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Thursday February 22: Five things the markets are talking about

Yesterday's FOMC minutes suggest that the Fed is on track with its previously stated plan to continue raising interest rates this year.

To date, the Fed has hinted at three +25 bps rate increases in 2018 and two more hikes in 2019.

Note: Dealers are pricing in a March hike - the first meeting to be led by its new chairman, Governor Powell.

Wednesday's FOMC minutes noted that officials last month believed that the U.S economy was set to grow faster than when they met in December.

Ahead of the U.S open, global stocks are under pressure on a tighter U.S monetary policy, while the 'mighty' dollar remains somewhat supported with Treasuries edging higher and Euro bonds slipping.

1. Stocks see 'red'

In Japan, the Nikkei share average fell overnight on across-the-board selling after U.S stocks finished in negative territory on speculation about faster U.S interest rate hikes. The Nikkei declined -1.1%, while the broader Topix fell -0.9%.

Down-under, Aussie shares reversed earlier losses to finish slightly firmer overnight, with financials and materials leading the gains as investors worked through a flood of earnings reports. The S&P/ASX 200 index rallied 0.1%. In S. Korea, the Kospi fell -0.6% with Samsung again providing the most pressure to stocks.

In Hong Kong, equities pulled back from Wednesday two-week high hit as investors took profit from sectors such as tech and financials. At close of trade, the Hang Seng index was down -1.48%, while the Hang Seng China Enterprises index fell -1.25%.

In China, stock indexes scored their best single-day gains in more than 18-months, as investors played catch-up buying after the weeklong Lunar New Year holiday. At the close, the Shanghai Composite index was up +2.17%, while the blue-chip CSI300 index was up +2.10%.

In Europe, regional indices are trading lower across the board following on from a lower close stateside Wednesday.

In the U.S, stocks are set to open in the 'red' (-0.1%).

Indices: Stoxx600 -0.8% at 378.0, FTSE -1.0% at 7207, DAX -1.0% at 12349, CAC-40 -0.5% at 5276, IBEX-35 -0.1% at 9814, FTSE MIB -0.6% at 22526 , SMI -0.7% at 8930, S&P 500 Futures -0.1%

2. Oil prices fall on firmer U.S dollar, gold little changed

Ahead of the U.S open, oil prices trade under pressure, pulled down as a firmer dollar outweighs a report of a decrease in U.S crude inventories.

Brent crude futures have fallen -48c, or -0.7%, from Wednesday's close to +$64.94 per barrel. U.S West Texas Intermediate (WTI) crude futures are at +$61.15 a barrel, down -53c or -0.9%.

Yesterday's API data reported an unexpected drop in U.S crude oil inventories by -907k barrels to +420.3m barrels for the week to Feb. 16.

Nevertheless, despite yesterday's inventory fall, oil markets remain well supported due to demand-growth coinciding with production restraint led by the OPEC and Russia.

Gold prices are trading relatively flat, weighed down as the FOMC minutes showed U.S policymakers remain somewhat confident in the need to keep raising interest rates. Spot gold is largely flat at +$1,323.73 an ounce, a day after it fell to its lowest in a week at +1,322.20. The precious metal has dropped -1.7% so far this week.

3. Sovereign yields mixed

Yesterday's FOMC minutes noted that U.S officials saw few signs of a broad pickup in wage growth and agreed that the gradual rate hikes approach was still appropriate.

The yield on U.S 10-year Treasuries has dipped -2 bps to +2.93%.

In Germany, the 10-year German Bund yield has dropped slightly to +0.71% after the release of weaker-than-expected Ifo business confidence data (see below) for February from +0.73% before.

In the U.K, the 10-year Gilt yield 10-year yield climbed +1 bps to +1.555%.

4. Dollar maintains its firmer tone

The USD remains a tad better bid in the aftermath of yesterday's FOMC minutes, which has helped to push Treasury yields higher.

The 'buck' caught a bid as the majority of Fed members viewed that stronger U.S economic growth would raise the likelihood of further rate hikes.

GBP/USD (£1.3863) has continued its soft tone for the fifth consecutive session as UK Q4 GDP was revised lower in its second reading for its slowest annual pace since in five-years.

The EUR/USD (€1.2290) remains steady, holding just below the psychological €1.23 level but in the middle of this years +400 pip trading range.

Expect the market to focus on ECB Jan minutes for clarity and timeline on potential forward language change (07:30 EDT).

5. German business sentiment posts sharp drop, U.K GDP revised

Data this morning showed that German business sentiment dropped in February from last month's record high, as manufacturers scaled back their expectations for the next six-months.

The Ifo's business climate index fell to 115.4 points in February from 117.6 points in January. The market consensus was looking for a 117.0 print.

But despite the decline, Germany - Europe's largest economy - had a good start to 2018. GDP is expected to expand at a quarterly rate of +0.7% in Q1.

Elsewhere, in the U.K, Q4 GDP was revised lower in its second reading for its slowest annual pace since 2012 - y/y it was +1.4% vs. +1.5%e.

