Yellen stays on message

Yellen stays on message

Mike van Dulken and Henry Croft at Accendo Markets commented to clients this morning:

FTSE 100 Index called to open +10pts at 7295 after an overnight bounce from recent 7272 lows. This keeps the index in a 4-day falling channel but this is merely the latest corrective segment within a bigger rising channel from mid-September. Bulls need a break above 7305 falling highs (if not last week’s 7320 highs) to open the door for a rally back to 7385. Bears are eyeing a breach of 8-day rising support at 7260 for a full retrace to 7195. Bullish 7305, Bearish 7260.

 

Calls for small gains at the open can be derived from a hawkish Fed Chair Yellen (and colleague Bostic) supporting continued gradual rate hikes (market implied probability of Dec rate hike now 70%). This has firmed the USD to the detriment of GBP and EUR but to the benefit of the both benchmarks’ internationals/exporters.Firm metal prices may even help the Miners.

 

A positive start is also in spite of a narrowly mixed close on Wall St (calmer NK tensions, Tech up on tax reform hopes, but mixed US data and no healthcare reform vote) which was followed by a largely negative session in Asia overnight. Utilities have been the standout underperformers across the region, dented by higher oil prices amid supply concerns and supportive US inventory data.

 

FTSE headlines include: SSE profits warnings due to reduced networks profits amid phasing of CAPEX on transmissions projects and resulting impact on regulatory revenues. Entertainment One media library value rises to $1.7bn. PZ Cussons on track for FY 2018 operating profit growth. Halma reports in-line H1 revenue and profits growth. Inmarsat AirAsia to offer Inmarsat’s GX Aviation Broadband.

 

US equity markets finished mixed once again as a Tech sector rebound buoyed the Nasdaq and the S&P 500, while the Dow Jones slumped to its first 4-day losing streak since June. In a cautious session, losses for McDonald’s outweighed gains for apple on the closely watched 30-stock index, while Technology stocks enjoyed strong performances after Monday’s worst session since mid-August.

 

Crude Oil benchmarks have maintained bounces from yesterday’s lows, boosted overnight by an unexpected drawdown in API crude inventories. While Brent Crude remains just under a dollar away from yesterday morning’s 27-month highs of $59.5, this afternoon’s official US government EIA inventory data could stoke bullish fires should it repeat the API release, while also lifting US crude above yesterday’s fresh 5-month high of $52.4.

 

Having rallied back above $1300 following less hawkish than expected comments from Fed Chair Janet Yellen,Gold has retreated once more below the key psychological mark as the US dollar regains its poise. While trading off its overnight lows of $1290, the precious metal remains hindered by resistance at $1296. The greenback will likely remain a key driver of sentiment today as the Trump administration reveals further details of its tax reform plan.

 

In focus today will be an announcement on US tax reform by US President Donald Trump. In what the Trump administration has dubbed a framework for tax reform, it is expected Trump and Republican House leaders will reveal a slashing of the corporate tax rate to 15-20%, while reducing the top rate of tax for individuals to 35%. Investors will also be keeping an eye out for any changes to repatriation tax for firms, with a proposed one-off reduced rate having helped driven major Tech stocks to all-time highs since Trump’s election.

 

A relatively quiet data docket today includes UK CBI Sales data (11am), seen recovering after last month’s steepest decline since July 2016. In the afternoon, US Durable Goods Orders (1:30pm; prelim) may have rebounded at the headline but are notoriously volatile, so the core figure (ex-transport) may prove more important.

 

After yesterday’s disappointing US New Home sales, Pending Home Sales (3pm) are also seen down in August. With oil prices rallying on supply concerns, the US EIA Oil inventory report will be hotly as usual, especially after a supportive private API report last night showed a drop for crude and distillates, although gasoline rose, which is at odds with consensus for the official report.

 

After hawkish comments from Fed Chair Yellen and new Atlanta Fed governor Bostic yesterday, what Bullard (6.30pm) has to say will likely be of most interest (“US Economic and Monetary Policy”) and colleague Brainard (7pm) already spoke yesterday about the Labour market.

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