No changes to the initial estimates, so there’s not much to extrapolate from this. Although core inflation is nearing 3%, it remains a tall order to get from here back down to the 2% mark in the months ahead.
This article was written by Justin Low at www.forexlive.com.
If you need a refresher, the total rate cuts priced in for the ECB this year at the end of December was 161 bps. Right now, it is standing at just 96 bps after the PMI data today. What a difference two months make, eh?
Meanwhile, the odds of an April rate cut have slipped further to just ~39%. And that is likely to be narrowed down further when we get to the March policy meeting in two weeks‘ time. It seems like traders are aligning with the narrative put out by major central banks, and not just for the Fed.
In the case of the ECB, this now sees a June rate cut as being the most plausible. The balance between the give and take for such pricing seems to be one that markets and the central bank can agree with currently.
This article was written by Justin Low at www.forexlive.com.
This should allay any recession fears about the UK economy to start the new year at least. Demand conditions continue to show an improvement but inflationary pressures remain elevated on the month. The rate of input price inflation in particular was the highest since August last year. And that’s not much of a welcome development for the BOE. S&P Global notes that:
“UK economic growth has accelerated in February, with
the early PMI survey data pointing to the largest rise in
business activity for nine months. This is by no means a
one-off improvement, as faster growth has now been
recorded for four straight months after a brief spell of
decline late last year.
“The survey data point to the economy growing at a
quarterly rate of 0.2-3% in the first quarter of 2024, allaying
fears that last year’s downturn will have spilled over into
2024 and suggesting that the UK’s ‘recession’ is already
over.
“It’s particularly encouraging to see that the upturn in
growth has been accompanied by a surge in optimism
about year-ahead prospects to the highest for two years,
in turn encouraging a second month of increased
employment.
“However, there are a number of areas of concern. First,
the upturn is being driven to a large extent by resurgent
demand for financial services, in turn predicated on hopes
of an imminent pivot to rate cutting by the Bank of England.
In contrast, manufacturing remains mired in contraction
and consumer-facing service providers are reporting
falling activity amid the ongoing cost of living crisis.
“Second, February saw the highest degree of supply chain
delays for over one and a half years, linked to Red Sea
shipping disruptions. The resulting increased cost of
shipping contributed to the largest monthly rise in selling
prices for goods seen over the past nine months.
“Service sector inflation also ticked higher, remaining
stubbornly elevated thanks to higher wage costs and the
pass-through of some higher goods prices. The survey
data signal consumer price inflation running around the 4%
level in the coming months – double the Bank of England’s
target.
“With growth accelerating and prices on the rise again,
February’s data mean policymakers are increasingly likely
to err on the side of caution when considering the
appropriateness of cutting interest rates.”
This article was written by Justin Low at www.forexlive.com.
That’s a slight improvement to the monthly order book balance compared to January, but still below the long-run average of -13. The standout detail from the report though is that the expectations for average selling price inflation rose to +17 in February. That is up from +9 in January and is the strongest reading since July 2023. If it keeps up, that will be an issue for the BOE in trying to push the narrative of rate cuts in the months ahead.
This article was written by Justin Low at www.forexlive.com.
That will see Germany revise their official 2024 GDP growth forecast to a measly 0.2%, which would represent a big downgrade from the previous forecast of 1.3%. Oof.
This article was written by Justin Low at www.forexlive.com.
Once again, it’s been a rather dull session so far in European morning trade. Major currencies are not doing a whole lot, having little to work with in general this week. The dollar is steady on the day, trading near flat levels against the euro, yen, pound and loonie currently. Of note, USD/JPY continues to do a tango in and around the 150.00 mark this week:
The lack of developments in the bond market isn’t helping with that regard as well. 10-year Treasury yields are down 1.5 bps to 4.26% now but remains pinned in between 4.20% and its 100-day moving average of 4.33% in the bigger picture.
For trading today, the focus turns towards the FOMC meeting minutes release next. That might help to offer something for traders to act upon and to get out of this rut.
Besides that, keep a watchful eye on stocks as there are some jitters persisting since yesterday. Nvidia earnings is in the spotlight and that will come after the market close today. US futures are down again though, with S&P 500 futures lower by 0.2% and Nasdaq futures down by 0.4% currently.
