Investors are still searching for direction from the macroeconomic data and a slew of earnings releases on both sides of the pond. Asian stocks hit a 7-month high as some reopened after the lunar new year holiday. Wall Street was mixed as the Dow notched a third day of gains and the Nasdaq and S&P 500 dipped.
After a couple of strong days for Wall St, earnings are just looking a bit wobbly. Microsoft disappointed and hopes are not high for Tesla (US: TSLA) later tonight. Boeing (BA) releases ahead of the market open and I would see reasons to be positive after Raytheon’s Pratt & Whitney enjoyed a 127 per cent pop in revenues thanks to aerospace demand.
Sterling was off to a week low as a soft PMI and jump in borrowing knocked sentiment yesterday. The UK economy is showing weakness and this left sterling on the back foot, with GBPUSD taking a 1.22 handle again, with a low of 1.2260 pared back to 1.2325 area this morning. Both the Composite and Services PMIs fell to 24-month lows. Some better news on UK inflation this morning with producer prices slipping. Input prices rose by 16.5 per cent in the year to December 2022, down from 18.0 per cent in the year to November 2022; while factory gate prices rose by 14.7 per cent in the year to December 2022, down from 16.2 per cent in the year to November 2022.
US – stronger PMI helped lift the dollar as the flash composite PMI recorded a three-month high. It’s really worth starting to look at these diffusion indices again as we enter a period of uncertainty about the economic outlook and the impact – and future path – of rate hikes. Traders are betting on a dovish Fed – hearing more and more ‘one and done’ 25bps calls... beware. I just think the market is being way too optimistic.
Oil and inflation
China doing all the lifting as the market moves back into its more normal state of backwardation. Open interest is also healthier. Meanwhile WTI’s ‘3-2-1 crack spread’ touched a three-month high of $42 a barrel... all of which is hardly bullish in terms of inflation pressures. Combined with broader and stickier services inflation, a reassertion of commodity/energy inflation would give central banks a major headache. Crude oil continues to pull back from the 100-day line resistance. A possible re-test of the 50day could see a bounce.
Neil Wilson is the Chief Market Analyst at Finalto
