The Global stock markets once again experienced another good day on the whole yesterday as positive investor sentiment continued to drive risk appetite upwards. Major US indices had dipped after the Fed Chair Jerome Powell advised that he felt the central banks balance sheet should be substantially smaller but recovered to finish the day close to 0.5% up. He’d also maintained the recent dovish rhetoric, saying that the Fed can now be patient and flexible with regard to interest rate moves. The dollar rallied during the course of the day’s trading with the Dxy trading around the 95.50 level as we open the Asian session having flirted briefly with 95.00 early in the day.
The stars do seem to be aligning for a correction in this week’s move as investors start to have doubts on the veracity of some of the recent drivers. The moves we saw overnight weren’t as strong as some that we’ve seen earlier in the week and the positive sentiment brought to the market from a more dovish Fed could be offset to a certain degree if there is a more determined effort from them to reduce the US balance sheet. Also, although the trade discussions between the US and China appeared to end up on a much more positive note than we’ve seen previously we’ve still yet to hear of any concrete details. Add to that the increasing concern over a real economic impact from the ongoing US government shut down and we could be in for a volatile Friday’s trading as we move into the weekend.
Brexit concerns should continue to heighten as we move into the London session today with Labour yesterday confirming that they will vote against Theresa Mays’ deal next week and push for a general election. Fears are high on the Tory side of the house that the deal will not pass with many within the party firmly against the deal, this has already put some pressure on the pound in overnight trading, however we’re still sitting a long way off recent lows and the potential for volatility in the sterling should increase exponentially as we move towards the actual vote next week.
Looking ahead to today’s trading and focus will be on the Australian market early in the Asian session with the latest Retail Sales data due this morning. It’s relatively quiet for the rest of the Asian session but the UK market will come under the microscope as we move into the London session with the latest GDP and Manufacturing Production number due out, although once again expect Brexit deliberations to dominate market moves. In the New York day, the key US CPI data is due and investors will be analysing this closely with a view to see if it will influence the FOMC in any way.