Fears of a government shut down in the US are the biggest drivers of market moves as we move into Friday’s session, after a week that has seen some huge swings in many major markets. After the initial rumors around the shut down we did see the House pass the vote, however, this now must go through the Senate to avoid the shut down. We must remember the threats of a government shutdown are not new. This has happened a number of times in the past and under a number of Presidents. We must resist the feeling of blaming a government shutdown on Trump.
Historically a shutdown usually hurts stocks, so the vote later this afternoon is going to be closely watched, and I wouldn’t rule out a degree of nervousness as we approach. That being said there is some data out of the UK and US today that will be a focus, with UK retail sales the biggest headline at 0930, followed by Michigan sentiment data at 1500.
In the US overnight talk of Fed policy was yet again one of the major stories as Hester floated the idea of a similar rate of policy adjustment in 2018 and 19 as was seen in 2017. The Fed hiked rates 3 times in 2017 as well as began the process of reducing the balance sheet. This view is in line with keeping those Fed dissenters at bay by giving inflation a little more time to move closer to the 2.5% Fed target.
This morning the Dax has rallied aggressively taking other European indices higher with it, and hitting the Euro at the same time. The Dax has hit highs close to 13390, with eyes on a retest of the 13400 level as stock markets recover from falls yesterday. EURUSD in the reverse move has fallen away from the 1.2290 high, with an eye on the trendline support down at 1.2235.
UK Retail Sales
UK Retail sales for December that has included the Christmas trading period as well as Black Friday and Cyper Monday sales have plunged lower showing a reading of -1.5% vs -1% with the yearly figure coming in at 1.4% vs 2.6% expected. The numbers show a worsening picture for sales around the all important Christmas period with the number showing the worst December for retail sales since 2010. The retail industry does rest a lot on a strong period over Christmas and without that could well be online for a tough reporting season. The numbers saw GBPUSD come off to just above the 1.3900 level, a somewhat muted response considering the weakness. However it has now since recovered to trade higher and test 1.3950, trading at its highest since June 2016.
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Two-year yields have covered their prior six-month range in the last week alone – and whether or not this move is sustainable matters a lot