US bourses recorded solid gains yesterday which the Asian markets have built on. This bullishness stems from a hawkish testimony by Janet Yellen, Chair of the US central bank (Federal Reserve) giving a boost to the financial sector, whose profitability will benefit from higher interest rates.
Yellen’s boost to the USD has resulted in the EUR falling lower and has kept the Pound under pressure to the benefit of both the DAX and FTSE respectively. It’s worth noting that there was a caveate in her rate-rise prepping chat with uncertainty for the US economy about how government policy pans out. The markets see March as a real possibility, but pricing in June as a given.
This morning’s focus turns to the state of the UK jobs market. With inflation on the rise, the most talked about figure today is likely be the wage growth reading, which is set to remain unchanged at 2.8%. That’s all well and good for now, but given that UK inflation could hit 3% at some point in the second half of 2017 growth needs to pick up to avoid severely pinched pockets across the country. Elsewhere the unemployment rate is set to come in at 4.8% for the fourth month in a row, while the claimant count change is expected to jump up to 1.1k having seen a surprising 10.1k drop in December.
So far the prospect of all this has been in the FTSE’s favour, the UK index rising around 15 points after the bell to edge closer to 7300. Part of that increase will be inspired by the pound’s stagnant start to the session. Sterling has fallen 0.1% against the dollar and sits flat against the euro as the currency continues to process Tuesday’s mildly disappointing, if still 32-month high-hitting, inflation figure.
In the US, it’s the second day of Fed Chair Janet Yellen’s Testimony. Other speakers include Yellen’s underlings, Rosengren and Harker. Both are expected shortly after European market close. Harker towed a hawkish line yesterday – even discussing the Fed trimming its bloated balance sheet.
With inflation in focus on both sides of the pond as growth improves against a backdrop of accommodating monetary policy, US Consumer Price Inflation (CPI) will be scrutinised in light of yesterday’s Producer Price Inflation (PPI) although expectations are for an unchanged headline figure (2.4% year on year).
Given their links to Consumer Price Inflation, US Retail Sales will be closely watched given the market’s expectations for a slowdown in headline growth but this should not be enough to take the air out of the Dollar’s wings. Ahead of the US markets open, all eyes will be on Cisco Systems Inc. and Pepsico Inc., who are expected to release earnings reports today.