LCG MARKET WRAP: Stocks rise, dollar slips after Powell leaves door ajar for rate cut – with Jasper Lawler, Head of Research

 

 

06:06am GMT | February 12th, 2020

EQUITIES

China reporting the lowest number of new cases of the coronavirus since January keeps the prospect of a pandemic at bay. Asian equities were pushing higher overnight. China’s CSI 300 is flat today but has risen the prior six days in and is up 8% from the lows.

The Dow and S&P 500 notched up record highs, boosted by the approval of the T-Mobile and Sprint merger. Stocks finished higher but ended well off daily peaks in signs of little reticence that the Fed is ‘closely monitoring’ the coronavirus. Our main takeaways from Fed Chair Powell’s testimony to Congress were that 1. Deeming the treasury purchases a success and the word ‘gradual’ in plans to stop using repo operations is good from a liquidity justification to be long stocks, but 2. Crystallising the threat of the coronavirus is not so good from an economic perspective.

The DAX looks set for a higher open after 1% gains on Tuesday. The FTSE 100 looks ready to open back above the key 7,500 threshold. Looking now at the STOXX 600 at record highs and up 6 of the last 7 days, it looks like markets have already priced in a big 2020 earnings recovery. If the coronavirus, or some other black swan does throttle the expected recovery come Q1 earnings season, then we could be in a tricky spot.

FOREX

The New Zealand dollar is the top FX-mover overnight following the RBNZ decision to keep rates on hold. The decision was anticipated but a message of no more cuts this year saw the Kiwi climb 0.9%.

The dollar was lower yesterday because it felt like Jay Powell left the door slightly ajar for a rate cut this year. It seems that one possible cause for the Fed to adjust its plans and lower interest rates again is the coronavirus. We would look at any US dollar weakness as a correction. When all the CB’s are eyeing the coronavirus as a possible reason to add policy accommodation, the USD should still be favoured when the US economy is outperforming others.

Opening Calls

FTSE 100 is set to open 23 points higher at 7522
DAX is set to open 51 points higher at 13678
S&P 500 is set to open 9 points higher at 3366

Contact: Jasper Lawler, Head of Research
Twitter: @jasperlawler
Email: jasper.lawler@lcg.com
Tel: 0207 456 7086
Available via Globelynx

Financial Markets and Political Commentary

 

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About the author

Jasper delivers regular commentary, seminars and webinars on market news, trading analysis, strategy and psychology. He is regularly interviewed by BBC News, Bloomberg, CNBC and Sky News, and has featured in The Times, Guardian and Daily Telegraph. Jasper hosts a weekly charting analysis webinar. He is qualified as a Chartered Market Technician (CMT) with the Market Technician Association, and has a degree in Finance and Economics.