Markets are being pulled around by two forces at the moment, with the trade story being countered by dollar strength impacting across major markets. First of all there is a risk positive view being taken from the apparent progress of the trade negotiations between the US and China. The rhetoric in recent days has been constructive coming out of Beijing, whilst reports suggest a meeting between presidents Trump and Xi is in the offing (to presumably finalise a new relationship). Markets like this, with bond yields pulling higher and equities also stronger. However, the relatively stronger economic performance of the US is impacting through markets. Data out of the Eurozone continues to reflect a slowdown (and could show Germany moving into recession today), whilst the US is standing firm. Yesterday’s upside surprise on US inflation is driving traders to take a view on a continuation of the US dollar strength of the past couple of weeks. There will be further meat to the bones today for the US economic picture, with retail sales, but another strong number could really put the dollar on a strong footing. Confirming a move below $1.1300 on EUR/USD would be a real signal of continued gains for the dollar. In the meantime, there has been a mild risk rebound today which is coming on the back of some positive data out of China. The China Trade Balance came in much better than expected at +$39.2bn (+$33.5bn exp, +$57.1bn in December), whilst both exports and imports were also much stronger in January than they were 12 months ago. Chinese exports climbed by +9.1% (-3.2% exp, -4.4% last) whilst imports fell by just -1.5% (-10.0% exp, -7.6% last).
Wall Street closed higher again last night with the S&P 500 +0.3% at 2753 whilst US futures are similarly higher today. In Asian markets there has been a mixed session with the Nikkei all but flat, whilst the Shanghai Composite was -0.1% lower. In Europe, this theme of a mild risk positive move is coming with the FTSE futures and DAX futures both around +0.2% higher. In forex, the improved sentiment is showing through continued yen underperformance whilst the commodity currencies all perform well on the back of the China story. There is a mild rebound on sterling and the euro. In commodities there has been a rebound on silver after yesterday’s break below the $15.60 pivot support, whilst gold has also bounced. Oil continues its rebound climb of recent days.
In the morning of the European session, the focus for the economic calendar will be the Eurozone Flash Q4 GDP which is expected to be +0.2% for the quarter (+0.2% final Q3) whilst on a year on year basis this is expected to show +1.2% (+1.7% in Q3). Into the European afternoon the US data starts at 1330GMT with Retail Sales for December which is expected to show growth of +0.1% on an ex-autos basis (+0.2% in November), whilst January US PPI is expected to slip to +2.1% on headline PPI basis (from +2.5% in December), whilst core PPI is expected to drop to +2.5% (from +2.7% in December). Weekly Jobless Claims are expected to drop slightly to 225,000 (from 234,000 last week).
Chart of the Day – AUD/NZD
The bear trend of Aussie/Kiwi since August 2018 remains on track but in the wake of the surprisingly upbeat RBNZ yesterday this may not have been given extra momentum for the next leg lower. Since hitting a low of 1.0430 in December there has been a consistent retreat to test this support. For the most, this support has held (aside from a couple of intraday spikes), but now the market looks set to breakdown. The decisive bear candle yesterday breached the support at 1.0430 and had