Markets Push Higher Ahead of Bernanke Congressional Testimony; FTSE 100 Seen Vulnerable above 5900

Equity markets and high yielding currencies moved higher overnight as traders focus on the European Central Bank’s (ECB) three-year plan to disburse loans to private banks in the region as a means for providing liquidity and solving some of the funding problems that are present in the Eurozone.  Also seen supporting the uptrend was the stronger Industrial Production figures out of Japan and improved retail sales in Australia for the month of January.  Ahead today, the main story will be the congressional testimony in the US from Federal Reserve Chairman Bernanke.  The positive sentiment continues in most of the asset markets and this is weighing on the US Dollar and safe haven assets in general.

In the UK, macro data and corporate earnings are mostly second tier, with Consumer Credit, M4 Money Supply, and Mortgage Approvals on schedule.  Earnings will come from Weir Group, International Consolidated Airlines, and Taylor Wimpey. None of these are expected to create much volatility during the London session and so futures in the FTSE 100 are currently little changed.  Yesterday, the main headline in equities was the 9.8 percent yearly gain in revenue at Standard Chartered (to $17.6 billion, with net profits of $4.75 billion).  The rise in profits is a new record for the company and given that is stock is in the vulnerable financial sector, the numbers were viewed as particularly impressive.

Markets in Asia are showing gains, for the most part, following the positive Consumer Confidence survey in the US and the positive stories seen in the Eurozone.  The positive Industrial Production report was positive for steel companies JFE Holdings and Nippon Steel, which posted rallies on the session.

Macro data will be centered on the US again today, with the Gross Domestic Product (GDP), Personal Consumption Expenditure (PCE), Chicago PMI and MBA Mortgage Applications all coming out before the start of New York trade.  Later in the session, we will see the Fed’s Beige Book released before the final event of the day, which is Ben Bernanke’s congressional testimony.  With all of these reports scheduled, it is hard to know which will garner the most attention.  But without any significant deviations from market expectations, markets will probably choose to focus on the PCE data, as this is the Federal Reserve’s preferred measure of inflation.  If the figures can remain low, we will be unlikely to see any changes in analyst forecasts in terms of interest rate policy.  Currently, there is no change expected in interest rates this year but one potential variable would be an uptick in consumer inflation data.

 

Technical Analysis:

The NZD/JPY is pushing higher along with our generally negative view of the Japanese Yen.  Prices are seen in an ascending triangle, with prices now seen breaking resistance at the double top previously in place at 67.95.  Shorter term, this is a bullish sign, as we are seeing consistently higher lows on the hourly charts.  A downside break of 67.50 reverses this view and will probably result in a downside break in the triangle.

The FTSE 100 broke to new highs but we are not particularly encouraged by the break, given the lack of follow through and the diverging indicator condition on the MACD.  Momentum is clearly stalling at this stage, so we continue to take a contrarian view and will sell any bounce to 5920.

RECOMMENDED