The normal course of events would be that any rhetoric out of the White House that play down the prospects of the US and China reaching a deal will be met with risk aversion on financial markets. US Commerce Secretary Wilbur Ross suggested that the two sides were “miles and miles apart” on coming to an agreement. Despite this, we see positive moves on markets today with Treasury yields ticking higher, the yen continuing to drift off and the dollar is underperforming, oil is bouncing and equity futures also higher. Perhaps there is no one single factor today. Sterling is up on press reports of potential for the DUP to give conditional support for Mrs May’s beleaguered EU deal, however it is interesting to see UK equities underperforming on the strength of sterling. Oil is finding support on the prospects of sanctions on Venezuelan oil supplies. Positive earnings in the US are helping equities find support. Although the euro has bounced after a choppy session lower yesterday, the concerning trends in the Eurozone and the ECB seeing risks to the downside once more leaves an increasingly difficult path towards tighter monetary policy in 2019. This could continue to weigh on the euro now.
Wall Street closed mixed last night with the Dow a shade lower and the S&P 500 +0.1% at 2642. However with futures gaining ground this morning by half a percent, this is helping Asian markets higher (Nikkei +1.0%, Shanghai Composite +0.4%). European markets look set for a mixed open, with DAX futures higher by +0.6%, however, FTSE futures are flat as the negative correlation with a strengthening sterling continues to play out. In forex, there is a mild euro rebound, the yen continues to underwhelm, whilst the big gainer is sterling on positive Brexit chatter. The dollar seems to be suffering across the board. In commodities, there is support for gold as the dollar has slipped back, whilst oil is also trading higher by around a percent.
After disappointing flash PMIs and the ECB cutting a cautious tone yesterday, the big focus for the economic calendar today comes with the German Ifo Business Climate at 0900GMT. There is a strong correlation to German growth in these numbers which are expected to continue to deteriorate to 100.6 (from 101.0 in December) which would be the worst reading since August 2016. It is all quiet on the US front today.
Chart of the Day – FTSE 100
Equity markets have been in strong recovery mode through January, but it is interesting to see the bulls just losing their way a touch now. FTSE 100 seems to now be on the brink of taking a bearish lurch lower again. Perhaps Brexit related (a negative correlation between GBP and FTSE 100 is still in play) but the near term support at 6800 is increasingly key. After moving back below the old pivot support band 6850/6910 yesterday the market bounced off 6800. This is the second time in two weeks this support has held. However, the four week recovery uptrend has been broken in recent days and looking at the momentum indicators, there is an increasing potential that this is a market ready to break down again. The Stochastics have already posted a sell signal and are accelerating lower, the RSI has already broken to three week lows, whilst the MA