Dow closes above 25,000
Global growth optimism and signs of easing tensions on the Korean Peninsula helped the New Year rally continue in global equities. North and South Korea have agreed to hold talks with the North’s participation in the Winter Olympics up for discussion. We made the easy forecast yesterday morning that the Dow would top 25k. It did so in the first few minutes of trading and went on to close above it too, as the other major benchmarks set record highs.
European stocks to open mixed
A slightly more mixed open is expected in Europe on Friday ahead of closely watched economic data, including Eurozone inflation and US unemployment. Airline shares could be an area of interest after the cancellation of 1000s of flights to the East Coast of the US thanks to a huge snow storm.
UK retail offering an undervalued opportunity
The UK retail sector will be in focus again on Friday after the release of the closely monitored post-Christmas industry data from the BRC. Fears that retailers underwent some deep discounting to offset a feared consumer slowdown over Christmas were well placed. Non-food price dropped 2.1% y/y, offering consumers some respite from the 1.8% rise in food prices. Slashed prices should have helped sales but will come at the expense of profit margins. Interestingly, investors seems to viewing the UK retail sector as an undervalued opportunity. This week the FTSE 350 Retail index hit its highest level since April 2016.
Euro buoyant before eurozone CPI data
The recent rise in the euro off the back of surveys showing strong activity in service and manufacturing sectors will be tested by key inflation data on Friday. The rate of inflation is a key factor in the speed at which the European Central Bank disembarks from its QE policy that helped drive demand for risky assets and kept interest rates low. CPI is expected to dip slightly to 1.4% from 1.5%, while core prices are expected to rise to 1.0% from 0.9%. A better than expected inflation reading could be what’s need to help push the euro over the edge to a three-year high.
Dollar recovery muted before NFP
Volatility in the dollar around non-farm payrolls has been muted, like other areas of the market for the best part of a year. Spikes of 150 pips in USDJPY or EURUSD in response to NFP have been replaced with 30 pip moves. We expect another low-vol reaction to US unemployment today. The Fed appears to be on a set course of gradually rising rates, in large part because unemployment is at such low levels. A non-data dependent Fed means the data doesn’t matter like it once did.
Opening Calls
FTSE 100 to open 5 points lower at 7690
DAX to open 20 points higher at 13,187
CAC to open unch at 5413