Choppy trade sees stocks edge higher, USD lower

Headlines

* Hamas gives positive response to Qatar on hostage release deal

* Banking concerns were stoked again after another plunge in NYCB shares

* Fed comments generally do not want to rush rate cuts

* Gold recovers modestly on easing dollar demand

FX: USD closed on its lows after selling off mildly through the session. This is unsurprising after two strong breakout days, with yields pausing for breath too. The 10-year yield is back below its 200-day SMA having been near this year’s high around 4.20%. Upside in the DXY has been capped at 104.63, a Fib level (61.8%) of the autumn decline. There is no major data this week until next Tuesday’s CPI report.

EUR rebounded off the recent lows at 1.0723. This is also the December bottom so is acting as support. Under here sits retracement support (61.8%) of the Q4 rally at 1.0712. Data reports were mixed with German factory orders strong and long-term ECB inflation expectations modestly picking up.

GBP outperformed and closed above the 200-day SMA at 1.2562. The base of the recent trading range is 1.26. BoE Chief Economist Pill commented on Monday that a rate cut was possible this year and that CPI didn’t need to be at 2% before action was taken. We get the mid-month UK data dump next week with wage growth and CPI figures.

USD/JPY has hit resistance at the January top at 148. Initial support is 146.07. Japan wage growth came in lower than expected, though November’s was revised higher. This metric is key for the BoJ outlook and policy normalisation. We may need to wait for the Spring negotiations for wages to start to move higher.

AUD found a bid as the RBA left rates unchanged but left the door open to more tightening. The bank said demand was still outstripping supply, though the growth outlook was revised down.   USD/CAD hit resistance around the January highs and Fib level at 1.3540. Markets price in roughly half as much easing through June than the US and 50bps less through year end.

Stocks: US equities eked out small gains amid choppy price action. The benchmark S&P 500 gained 0.23% to settle at 4,954. The tech-dominated Nasdaq 100 closed 0.37% higher to finish at 17,572. The Dow Jones outperformed, up 0.37% to settle at 38,521. Materials led the sector gainers in the S&P 500 with tech the laggard. Meta and Nvidia dipped from recent record highs.

Asian futures are mixed. APAC stocks traded mixed on Tuesday with Wall Street headwinds battling against Chinese market stabilisation efforts. The Nikkei 225 was muted with the downside cushioned amid earnings releases. China stock markets outperformed as sentiment was boosted by reports China’s sovereign fund will increase its ETF holdings.

Gold gained as Treasury yields came off their recent highs. Prices toyed with the 50-day SMA at $2033.

Data Review – NZ labour data stronger than expected

The just released New Zealand jobless rate was forecast to see a further rise in Q4, with the projected rate rising to 4.3% from 3.9% in the previous quarter. But it actually printed at 4.0% so much better than anticipated. Even so, it was still the highest jobless rate since Q2 2021. Higher interest rates are taking their toll on demand.

Similarly, wage growth was set to cool off having now passed its peak. Most of this loosening reflects increasing labour supply amid record migration inflows. But those figures were on the hot side too and this has given a bid to the kiwi. The major is trading around its 200-day SMA at 0.6084, but off Friday’s cycle low at 0.6038. Note that the jobs market is no longer in the RBNZ mandate. But it still acts as a gauge on how hot the economy is running.

Chart of the Day – Dollar upside breakout hits initial resistance

The greenback is up over 3.50% since its lows at the end of last year. US exceptionalism is back again. Strong data, after Friday’s blowout employment report, continued a series of other upside surprises since the middle of January. This supports the Fed on (prolonged) pause and higher for longer camp regarding interest rates. In fact, money markets are only just over 50:50 on a May cut now.

Seasonals still support the greenback with the first two months of the year traditionally strong. Next week’s China Lunar New Year could also make the market reluctant to short USD during the current tensions in the geopolitical arena. A major retracement level of the Q4 sell-off sits above at 104.63. The 100-day SMA is at 104.30 with initial support at the halfway point of the autumn downward trend at 103.86.

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