US equity indices closed higher for a fifth straight session on Thursday, with choppy trade showing that the recent bout of volatility is not going anywhere fast.
The Dow closed over 300 points higher, the NASDAQ Composite closed 1.6% higher and the S&P 500 added 1.2%, putting it on track for its best weekly gain in 5 years.
Meanwhile the NASDAQ is on track for its best weekly gains since 2011, with strong performances in Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX) and Alphabet (NASDAQ:GOOGL) paving the way.
Europe looks set to start on the front foot after stocks continued to rebound in US and Asia overnight. The impressive recovery in equities, particularly US equities, whilst bond yields pace higher, shows that the market is learning to live with the prospect of higher inflation and a potentially more aggressive Federal Reserve.
Even stronger than forecast US PPI inflation data didn’t have any lasting impact on Wall Street, with resultant dollars gains, and losses in US indices soon reversed.
Volatility is here to stay
We are still seeing much bigger swings than we experienced through the majority 2017. The S&P has seen moves of over 1% in 7 of the past 9 sessions, compared to on just 8 occasions in the whole of last year. Volatility has calmed from its peak last week, the Volatility Index (VIX), or fear gauge, is sitting comfortably below 20, a far cry from its peak of over 50 on 6th February. However, recent market behaviour suggests that the volatility, which was so glaringly absent last year, could now be with us a while longer. This isn’t necessarily a bad thing, especially given that the current path of least resistance is showing itself to be northwards.
Dollar selloff shows no signs of abating
Bears showed no signs of loosening their grip on the dollar overnight, which is trading at fresh four-year lows versus a basket of currencies, as it heads towards 88.00. There are still a few pieces of noteworthy US data points to move through this afternoon before the dollar can finish the week; the most influential of which is likely to be the University of Michigan confidence.
Retail sales to send pound to $1.43?
The pound wasted little time capitalising on the weaker dollar and continued to charge higher passing $1.41 overnight. Investors will now turn their attention towards UK retail sales due this morning at 09:30 GMT. Analysts are expecting retail sales to have increased 2.4% year on year in January, up from 1.3% in December. Given the hawkish tone from the BoE earlier this month, in addition to the higher than forecast CPI data, a higher reading in retail sales could see the pound target its previous high of $1.4375.
A word on USD/JPY
USD/JPY extended its moves southwards during the US session, thanks to the dollar weakness. The pair closed 0.86% lower at 106.10 after having posted a daily high of 107.6. Despite the 15 month low reached, USD/JPY continue to show bearish signals, which could see it target 105.00 in the near term.
Opening calls
FTSE to open 30 points higher at 7264
DAX to open 41 points higher at 12,385
CAC to open 15 points higher at 5237
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