The US dollar is coming under renewed pressure following on from dovish comments given by Fed chair Jerome Powell on Friday. In recent weeks we have seen increasingly volatile reactions on financial markets. Fear over a global cyclical downturn and the deflationary effect of a bear market on the commodities complex have hit sentiment. This came amid worries that perhaps the Federal Reserve was engaging in a policy mistake with remaining too tight in its latest rate hike of December. However, Friday’s Nonfarm Payrolls report has gone some way towards helping sooth risk fears, whilst Fed chair Jerome Powell then suggested that the Fed would be patient in its approach to rate hikes in 2019. Although this has had a mixed impact on the dollar, at least for now, risk appetite has been significantly boosted by this. The payrolls report was dollar positive, but this only lasted for less than a couple of hours, with Powell’s comments which suggested that the Fed was monitoring events closely and was not strict on its current path. Dollar back down again. Equities have seen the biggest jump, with strong recovery gains on Wall Street and subsequently Asia. Suddenly the glass looks half full again. Today we also have the trade delegations of US and China meeting and this will lay the groundwork for potential agreement. Watch out for any newsflow to impact on risk appetite, Treasury yields and the dollar.
Wall Street closed sharply higher with the S&P 500 +3.4% at 2532, whilst futures are another +0.3% higher today. In Asia, there was also a very strong day with the Nikkei +2.4% and the Shanghai Composite +0.8%. European markets look a bit more cautious today, with the FTSE futures +0.1% and DAX futures +0.6%. In forex, there is a dollar negative theme that has come from the dovish comments from Jerome Powell on Friday, with the yen being a key outperformer, whilst the Aussie and Kiwi are also positive. In commodities, the dollar negative move is also helping gold and silver around half a percent higher, whilst oil has also continued to push forward in a recovery.
There is a US emphasis to the economic calendar today with the ISM Non-Manufacturing at 1500GMT being the key focus. Consensus expects a slight drop back to 59.7 (from 60.7 in November) but given the record drop I the manufacturing data it will be interesting to see if services can hold up better. US Factory Orders for November are at 1500GMT and are expected to grow by +0.7% on the month (after the surprise drop of -2.1% in October).
Chart of the Day – FTSE 100
Equities in Europe have held up amidst a risk sell-off early in 2019 and with the positive news surrounding US and China in the trade negotiations, along with a risk positive payrolls report, there was a decisive move higher on Friday. The next move is to see if this recovery can be sustained. The FTSE 100 has recovered into a key area of overhead supply and is now sitting at a crossroads. The old October/November lows between 6850/6900 provided an area of overhead supply to the early December rally and this resistance is now being