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Market Brief
The Hang Seng and Nikkei 225 are down this morning though the Shanghai Stock Exchange has moved higher breaking the notion that the overnight session is completely bearish following the close last night of a risk-off market. We had declines in Europe yesterday and a smaller fall on Wall Street. Geopolitics took centre stage, literally, and the outlook for inflation and interest rates remains market moving. Volodymyr Oleksandrovych Zelenskyy is the Ukrainian leader but was previously an actor and comedian. Yesterday’s tongue-in-cheek announcement of a Russian invasion on Wednesday of this week may have been nuanced and a call back to his previous job, but anyone reading just the words, obviously took it as Gospel and not of comedic effect. Words are powerful, but it’s good that he has some humour left. Unfortunately, he went on TV and said exactly the words that Vladimir Putin didn’t want to hear, which was that Ukraine would like to join NATO.
The Japanese economy grew 1.3% in Q4 2021 after declining 0.7% in Q3. According to the minutes of the central bank’s last meeting, the central bank is prepared to exercise patience as it assesses the need to tighten monetary policy.
The UK labour market contracted by 38k in the three months to December, while the unemployment rate remained unchanged at 4.1%. January’s figures showed 108k more workers in employment, while unfilled positions rose to a record 1.3 million. While wages grew by 4.3% in December (from 4.2%), they declined modestly when bonuses are excluded.
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The GBPUSD H4 chart shows the pound responding well today and this is obviously down to the recent data but also in response to the US dollar weakening at the start of the London session. 1.3600 – 1.3630 will be a test for the bulls resolve. If we see prices plough through that resistance the 1.3750 and a new swing high become very possible targets.
I am ever more bullish the pound when I see the ActivTrader sentiment indicator building a negative bias. Currently, the traders on the platform are 63% short and the more they add to that position the higher they get squeezed in my opinion.
Among today’s data points will be the German ZEW survey, which will provide a clear indication of the strength of the Eurozone economy in February. US producer prices will provide an indication of inflationary pressures in January. In January, consumer price inflation was on the rise mainly because of energy prices, although core inflation also rose. As concerns about the Ukrainian situation push both gas and oil prices upward, a further rise in energy prices could push inflation higher in February.
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Brent pushed higher into the $95 level but then found it to be solid resistance. The market has been good at not leaving any imbalances on this run-up, so the next level of support may come all the way back down at $81.95, especially if the Ukraine/Russia/NATO situation cools off. If we get a spike higher on headline news, the next resistance is $97, which hasn’t been seen since 30th September 2014.
