Spreadex Market Update
Dollar Decline Continues Amidst Strong Start to US Earnings Season
The broad backdrop of better risk sentiment (higher commodity and equity prices) and a weaker Dollar continues to unfold this week. The peak-inflation narrative is keeping investor expectations geared towards a smaller fed rate hike at the upcoming February meeting, which is keeping USD pressured lower for now. US markets are offline today for MLK day and with little in the way of key data flows are expected to be light.
Key Factors for Today
- USD falls continues as peak-inflation narrative drives shift in Fed expectations
- Solid start to US earnings season keeps equities underpinned
- JPY rallies on BOJ speculation and Nikkei weakness
- Metals and oil rally pauses for now following solid gains last week.
Coming Up
- GBP – BOE’s Bailey speaks
- CAD – Manufacturing sales
- AUD – Westpac consumer sentiment
Equities Boosted by Better US Earnings Data
Equities markets finished the week with strong gains on Friday as a weaker US Dollar continued to underpin equities sentiment. Better data out of the eurozone and UK helped add to the bullish backdrop for markets. The release of Q4 earnings by several big US names on Friday helped drive US indices higher with firms such as JP Morgan, Citi and Delta Airlines all beating earnings and revenues estimates for the quarter. Looking ahead, forecasts including expectations of a mild recession in the US this year though overall, the tone to initial US earnings for Q4 has been positive.
JPY Rallies on BOJ Speculation
The ongoing weakness in the US Dollar is having clear implication across FX markets with risk currencies and the Euro having gained solid ground in recent sessions. A softer start for risk assets across the European open on Monday, however, has seen JPY taking centre stage for now. With the Nikkei having been weaker recently, despite the broader risk-on trend, JPY has seen increased safe-haven inflow as well as flows linked to speculation that a change in BOJ monetary policy might be coming very soon.
Metals & Oil Soften Following Recent Gains
In the metals and commodities space, gold and silver are both seeing a softer start to the week on the back of the recent rally we’ve seen. Gold prices in particular have been well supported via USD weakness with gold futures gaining more than 5% off the initial 2023 lows. Crude futures are opening a little lower on Monday too following strong gains across last week. Looking ahead this week, further USD weakness should help lift oil prices once more.
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