Feb 22 • Morning Roll Call • 3335 Views • Comments Off on MORNING ROLL CALL

USA equity markets reach new record highs as U.S. dollar strength returns, due to the expectation of a Fed interest rate rises in Marchbetween-the-lines1

USA equity markets burst into life after the bank holiday close on Monday; the SPX, DJIA, Russell and NASDAQ all reached record highs; SPX closing at 2,365, DJIA at 20,743, and the NASDAQ at 5,865. The U.S. dollar also broke to the upside, as confidence returned that the dollar would rise as a consequence of an interest rate rise predicted for March. Investors believe that the USA economy is strong enough to withstand the rate rise, despite the fact that Markit flash PMI estimates missed expectations, by coming in at 54.3 for manufacturing and 53.9 for services. Philadelphia Fed President Patrick Harker, who votes on policy, stated a rate move in March is not “off the table at this point.” This statement followed the hawkish congressional testimony broadcast last week from the Fed Chair Janet Yellen.

Fundamental news on Tuesday centred on Markit PMIs for the month of January, European PMIs were the main focus and the published data for Europe was extremely positive. The service PMI for France came in at 56.2, ahead of the 53.8 expectation. Germany’s composite reading came in at 56.1, ahead of forecasts of 54.8, Europe’s composite reading beat expectation of 54.4, coming in at 56. In the UK the government’s public sector net borrowing figure came in at a surplus for January at £9.8b, but critically missing expectations of a £14.5b surplus by some distance.

Despite the positive European PMIs, Sterling rose by approximately one percent to a circa two month high versus the euro. The reason projected concerned the French presidential election, with pollsters suggesting that extreme right wing populism in France may still play a part in the result. EUR/GBP closed the day at circa 0.8442. Sterling rose versus all its major peers throughout Tuesday’s trading sessions, GBP/USD finishing the day at circa 1.2476. GBP/JPY finishing at 144.87. The pound has now risen by approx. 4% versus the euro and yen since mid-January, but has gradually slipped lower versus the dollar during that time period. Stability, with regards to the Brexit debate in the UK’s House of Lords, has added to investors’ recent confidence in the British pound. The Dollar Spot Index gained 0.2%, retreating from a rise of 0.6% during the day.

Oil advanced on Tuesday, OPEC compliance with its output cut agreement, added to growing demand from Asia, caused West Texas Intermediate to rise by circa 1.0% to settle at $53.8 a barrel. Gold declined by 0.2% to $1,235 an ounce. Silver slipped marginally, below its $18 a handle, to finish the day at circa $17.95 an ounce.

Economic calendar events for February 22nd 2017, all times quoted are London (GMT) times

09:30, currency effected GBP. Gross Domestic Product (YoY) (4Q). Investors will be watching this release carefully to establish if there’s any unforeseen outlier early effect of the Brexit situation in the UK. The prediction is for the UK’s GDP to remain static at 2.2%.

10:00, currency effected EUR. Euro-Zone Consumer Price Index (MoM) (JAN). The prediction is that CPI in Europe will have fallen to -0.8%, from 0.5% in December. Should this number miss the forecast, then the euro could experience volatility.

10:00, currency effected EUR. Euro-Zone Consumer Price Index (YoY) (JAN). Should the monthly CPI figure come in at -0.8%, then the annual prediction of 1.8% may come in on target. If not then the annual inflation figure could breach 2.0%, which will generate speculation with regards to the ECB’s next move, in relation to potentially reducing the asset purchase scheme and raising base interest rates.

12:00, currency effected USD. MBA Mortgage Applications (FEB 17th). Mortgage applications fell by -3.7% according to the last publication, analysts will watch this number to gauge the overall health of the USA housing market.

15:00, currency effected USD. Existing Home Sales (MoM) (JAN). The expectation is for a seasonal recovery to begin to gain momentum with 1.1% gains, from a -2.8% fall previously.
19:00, currency effected USD. FOMC Meeting Minutes (FEB 01). Although late in the trading day for European FX traders, this publication should be monitored, although Janet Yellen did offer a form of forward guidance with her hawkish comments in front of USA lawmakers last week, therefore there’s unlikely to be any major surprises contained in the minutes.


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