before the critical 0.7299 (major 38.2% retrace).