The FTSE 100 Index called to open +40pts at 6145, with yesterday’s rebound taking the index back to the levels from which we fell.
The positive opening call comes courtesy of Fed Chair Janet Yellen who delivered a surprisingly dovish speech than markets were anticipating in light of recent hawkish comments from certain Fed FOMC members who had muddied the waters of US monetary policy outlook since the Fed’s last update in mid-March.
However, resistance around 6160 has produced a trend of falling highs since 18 March which, accompanied by falling lows, gives us a new falling channel that contrasts with the recent 6100-6200 sideways shift. Failure to trouble 6200 since mid-last week also adds to the longer-term downtrend of the last 12 months. Watch levels: Bullish 6175, Bearish 6135.
Her taking control of what had become a mixed Fed message of late, her emphasis on ‘proceeding cautiously’ with US interest rate rises and her highlighting of global economic and financial uncertainty (china, oil) suggests it unlikely that April will see another hike. This should be supportive of risk appetite in the run-up to Friday’s all-important US jobs report.
Asian equities are performing mostly positive, taking Wall Street’s lead, thanks to Yellen’s words of USD-weakening wisdom, with the exception of Japan where exporter equities are suffering from resulting Yen strength as well as disappointing industrial production data.
Down under, Australia’s ASX is just positive despite Yellen’s boost to USD-denominated commodities and energy, with a stronger AUD proving a hindrance. Chinese stocks outperforming thanks to strong results in the financial sector, commodities helped by Yellen and a jump in Consumer Sentiment.
US markets had a good session off the back of Janet Yellen’s hawk-killing reassurances as she sought to assert her authority over the Federal Reserve. She continued to cite key global headwinds, such as a slowing China and the collapse in oil prices, as reason enough to be cautious about monetary policy. She also commented on how markets have correctly read the Fed’s rhetoric in pricing in what’s now just the one rate hike this year. Presumably, the timing of that requires a few things to change on the global front. The US economy itself seems to be in good shape. Note a weaker USD seemingly helping gold, but not really helping copper which indicates safe haven seeking among investors.
In focus today we have Eurozone Confidence figures seen relatively unchanged from in March. German inflation data will be looked to for clues about regional deflationary pressures and whether ECB President Draghi’s stimulus boost was justified. The US ADP Employment reading will serve as a warm-up for Friday’s Non-Farm Payrolls while US EIA Oil inventories will be watched given the smaller API build last night. The Fed’s Evans speaks after the European close. On message with Janet?
Brent and US Light Crude have reached the floors of their respective shallow rising channels, with steepening falling highs since 18 March a concern for bulls hoping for a bounce back up above $40 on Yellen-inspired USD weakness. API data yesterday showed a 2.6mn barrel build last week, slower than previous readings which is fairly bullish. Nonetheless, today’s more closely watched DoE crude inventories are expected to show a 3mn barrel build later today, keeping oil supply at an 80 year high.
Gold made it back up to $1243 (13 March falling highs) on a weaker USD and a little safe haven seeking as Yellen confirmed that there are indeed some worrisome conditions on the global stage – worrisome enough to pose a threat to the US economy. There is still potential for consolidation ahead of a breakout above the ceiling of gold’s 19-day falling channel.
Mike van Dulken, head of Research and Augustin Eden, markets analyst at Accendo Markets