President Trump’s announcement to delay the deadline on the trade talks initially bumped sentiment higher, but the hot air seems to have cooled as markets await further concrete news of a resolution. Some of the risk rally that was seen yesterday has subsequently unwound a shade this morning. Treasury yields have pulled lower, the yen has performed well and equity futures are weaker. This is nothing drastic though and is more likely to be a sense that the market is cautious for now. However the big mover today is sterling which has gained on, yes, you guessed it, Brexit related factors. The UK is now 32 days away from leaving the EU and there is no deal agreed that the UK Parliament can get behind. However, there is now a move from the opposition Labour Party that could push for a second referendum. This increases the potential for not only a delay to Article 50 (i.e. that the UK does not leave on 29th March) but also would dramatically increase the potential for the UK not leaving the EU at all. Although uncertainty continues, Sterling is happy in all these scenarios. However, with a stronger sterling, also tends to come a weaker FTSE 100 on the negative correlation with the currency. One thing to keep an eye on today is that Fed chair Powell testifies to the Senate Banking Committee today at 1500GMT. Powell has cut a pretty cautious figure in recent times and it will be interesting to see if this continues.
Wall Street closed mildly higher last night with the S&P 500 +0.1% at 2796 whilst US futures are calling stocks lower by around -0.3% early today. Asian markets have been cautious this morning, with the Nikkei -0.4% and the Shanghai Composite -0.7%. In Europe, markets are looking equally cautious as FTSE futures and DAX futures are both -0.7% lower. In forex, the big gainer is sterling which is +0.4% higher, whilst the yen is also performing better. In commodities there is consolidation on gold, whilst oil has continued to slip after falling over 3% yesterday on the latest comments from Trump to try and get OPEC to keep prices down.
On the data front, the main event comes this afternoon with the Conference Board’s Consumer Confidence at 1500GMT. Consensus expects a recovery to 122.8 in February (from 120.3 in January) which would break a run of three consecutive months of significant deterioration.
Chart of the Day – EUR/CAD
The downtrend channel of the past six weeks is still intact and within this, rallies remain a chance to sell. This comes as the market has continually breached support to form lower lows and leave lower highs in the recoveries. Friday’s strong bear candle took the market to its lowest levels since November, and although there was a sharp rebound yesterday it has simply unwound the market back to the resistance of the 76.4% Fibonacci retracement around 1.4970. With the falling 21 day moving average (today around 1.5000) consistently acting as a basis of resistance and the six week downtrend channel (today also around 1.5000), this looks a chance to sell. Price resistance of a lower high comes in at 1.5060