Financial market research and analysis

The US equity stock indices, US treasury bills and the US dollar all tumbled overnight whilst traditional safe havens gold and the Japanese yen moved higher following a report that China could reduce its purchasing of US government debt or halt buying it altogether. The report from Bloomberg claims that officials advising on China’s FX holdings have recommended that US treasuries have become less attractive compared to other assets. Whilst China haven’t denied or confirmed the claims, investors were taking no chances and quickly sold out of US treasuries and then the dollar and US stocks.

The Dow ended the session down 0.1%, the S&P closed 0.1% lower, whilst the Nasdaq also shed 0.1%. This was the first time in 2018 that the S&P and Nasdaq traded lower. US futures continue to point southward moving into Thursday. Technically the S&P bullish outlook is still in place, with this current pullback potentially providing buying opportunities.

Dollar remains under pressure

The dollar has generally been ignoring positive developments as we have moved into the new year. This is because market expectations for three rate hikes in 2018 are fairly well baked into the price. Meanwhile other central banks are also starting to turn more hawkish, attracting investor attention and leaving the dollar broadly out of favour. The previous session’s move out of treasury bonds served to intensify the dollar’s unpopularity, which dropped as low as 91.93, before recovering slightly into the close.

The New Year rally in Asia also ran out of steam as markets across Asia also showed concern for the Bloomberg report. The Nikkei was trading 0.6% lower at the time of writing, whilst the Hang Seng was off by 0.1%

FTSE futures showing resilience despite a generally weaker Europe

Europe is looking towards a mildly positive start, despite the weakness in US and Asia overnight as investors continue to assess the growing friction between China and the US. EuroStoxx 50 and the DAX are indicating a stronger start out of the blocks. Meanwhile, the FTSE continues to show fighting spirit, even after notching up another record high in the previous session, of 7748. On the charts the outlook remains bullish for Britain top index, with pull backs offering buying opportunities. Support can be seen around 7705. A break through here could open the doors to 7690 and the 7660 region.

Retailers continue to hog the limelight

Whilst retailers were in focus on Wednesday, they will continue to be under the spotlight on Thursday as Marks and Spencer and Tesco both give post-Christmas trading updates. Investors will be hoping that the stores will be able to impress like Morrisons and Sainsbury have done so far this week.

Tesco’s share price is up almost 40% over the past 2 years as CEO Dave Lewis continues to refocus the business. He also reinstalled the dividend after a three-year absence. Investors will be particularly keen to see if Tesco is looking capable of achieving medium term targets in the turnaround process and therefore if a lift in the dividend could be on the cards anytime soon.

Economic calendar

Today sees a very busy economic calendar, with highlights including Bank of England Credit Conditions report, eurozone industrial production, ECB account of the monetary policy meeting and US jobless claims.