- US Indices Target More Record Highs on the Open;
- USD Under Pressure Again After Dead Cat Bounce;
- EUR and GBP Buoyed By PMI Data.
US equity markets are currently on course to open at record highs again on Thursday, continuing the positive start to the year and coming on the back of strong gains in Asia and Europe.
With tax reform now over the line, attention will likely turn to earnings season as companies start reporting on the fourth quarter over the next week. Investors appear quite optimistic about earnings after another strong showing in the third quarter and will likely be keen to know what impact the new tax reform measures will have on the bottom line. Prior to this, we have plenty of economic data to focus on with ADP non-farm employment data, services PMI, jobless claims and crude inventories all due today, ahead of tomorrow’s December jobs report.
The US dollar is once again coming under pressure on Thursday following its brief recovery a day earlier, with the FOMC minutes providing an additional short-lived boost before the decline resumed. The minutes themselves in reality provided little new insight, with the acknowledgement that tax reform could provide an economic boost which contributed to raised forecasts, likely spurring the move higher in the dollar though.
Overall the minutes appeared quite neutral which may explain why the dollar is struggling to hold onto yesterday’s gains. With the composition of the FOMC changing over the coming months, it’s difficult to take too much of value away from the minutes. Particularly when members acknowledge that the economic benefit of the tax cuts is unknown, with a number of people outside the central bank arguing that it will be small and short-lived.
A slight improvement in PMIs across the eurozone and the UK this morning has also boosted the euro and pound, respectively, a little which is also likely weighing on the dollar. The eurozone composite PMI rose to 58.1, above expectations, signalling another quarter of strong growth for the region and good momentum heading into 2018. This was helped by a similar beat in the German composite PMI, which rose to 58.9, offsetting a slight decline in France, although across the board the numbers are very encouraging.
The PMI numbers coming from the UK this week have been a little weaker but the services sector did not disappoint which has given a leg up to the pound. The services sector – which is by far the biggest and most important, making up more than three quarters of the economy – saw a slight uptick in the PMI to 54.2 in December, which is still well below pre-Brexit referendum levels but comfortably in growth territory.