The British pound has moved lower against the U.S dollar during the European trading session, hitting 1.3870, following softer than expected fourth fiscal quarter GDP numbers from the United Kingdom. The GBPUSD pair now trades below the key 1.3901 level, with intraday sentiment turning further bearish after fourth quarter UK GDP missed estimates with a +0.4 percent reading. Moving into the U.S trading session, the 1.3873 level remains critical support, with heavy losses expected below this key level.

The GBPUSD pair remains intraday bearish while trading below the 1.3901 level, critical support is located at the 1.3873 and 1.3835 levels.

If the GBPUSD trades above the 1.3901 level for an extended period, price may rebound towards the 1.3938 and 1.3968 resistance areas.

Should the USDJPY pair break back above the 107.60 level, further upside towards the 107.91 and 108.30 levels seems possible.
If the USDJPY pair declines back below the 107.30 level, we may see further losses towards the 107.00 and 106.60 support levels.

The euro is unchanged in the Thursday session. Currently the pair is trading at 1.2287, up 0.03% on the day. On the release front, German Ifo Business Climate dipped to 115.4, short of the estimate of 117.1 points. This marked the lowest level since September. Later in the day, the ECB releases the minutes of its January policy meeting. In the US, unemployment claims is expected to remain unchanged at 230 thousand. On Friday, Germany releases Final GDP and the eurozone publishes Final CPI.

The Federal Reserve released the minutes of its January meeting, and as expected, the benchmark rate was left unchanged at a rate between 1.25% and 1.50%. The message from policymakers was that further rate hikes could be in the cards, due to strong economic conditions in the US. In the words of the minutes, policymakers "anticipated that the rate of economic growth in 2018 would exceed their estimates of its sustainable longer-run pace and that labor market conditions would strengthen further". At the December meeting, the Fed penciled in three rate hikes in 2018, and there was no reference to a quicker pace of hikes in the January minutes. As for inflation, the minutes did not reveal any concern. Most Fed members were of the opinion that inflation would rise towards the Fed target of 2 percent.

This week's German and eurozone indicators have pointed downwards, and the euro has responded with a soft week, losing 1.0 percent. The well-respected ZEW economic sentiment reports dropped in February in Germany and the eurozone, although both indicators managed to beat their estimates. Eurozone consumer confidence remains weak, and the indicator dipped to zero, shy of the forecast of 1 point. On the manufacturing front, eurozone and German PMIs both fell in February and missed the forecasts. At the same time, both releases pointed to strong expansion, a reflection of strong global demand for European products.

Crude oil upward trend resumes, trading above 61 after reaching 62.50. Crude oil is contained between support at 58.07 (09/02/2018 low) and resistance at 63.67 (10/01/2018). The technical structure suggests short-term upside moves.

In the long-term, crude oil has recovered after its sharp decline last year. However, we consider that further weakness is very likely. For the time being, the pair lies in an upside trend since June 2017. Support lies at 42.20 (16/11/2016) while resistance is located at 77.83 (20/11/2014). Crude oil is trading largely above its 200 DMA.

Silver is maintained at the range of 16.45 after reaching 16.78 yesterday. Heading closer to hourly support at 16.27 (07/02/2018 low) while hourly resistance remains at 16.98 (15/02/2018 high). The technical structure suggests further short-term decrease.

In the long-term, the trend remains negative/ sideways. Further downside is very likely. The pair is trading below its 200 DMA. Resistance is located at 21.58 (10/07/2014 high). Strong support can be found at 11.75 (20/04/2009).

Gold is trading further down, approaching hourly support at 1306 (04/01/2018 low). Hourly resistance at 1366 (25/01/2018 high) is maintained. The technical structure suggests further downside moves.

In the long-term, the technical structure suggests that there is a growing upside momentum. A break of 1'392 (17/03/2014) is required to confirm it. A major support can be found at 1'045 (05/02/2010 low).

Bitcoin upward trend stops following slight decrease above 10000. Expected to resume its rise. Hourly support remains at 9022 (30/11/2017 low) while resistance is given at 12130 (18/01/2018 high).

In the long-term, the digital currency has had an exponential growth but also presented important downturns. There is decent likelihood that the currency could stabilize between 7'000 - 12'000 in 2018. Bitcoin is trading above its 200 DMA (6'500 range).

EUR/CHF recovery is slowing down at 1.152. The pair is trading between hourly support and resistance at 1.1487 (12/92/2918 low) and 1.162 (07/02/2018 high). The technical structure suggests further short-term upside moves.

In the longer term, the technical structure has reversed. Strong resistance is given at 1.20 (level before the unpeg). Yet, the ECB's slowing QE program is likely to cause buying pressures on the euro, which should weigh in favour of the EUR/CHF. Support can be found at 1.0234 (20/04/2015 low).

EUR/GBP strong bounce continues, breaking hourly resistance at 0.8846 (12/12/2017 high) and distancing hourly support at 0.8774 (11/12/2017 low). The technical structure suggests further short-term upside moves.

In the long-term, the pair has largely recovered from 2015 lows. The technical structure suggests further upside pressure. Strong resistance can be found at 0.9500 (psychological level) while support remains at 0.8304 (05/12/2016 low). The pair is trading below its 200 DMA.