Less hawkish, not dovish

Less hawkish, not dovish

Mike van Dulken, Head of Research at Accendo Markets commented to clients this morning:


FTSE 100 Index called to open flat at 7415, holding shallow rising support since yesterday afternoon. Bulls are still looking for the bullish triple bottom reversal we highlighted yesterday to complete at 7480, hoping 7410 rising support is the platform for the next up-leg following consolidation overnight. Bears are watching for a breach of 7410 to trigger a retrace towards yesterday’s 7385 breakout zone.  Bullish 7430, Bearish 7410.


Calls for a flat open are at odds with a positive US close and follow a mixed session in Asia overnight. While a less hawkish testimony from Fed Chair Yellen gave markets a boost yesterday, by inspiring hope of cheaper money for longer, USD weakness since has offered mixed blessings.


FX hindrance could thus dent the FTSE today as GBP/USD extends its rebound to $1.29, weighing on London-listed stocks with an international reliance. However, remember also that a weaker USD also represents a benefit for the key commodity space, namely oil and miners.


FTSE corporate news includes Babcock signalling a good start to FY2018 with a stable order book and bid pipeline. Mike Ashley’s Sports Direct has bought a 25% stake in Game Digital while Premier Oil’s trading update suggests strong production ahead of guidance and lower costs.


ASOS’ trading statement shows revenue growth at the upper end of forecasts. Telford Homes suggests further momentum in the build-to-rent sector, however it points to recent pol/econ uncertainty and the wider housebuilders sector may react more to disappointing RICS house price data overnight.


Japan’s Nikkei has been hindered by way of a weaker USD resulting in unwelcome Yen strength. Financials also understandably disliked Yellen’s testimony. Australia’s ASX is higher thanks to Healthcare and Consumer Staples while Natural Resources welcome higher metals prices although oil is off its best levels after yesterday’s ultimately disappointing US inventory report.


US equity markets rallied to close higher across the board following Fed Chair Yellen’s testimony to Congress, reacting favourably to her less hawkish tone. The Dow Jones, despite being the underperformer of major US bourses, closed at a fresh record high as DuPont led risers, while the S&P500 and Nasdaq both benefitted from continuing Tech sector strength to close 0.7% and 1.1% higher, respectively.


Crude Oil prices pared Wednesday’s gains overnight as the large drawdown in US inventories reported by EIA was offset by yet another rise in production, mirroring last week’s release. However, both Brent and US benchmarks have held above key support levels at $47.50 and $45 respectively, underpinned by fresh weakness in the US dollar following Fed Chair Yellen’s testimony to Congress.


Gold has continued to rally from Monday’s lows as the safe-haven asset reacts favourably to Janet Yellen’s noticeably less hawkish tone on her first day of testimony to Congress. The precious metal, has also benefitted from Yellen-inspired US dollar weakness as the global reserve currency touches a fresh post-US election low. Investors will be looking for a breakout from June falling highs resistance at $1225 for the rally to continue.


Today’s focus, presuming Fed Chair Yellen has little more to add in terms of market moving testimony on her second day in congress (3pm again; no pre-released text) – this time addressing the Senate Banking Committee – will be a raft of Inflation data. Ironic with worryingly persistent and subdued inflation seeing Yellen dial back on hawkishness yesterday, giving risk assets a fillip.


Following Germany’s welcome rebound in consumer price growth this morning, ticking up in June and on an annual basis, is French CPI (June, final). This is expected to confirm another flat month and further slowing over the year, maintaining Jan’s downtrend. Spain is forecast back to flat following May’s foray with deflation. Over the year, however, it’s likely the same story as with France, the pace of growth continuing to slow from the turn of the year.


In the afternoon, US June PPI is seen flat in June, although the growth rate over the year is expected to have dipped sharply having already topped out in May. The Core measure, however, is seen slowing only slightly, still holding the Fed’s 2% target.


Away from Capitol Hill, other speakers include Yellen’s overtly dovish colleagues Evans (voter; 4:30pm) and Brainard (voter; 6pm), and following yesterday’s OPEC monthly oil report, we await the US IEA’s equivalent at 9am. Finally, the Bank of England releases its latest quarterly Credit Conditions and Banking Liabilities Survey (9:30am), providing lenders’ outlook for the next three months, just in time for the UK Government’s first attempt at passing through the ‘Great’ Repeal Bill through Parliament.


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