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The bid for global equities continues, led by the United States on the back of renewed strength in the ‘Trump Trade’. Last week saw solid gains not only in the U.S., but in the UK and Japan as well, while in Europe the DAX managed to recoup early week losses to close near unchanged. Global risk appetite for stocks is a theme which continues to hold steady in the absence of a perceived reason for market participants to sell.
In the U.S., this coming week we have very little economic data to start, with the only notable event coming Tuesday when Fed Chairwoman, Janet Yellen, will appear before the Senate Banking Panel at 15:00 GMT time. The more highly anticipated event, though, is her semi-annual testimony to the House Panel on Wednesday at 15:00. The January FOMC meeting held a dovish tone, which buoyed equities, and while the Fed still wants to keep the market prepared for another rate hike at some point, it’s unlikely given the proximity of her testimony to the last FOMC meeting that Yellen will say anything new which will spark substantial volatility. However, with that said we should always be prepared for the unexpected. Further adding to potential for volatility on Wednesday are the releases of the Consumer Price Index (CPI) and Advance Retail Sales at 13:30 GMT. The back half of the week cools off with little market-moving data on the docket.
Looking at the technical picture, the S&P 500 once again finished in record territory. There is no interest on this end in fighting the trend. But with that in mind, we still favor fresh longs on dips over chasing momentum. There is a top-side trend-line extending back to the Feb ’16 lows, which could act as minor resistance (~2318). The first level of support comes in at 1/26 high of 2301, then around the 2285 mark, which is last week’s low and near the rising trend-line from the 12/30 swing low.
S&P 500: Daily
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The FTSE 100 posted nice gains last week, and is poised to extend those gains barring a sharp rally in sterling. Looking at the calendar, it’s a light week for data outside of the release of the Consumer Price Index (CPI) on Tuesday at 9:30 GMT. It could be a technically driven week and depend on shifts in sentiment regarding the pound. There is a strongly negatively correlation of 83% over the past month between GBP/USD and the FTSE. What’s bad for the price of sterling is good for the market, as the FTSE 100 index is primarily made up of multi-national corporates who earn the majority of their profits outside the borders of the UK. Looking at the footsie in a bubble, the neckline of a bullish inverse head-and-shoulders pattern was triggered at the end of the week. The size of the pattern points to a measured move equaling the record highs at 7354. What would likely derail the current trend is a surge in sterling, but with little data on the docket, and barring any ‘Brexit’ news of substance, this doesn’t appear to be the most likely scenario.
FTSE 100: Daily
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After a couple of weeks of lackluster trade, the Nikkei 225 surged on Friday to finish at its highest level since January 27. Data is fairly light next week once we move past the first couple of days. Sunday, at 23:50 GMT, Japan will release preliminary Q4 Gross Domestic Product data. Another potential market-mover comes in the early hours on Tuesday at 1:30 GMT, when China releases inflation data for the month of January. Turning to the technical landscape, the Nikkei appears to be undergoing a period of consolidation after the late-2016 surge. It is unclear whether more backing-and-filling will take place, but if it does it could build a symmetrical triangle which would help lay the foundation for another strong move higher. Whether it takes more time to consolidate or not, the Nikkei looks poised for higher prices in the not-too-distant future. A break above the Jan 5 high of 19615 opens the path up towards the 20k mark not seen since December 2015. Keep an eye on the Japanese Yen for further weakness to accompany strength in the Nikkei.
Nikkei 225: Daily
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---Written by Paul Robinson, Market Analyst
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