Asset Summary – Friday, 13 February
US DOLLAR faces a mixed outlook, showing stability around the 97 level as inflation data suggests potential Federal Reserve rate cuts later in the year. While softer inflation reinforces expectations for these cuts, a strong labor market with rising payrolls and a falling unemployment rate could counter this dovish pressure. Meanwhile, the dollar is weakening against the yen due to political developments and interventions from Tokyo, while also facing pressure from a strengthening Australian dollar following hawkish signals from the Reserve Bank of Australia.
BRITISH POUND is facing headwinds due to weaker-than-expected UK economic growth, with GDP figures falling short of forecasts and raising concerns about the fragility of the recovery. Political uncertainty surrounding the Prime Minister is adding to the pressure. The Bank of England’s dovish stance, signaling potential rate cuts, further weighs on the currency. While there’s been some recovery against the US dollar, any gains are fragile and dependent on upcoming US economic data and Federal Reserve policy expectations. Overall, the pound’s near-term trajectory is uncertain, influenced by both domestic challenges and external factors impacting the US dollar.
EURO is showing mixed signals, leading to a fluctuating value near the $1.19 level. Support for the euro stems from the European Central Bank’s perceived confidence in the Eurozone’s inflation outlook and speculation surrounding leadership changes within the Bank of France. However, the euro’s gains are being capped by stronger-than-expected US jobs data, which has bolstered the US dollar by reducing expectations of imminent Federal Reserve rate cuts. The upcoming US CPI release is a key event that could further influence the dollar’s strength, potentially impacting the euro’s value depending on whether inflation data exceeds or falls short of expectations. Positive US data tends to weaken the EURO against the USD, and negative US Data supports a stronger EURO against the USD.
JAPANESE YEN is currently experiencing a complex interplay of factors affecting its value. Recent gains, marking its best weekly performance in over a year, are attributed to Prime Minister Takaichi’s election victory, seen as ensuring governmental stability and potentially stimulating growth through fiscal expansion. While concerns about fiscal policy exist, the administration’s commitment to sustainable funding through subsidies and tax measures appears to be alleviating some market anxieties. Furthermore, verbal interventions from Japanese authorities signaling vigilance over currency movements and comments from Bank of Japan officials hinting at further interest rate hikes provide additional support. However, the currency’s trajectory is also influenced by external factors, particularly upcoming US CPI data, where weaker-than-expected figures could pressure the US dollar and further bolster the yen.
CANADIAN DOLLAR is facing downward pressure as interest rate differentials between the US and Canada widen, favoring the US dollar. Recent disappointing Canadian employment data has further dampened expectations for future Bank of Canada rate hikes, while stronger US labor market figures have bolstered the US dollar’s appeal. This relative shift in monetary policy outlook has contributed to the Canadian dollar’s depreciation against the US dollar. Furthermore, the USD/CAD pair has experienced positive momentum, reaching a four-day high, indicating potential for continued weakening of the Canadian dollar.
AUSTRALIAN DOLLAR is experiencing upward pressure as the Reserve Bank of Australia signals a commitment to controlling inflation, potentially through further interest rate hikes. Recent economic data from Australia portrays a resilient economy with a strong labor market, though inflation remains a concern, particularly with rising inflation expectations. This hawkish stance from the RBA, combined with China’s steady economic support, bolsters the Australian dollar, even as US economic data and global risk sentiment introduce some uncertainty. The currency’s near-term direction will likely be influenced by upcoming Australian labor market and inflation reports, as well as developments in the US economy and global geopolitical events.
DOW JONES faces a mixed outlook. The lack of an upside surprise in the US inflation rate is a positive factor, bolstering expectations of Federal Reserve rate cuts and potentially supporting the index. However, continued selling pressure on AI companies and skepticism regarding capital expenditure in the tech sector could act as a drag. While some tech companies show premarket stability after declines, broader weakness in software services due to automation advances could weigh on overall market sentiment. Strong earnings reports from companies like Applied Materials and Arista Networks offer some offsetting upward pressure, but the overall impact on the Dow Jones will depend on whether these gains can outweigh the negative influences from the tech sector.
FTSE 100 demonstrated a slight recovery following a previous decline, fueled by renewed investor confidence in specific sectors. Gains were observed in stocks previously affected by concerns surrounding artificial intelligence, alongside positive performance in banking and mining industries. NatWest’s strong earnings report and planned share buyback contributed to the banking sector’s upward movement. Furthermore, increased military aid pledges to Ukraine provided a boost to defence stocks. However, weakness in a US peer led to a decline in Entain, partially offsetting the overall positive momentum.
DAX is exhibiting mixed signals, trading slightly down as investors await crucial US inflation data and grapple with worries about the AI sector’s investment levels. Corporate earnings continue to be a focus. Some individual stocks, like Siemens, Brenntag, Symrise and RWE, are pulling the index down, while gains in MTU Aero Engines and Rheinmetall are providing some upward pressure. Despite the day’s lackluster performance, the index is on track for a modest weekly gain.
NIKKEI experienced a significant downturn, reversing course from recent record highs in response to anxieties stemming from Wall Street’s performance and uncertainties surrounding the AI sector. The decline was fueled by concerns about the longevity of AI-related investments and the potential for disruption to established business practices. While some companies, like Kioxia Holdings, benefited from AI-driven demand, others, such as SoftBank Group, Recruit Holdings, and Hitachi, faced substantial losses. Despite this negative session, the Nikkei managed to maintain overall weekly gains, buoyed by expectations that government policies will foster domestic economic expansion.
GOLD is experiencing fluctuating prices, influenced by both macroeconomic data and risk sentiment. Recent dips were triggered by profit-taking and a stronger US dollar following robust jobs data, but softer-than-expected inflation figures are now providing some support by easing pressure on Treasury yields and weakening the dollar. The metal’s appeal as a safe haven is also being bolstered by geopolitical tensions, concerns about currency devaluation, and rising sovereign debt, with continued central bank buying further underpinning demand. Market participants are closely watching upcoming US inflation data for further clues about the Federal Reserve’s monetary policy path, which will significantly impact the dollar and, consequently, gold prices. A weaker labor market, indicated by rising continuing jobless claims, could further support gold, while a shift in global risk sentiment towards safe-haven assets also benefits the metal.
OIL is facing downward pressure due to concerns about oversupply and weakening demand. Forecasts indicate a significant surplus in the coming years, with global inventories expanding rapidly. Diplomatic efforts with Iran are reducing the risk of immediate supply disruptions, further contributing to the bearish sentiment. A general selloff in financial markets is exacerbating the weakness in oil prices.