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Research Market strategy
by Swissquote Analysts
Daily Market Brief

US equities boost sentiment. UK GDP and Powell’s testimony on agenda

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US equities boost sentiment. UK GDP and Powell’s testimony on agenda

By Ipek Ozkardeskaya

US equities flirted with fresh record highs on better-than-expected fourth quarter earnings, and the reassurance that the Federal Reserve is determined to cover their back, come trade war or coronavirus.

More than a third of companies in the S&P500 announced results this far, and their earnings surprised 5.60% to the upside on average. Technology stocks bettered expectations by an impressive 10%, largely enough to boost their market prices. Nasdaq gained 1.13% on Monday, as the S&P500 and the Dow added 0.73% and 0.60% respectively.

Asian equities reversed Monday’s losses, even though the coronavirus death toll topped 1000. Hang Seng surged 1.36%, as stocks in Shanghai (+0.39%) and Sydney (+0.61%) edged higher. Japan was closed due to bank holiday.

WTI crude held ground above the $50 a barrel on improved risk sentiment, although the slightest rise in risk aversion would throw the price of a barrel sustainably below that level.

FTSE (+0.56%) and DAX (+0.78%) futures hint that stocks in Europe are primed for gains at the open as well.

Gold eased to $1566 an ounce, but the pullback should remain limited near the $1550 handle as the risk-off waves due to coronavirus come and go. Investors are probably not ready to unwind their core long positions in gold to keep their hedges solid against the risk of sudden flight to safety.

The US 10-year yield is a touch below 1.57% as Fed Chair Jerome Powell prepares to start his two-day testimony before Congress. Powell will likely mention the increased risks to the economy due to the coronavirus outbreak, but he will probably not make it the focal point of his monetary strategy. We expect Jay Powell to reiterate his wait-and-see position for the coming months. With strong jobs data and sky-high stock prices, there is no pressure to change a winning team.

Investors will also keep an eye on European Central Bank (ECB) President Christine Lagarde and Bank of England (BoE) Governor Mark Carney’s speeches today.

The euro extended weakness to 1.0906 against the US dollar. The pair could settle near the 1.0900/1.0880 in the continuation of the actual negative trend, but sellers may need a better conviction to push the single currency to the 2016/2017 depressed zone of 1.08/1.03 against the greenback.

Cable trades rangebound near the 1.29 mark before a set of important data release in Britain this morning. Today’s data could confirm an anemic growth in the four the quarter, and a stagnant industrial and manufacturing production in December. The fact that business surveys in January hinted at a bounce in activity posterior to Boris Johnson’s victory may attenuate the impact of soft production and growth data. But the optimism in surveys is now being eaten up as investors realize that the second - and the most decisive phase of Brexit negotiations will likely continue weighing on businesses. In fact, avoiding an immediate no-deal Brexit didn’t necessarily save the UK from walking out of the EU without a deal at the very end. There are some 20% chances for that happening and this risk is clearly being underpriced by the market at the current prices. Hence, the risk of a decent unwind in Sterling remains real and the positive skew in net speculative positions give room for a sizeable sell-off toward the 1.25 mark against the US dollar within the next couple of months.

 
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