This article was written by Justin Low at www.forexlive.com.
JPY
GBPJPY Technical Analysis –
Daily Timeframe
On the daily chart, we can see that GBPJPY broke
through the cycle high and started to consolidate. The buyers should keep on
leaning on the 188.67 level to position for new highs while the sellers will
want to see a breakdown to start targeting new lows.
GBPJPY Technical Analysis –
4 hour Timeframe
On the 4 hour chart, we can see that the 188.67
level is now a key support zone where
we can also find the confluence with the
trendline and the
red 21 moving average. This is
where we can expect the buyers to step in with a defined risk below the
trendline to position for new highs. The sellers, on the other hand, will want
to see the price breaking lower to invalidate the bullish setup and position
for a drop into the 185.21 level.
GBPJPY
Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that the
price action has been pretty choppy recently but overall the pair kept on
printing higher lows as the buyers remained in control. The sellers should wait
for a break below the key support to regain control and have more conviction
for new lows.
Upcoming Events
Today we have the FOMC Meeting Minutes on the agenda
while tomorrow we get the latest UK and US PMIs, and the US Jobless Claims
figures.
This article was written by FL Contributors at www.forexlive.com.
For
investors, this intel should be a big deal. Since 2011, share buybacks have
been a major factor, accounting for 40% of total US stock market returns,
especially in the S&P 500 index.
Indeed,
other factors such as dividend growth, EPS, and P/E multiples also matter, but
Pavilion Global Markets‘ data suggests they carry less weight.
In
theory, buybacks make sense when companies have more liquidity than they pay
out in dividends or have profitable investments on the horizon and their shares
are undervalued.
At the
moment, large companies tend to focus more on returning capital than growing
it.
Take big
oil as an example.
Despite
earning a whopping $357 billion in the seven years following the Paris
Agreement, they chose to invest billions in share buybacks and dividends
instead of fully engaging in the transition to renewables.
Specifically,
the five major oil giants spent more than their profits on shareholders: $428
billion in 2016-2022, of which $316.7 billion went on dividends and the rest on
share buybacks.
The jury
is still out on whether this move makes sense for the greater good.
Big Tech
isn’t exactly in a better spot. The combined cash stash of companies like
Apple, Microsoft, Alphabet, Alibaba, Amazon, and Meta tops $500 billion. The
burning question: where’s all that moolah headed?
If it
goes into share buybacks, it’s a win for shareholders, but only in the short
run. Investing in promising projects or breaking into new business frontiers
would better serve long-term gains.
The fact
that companies are cutting back on investment
raises alarm bells about their future growth potential, including expansion and
competitiveness. It is, therefore, essential to be cautious about these stocks.
And
let’s not forget that while buybacks can increase EPS by reducing the number of
shares, this does not necessarily mean that the company’s fundamentals are
improving.
Relying
too much on buybacks can look like a financial maneuver rather than actual
value creation.
The
sweet spot? A balanced approach where a company distributes its free cash flow
not only in buybacks but also in growth investments, cutting debt, paying
dividends and maintaining a healthy cash cushion.
As for
how to detect a possible change in market sentiment towards a specific stock or
the index itself, it is crucial to follow the support and resistance indicators.
This article was written by FL Contributors at www.forexlive.com.
Understanding Swing Trading
This type of trading requires patience to hold your trades
for several days at a time. Swing trading stands in contrast to day trading,
where positions are entered and exited within the same trading day. Swing traders take on overnight risk, and they also need to be mindful of
possible market gaps that could cause significant losses or profits when they
are not actively watching the markets.
Keys to Successful Swing Trading:
Tips for Swing Trading
Remember, no single strategy guarantees success in trading,
but swing trading can be profitable if approached with discipline, knowledge,
and a strong risk management framework.
This article was written by FL Contributors at www.forexlive.com.
Don’t expect to get much of a change to this narrative until we are right at the point where rate cuts are to present themselves. In the case of the BOE, it might only come around May.
This article was written by Justin Low at www.forexlive.com.