FTSE flat at 7209
DAX -23 points at11573
CAC -9 points at 4832
Euro Stoxx -6 points at 3284
It is the inauguration day for Donald Trump. Trump’s aggressive fiscal stimulus plans have been priced in by the markets to an extent where investors could now sit back and watch how fast his promises will be concretized. In the immediate future, Trump promised to renounce to the Trans-Pacific Partnership (TPP) and renegotiate the North American Trade Agreement (NAFTA). He has already taken steps to prevent jobs from leaving the US and announced to put in place 500 billion dollars worth of government spending program. As a result, the Federal Reserve (Fed) signaled to gradually tighten the monetary policy in order to stay ahead of the game, and to avoid falling behind the curve in moderating a potential rise in inflationary pressures. ‘We can’t afford to allow the economy to run too hot’, said the Fed Chair Janet Yellen at her speech in San Francisco earlier this week. The alteration of Fed’s balance sheet that has reached historical high levels as a result of multi-year, ultra-expansionary monetary policy, should also pressure the US rates higher, along with the scheduled hikes in Fed funds rate.
The US dollar softened across the board, while gold found buyers as it slid below the $1200 level yesterday. Although the precious metal is set for a fourth straight week of gains, Donald Trump’s first speech as the 45th President of the United States could squeeze the price of a bullion in both direction. Trump’s promises are supportive of a higher inflation, which could incite mid-term investors to buy gold for hedging purposes, yet in the very short-term, a too aggressive Donald Trump would keep the Fed hawks alert and underpin the appetite in the US dollar. The mid-term resistance stands at $1219 (major 38.2% retracement on Jul-Dec decline), if surpassed, could encourage a further rise toward $1236 (100-day moving average).
The EUR/USD remained upbeat following the European Central Bank (ECB) meeting yesterday. President Mario Draghi didn’t say much at his first press conference in 2017. Hence, the euro’s faith against the US dollar is in the US dollar’s hands. Should Donald Trump fail to revive markets’ enthusiasm by giving out more details about his policy, we could see a mid-term bullish reversal in EURUSD’s trend. Key offers are touted at 1.0707/1.0720 (major 38.2% retracement on Trump’s victory sell-off / weekly resistance).
China’s GDP grew 6.8% year-on-year in the fourth quarter, slightly better than 6.7% expected by analysts. Shanghai’s Composite gained 0.71%, while the Hang Seng stocks traded 0.38% lower as the Yuan (-0.08%) has ranked among the rare losers against the greenback in Asia.
Nikkei (+0.34%) and Topix (+0.35%) were bid in Tokyo, as the USD/JPY traded at 115.62 level yesterday. The broad-based unwinding in the US dollar pushed the pair below the 115.00 level before Japanese traders left for the week-end, yet the suspense around Trump’s inauguration could be a game changer before the weekly closing bell.
Cable continues seeing a solid resistance pre-50/100-day moving averages, 1.2395/1.2428. Although the day’s focus is on the USD leg, the December retail sales data could trigger a quick push for the pound in London. The UK’s retail sales excluding auto fuel is expected to have contracted by 0.4% month-on-month. Yet given that the most recent data from the UK’s leading retailers beat estimates in the Christmas period, there is room for a positive surprise in December data. Should the Christmas magic happen to leave the soft expectations behind, we could see a knee-jerk rise in the Sterling. Yet the cyclical nature of the data could rapidly dent the upside appetite in the pound and redirect the attention back to the US.
The FTSE futures (+0.22%) were better bid in Asia, after the FTSE 100 index retraced below the 7200p level for the first time in two weeks.
The FTSE is set for a flat open.