Market News & Insights
2 February 2018

Double Double, Toil and Trouble

We saw a pattern emerge in January where the US dollar found it difficult to gain any traction, falling to three year lows against a basket of currencies. This was somewhat surprising given we saw yields go the opposite direction. February looks to be continuing in a similar manner, as the dollar fell back towards those three year lows again after some respite earlier in the week. While the US 10 year yield nearing four year highs, peaking at 2.79 percent, with the 30 year above 3 percent. These higher yields aren’t only confined to the US however as we are starting to see a shift in Europe too, which has helped push the euro back towards its recent three year peak above 1.25. The five year German Bund rose above zero for the first time since 2015, and looking at the majority of European 10 year government bonds, they are all significantly higher than where they were a month ago.

The higher rates are now starting to attract the attention of traders, who up to this point seem quite happy to continue push equities to/beyond their all-time highs. This global rise in equities coupled with the crytocurrecny phenomena which saw the likes of bitcoin grow 1300% last to peak at $19,666 in December, only to come crashing down to below $8500 this morning. Will we see something similar in the stock markets? And will this resurrect the emergence of safe haven currencies again?

Today being the first Friday of the month, we have the all-important Non-Farm Payroll figure. Analysts are expecting the figure to rise from last month’s 148K to 180K jobs for January, with the unemployment rate forecasted to be unchanged at a 17-year low of 4.1 percent. We will also be keeping a close eye on the average hourly wage growth figure, which helped soften the impact of last month’s poor headline figure. Currently the market is pricing in an 83 percent chance of a March rate hike, so we would need to see some poor figures here for that to change.

In the UK and Brexit was again the word on everyone’s lips. Brexit Minister David Davis tried his best to reassure parliament that the governments forecasts are creditable and that like other bodies found very difficult to correctly analysis, using the unemployment figure as an example. This is on the back of the leaked Brexit analysis which suggested the impact of a strict migration regime would do more harm than good to the British economy. Sterling this morning is down against both the euro and dollar, and we have seen in the past that a negative sentiment around Brexit comes with a weaker pound.