Asset Summary – Wednesday, 4 February
US DOLLAR is currently experiencing mixed signals. Recent gains, driven by a perceived less dovish Federal Reserve chair nomination and strong manufacturing data, have been capped by uncertainty stemming from a partial government shutdown that delayed key economic releases, creating cautious investor sentiment. While a budget deal has been reached, lingering funding issues and the anticipation of potential rate cuts later in the year are contributing to market hesitation, preventing further gains beyond the 97.75 resistance level after recovering from four-year lows.
BRITISH POUND is currently experiencing mixed influences, leading to a complex outlook. While the Bank of England is expected to hold rates steady, potentially supported by strong manufacturing data and persistent inflation, the currency faces downward pressure from a strengthening US dollar. This is due to shifting expectations surrounding the Federal Reserve’s leadership and reduced anticipation of US rate cuts. Ongoing concerns surrounding US political and economic uncertainty, including trade tensions and interference with the Federal Reserve, could also limit the dollar’s gains, potentially providing some support to the pound. Ultimately, the interplay between UK fundamentals and US dollar dynamics will determine the pound’s direction.
EURO is facing a mixed outlook as recent data reveals a slight easing of inflation in the Eurozone. While headline inflation met expectations, core inflation dipped slightly below forecasts, potentially raising concerns for the ECB. The central bank is widely anticipated to hold interest rates steady, but the strength of the euro and the impact of lower-priced imports from China are being closely monitored for their potential influence on future inflation. A stronger-than-expected US economic performance, particularly in the services sector, could strengthen the dollar and exert downward pressure on the euro, while stronger Eurozone inflation figures could offer support.
JAPANESE YEN faces downward pressure as the market anticipates potential fiscal policy changes following the upcoming elections. Concerns are rising that Prime Minister Takaichi’s expected victory could lead to increased government spending and tax cuts, funded by debt, which would weaken the yen. While there have been warnings about possible intervention to stabilize the currency, recent comments from Takaichi, initially seen as supportive of a weaker yen, and a perceived lack of international cooperation have diminished the likelihood of such action. Consequently, investors are selling the yen, anticipating further depreciation. The dollar’s relative stability, bolstered by expectations surrounding US economic data, further contributes to the yen’s vulnerability.
CANADIAN DOLLAR faces downward pressure as economic indicators point to slowing domestic growth, particularly in manufacturing, and muted inflation. This reinforces the likelihood of the Bank of Canada maintaining a patient approach to monetary policy. Furthermore, declining oil prices and a strengthening US dollar are adding to the headwinds, weakening Canada’s terms of trade and boosting demand for USD liquidity. The USD/CAD pair is showing some resistance, with the downside contained above 1.3625, but the overall outlook suggests potential for further depreciation of the Canadian dollar.
AUSTRALIAN DOLLAR is gaining strength based on a combination of domestic and international factors. The Reserve Bank of Australia’s recent rate hike, coupled with expectations of further tightening due to persistent inflation and a robust services sector, are bolstering the currency. Positive economic data from Australia, including strong PMI figures and rising export prices, further supports its value. Meanwhile, a subdued US Dollar, influenced by uncertainty surrounding US economic data releases and speculation about the Federal Reserve’s future policy, is also contributing to the Australian Dollar’s upward momentum.
DOW JONES is positioned to potentially increase, indicated by futures rising nearly 130 points. Positive earnings reports and optimistic guidance from companies like Eli Lilly, along with gains in Alphabet and Qualcomm, could bolster the index. However, negative impacts from disappointing forecasts and earnings misses from companies such as AMD, Uber, Amgen, and Chubb, may temper gains. Furthermore, a weaker-than-expected ADP employment report suggests a cooling labor market, which could introduce uncertainty and weigh on the overall market sentiment.
FTSE 100 is exhibiting upward momentum, propelled by gains in the energy and mining sectors. Rising crude oil prices, fueled by geopolitical tensions, are bolstering oil majors like Shell and BP. Similarly, the rebound in gold and silver prices is benefiting mining companies such as Fresnillo and Endeavour, along with other major players in the sector. However, companies perceived to be at risk from the increasing influence of artificial intelligence are experiencing declines, potentially offsetting some of the gains from the resource sectors. The mixed performance suggests a market grappling with both opportunity and emerging technological threats.
DAX is facing downward pressure as technology stocks experience a sell-off driven by concerns surrounding the disruptive potential of new AI technologies. Declines in major components like Infineon, SAP, and Siemens are contributing to this negativity. While Infineon’s positive report on AI demand offers some counterbalance, the market is keenly awaiting Alphabet’s earnings report for further tech sector insights. The upcoming ECB policy decision, likely to hold rates steady, adds another layer of uncertainty as the market evaluates the euro’s influence on inflation. Geopolitical tensions, including negotiations regarding the Russia-Ukraine conflict and US military actions, also contribute to investor caution.
NIKKEI experienced a decline as disappointing earnings reports from key companies like Nintendo and Ibiden dampened investor enthusiasm. A broader tech selloff mirroring Wall Street’s activity further pressured the index, with capital shifting away from technology stocks. Concerns about the upcoming election also contributed to investor caution, despite expectations that the ruling LDP party will gain seats and pursue expansionary fiscal policies. The performance of influential stocks such as Advantest, Lasertec, and SoftBank Group also negatively impacted the overall index value.
GOLD is currently experiencing upward momentum, driven by a combination of factors. Geopolitical tensions, specifically those between the US and Iran, are boosting its appeal as a safe-haven asset. Simultaneously, expectations of future US Federal Reserve rate cuts are weakening the US dollar, further supporting gold prices. Although a potential Federal Reserve chair nomination tempered immediate dovish expectations, the market still anticipates rate cuts, contributing to gold’s attractiveness. Incoming US economic data releases, such as the ADP report and ISM Services PMI, are being closely watched for further clues on the health of the US economy and their potential impact on monetary policy and the dollar, which could in turn influence gold’s trajectory.
OIL is likely to experience upward price pressure due to a confluence of factors. Geopolitical instability stemming from renewed US-Iran tensions, including the downing of a drone and harassment of a US-flagged tanker, has created uncertainty in the market. This is compounded by a significant decrease in US crude inventories, suggesting tightening supply. Anticipations of rising oil demand later in the quarter and potential changes in OPEC+ production policies contribute further to the expectation of increased value for oil.