Asset Summary – Wednesday, 11 February
US DOLLAR experienced a rebound following stronger-than-anticipated US jobs data, which tempered expectations for Federal Reserve rate cuts. This positive employment data, including a significant rise in payrolls and a drop in the unemployment rate, has led traders to reduce their bets on imminent rate easing. Market expectations now point to a later and potentially less aggressive easing cycle than previously anticipated, with the next rate cut expected in July rather than June, and overall easing by December reduced. This shift in expectations is providing upward pressure on the dollar’s value.
BRITISH POUND is facing mixed signals. It recently rebounded against the US dollar, approaching levels seen in late January, fueled by a weaker dollar and easing political tensions within the UK Labour Party. However, the Bank of England’s dovish stance, suggesting potential rate cuts, and initial concerns about UK political stability after resignations created headwinds. The easing of these political concerns and a general risk-on sentiment could support the pound, but upcoming US economic data releases, particularly the Nonfarm Payrolls and consumer inflation figures, are expected to significantly influence the dollar’s strength and, consequently, the pound’s trajectory. Markets are pricing in future rate cuts by the Bank of England which could weaken the pound.
EURO is exhibiting bullish signals, currently trading above $1.19, fueled by a weaker US Dollar and anticipation surrounding the US jobs report. Market sentiment suggests the European Central Bank is comfortable with the Euro’s appreciation, further bolstered by speculation around potential changes in the Bank of France leadership. A weak US employment report could intensify pressure on the Dollar, potentially driving the Euro even higher, while a strong report might temper gains if it reinforces expectations of unchanged Federal Reserve policy.
JAPANESE YEN is experiencing upward pressure due to a combination of factors, including optimism surrounding Prime Minister Takaichi’s economic policies, which are expected to stimulate growth and potentially allow the Bank of Japan to raise interest rates. This is further supported by concerns about potential intervention by Japanese authorities to curb speculative Yen selling. Additionally, weakness in the US dollar, driven by expectations of Federal Reserve rate cuts, provides external support for the Yen. However, persistent weakness in real wages and high public debt levels in Japan introduce some caution, potentially tempering expectations for aggressive monetary tightening by the Bank of Japan. The market is also awaiting key US economic data releases, such as the NFP report and consumer inflation figures, which could significantly impact the USD/JPY pair.
CANADIAN DOLLAR is experiencing upward pressure, nearing 16-month highs against the US dollar. Strong domestic employment data, including a low unemployment rate and rising wages, diminishes the likelihood of near-term interest rate cuts by the Bank of Canada, making Canadian investments relatively appealing. Concurrently, a weakening US dollar, influenced by softer US employment figures and reports of reduced Chinese Treasury demand, is lessening external pressure. Further bolstering the Canadian dollar is an increase in oil prices, which benefits Canada’s trade balance and export earnings. The USD/CAD pair is currently seeing selling pressure, but remains above the 1.3500 level as traders await further information regarding US employment.
AUSTRALIAN DOLLAR is exhibiting upward momentum, recently reaching multi-month highs, primarily fueled by hawkish signals from the Reserve Bank of Australia indicating a willingness to further tighten monetary policy to combat persistent inflation. This bullish sentiment is somewhat tempered by concerns over weaker-than-anticipated economic data from China, a key export partner, potentially impacting demand for Australian goods. However, positive domestic economic indicators and a resilient domestic demand are supporting the currency. Looking ahead, key data releases, including US employment figures and Australian inflation expectations, are poised to significantly influence its near-term trajectory, with the potential for further gains if Australian inflation remains elevated and US economic data underperforms.
DOW JONES is positioned for potential gains as indicated by rising US equity futures, with Dow futures themselves reaching record highs. A surprisingly strong US jobs report, revealing a robust labor market with significant non-farm payroll growth and an unexpected drop in the unemployment rate, is bolstering this outlook. This data challenges expectations of economic weakness and dovish stances from some Federal Reserve officials, further supporting potential equity gains across various sectors, particularly among small-cap companies. Despite negative earnings reports from some individual companies like T-Mobile, Robinhood, and Mattel, the overall positive economic data suggests a generally favorable environment for the Dow.
FTSE 100 is experiencing a mixed outlook, with commodity-related stocks driving positive momentum while other sectors face headwinds. Gains in miners, oil companies, and banks, spurred by rising metal and crude prices and geopolitical concerns, are supporting the index’s overall value. News of activist investor interest in the London Stock Exchange Group is also providing a boost. However, stocks vulnerable to AI disruption and wealth management firms are facing downward pressure, potentially limiting the extent of overall gains. Expectations of Federal Reserve rate cuts, fueled by softer US data, are contributing to gold’s rise and benefiting precious metal miners within the FTSE 100.
DAX experienced a slight decline, offsetting initial larger losses, and is currently trading near 24,960. This movement reflects a reaction to positive US jobs data, which suggests a robust US economy and potentially influences investor sentiment toward global markets. The stronger US economic outlook could lead to increased confidence in multinational corporations and, in turn, impact the performance of the DAX. Furthermore, the market’s attention is directed toward the ongoing earnings season, where company reports may provide further direction for the index.
NIKKEI is positioned for continued upward momentum as it closed at record highs, driven by optimism surrounding anticipated economic policies following a decisive election victory. Market confidence is boosted by expectations of increased government spending and potential tax cuts without negatively impacting public finances. Strong performance in the tech sector, especially within AI-related companies and SoftBank Group’s surge, further contributes to positive market sentiment. Individual company successes, highlighted by strong earnings and share buyback programs, add to the overall bullish outlook for Japanese equities. The upcoming market holiday may provide a period of consolidation before further gains are pursued.
GOLD’s price is currently balancing between opposing forces. Stronger than anticipated US labor market data, specifically an increase in nonfarm payrolls and a decrease in the unemployment rate, is tempering expectations for aggressive interest rate cuts by the Federal Reserve, putting downward pressure on the metal. However, anticipation of eventual easing by the Fed later in the year, coupled with geopolitical instability and continued central bank demand, particularly from the People’s Bank of China, is providing underlying support. The upcoming US NFP data and CPI report will be critical in determining the near-term direction, with a weaker NFP potentially boosting gold and a stronger one potentially triggering a correction. Any reactions to the jobs data could be short-lived as traders would turn to Friday’s US inflation showdown for deeper clarity on the Fed’s monetary policy path.
OIL is experiencing upward pressure, fueled by escalating geopolitical tensions in the Middle East, specifically concerning potential US intervention regarding Iranian oil shipments and the possibility of renewed conflict if nuclear negotiations falter. This risk to Iranian oil supplies is a key driver of price increases. However, significant gains are being tempered by concerns over rising US crude inventories, which suggest a potential oversupply. Furthermore, upcoming reports from OPEC and the IEA are expected to highlight a potential supply surplus relative to demand later in the year, which could counteract the positive momentum from geopolitical factors.