Overnight Headlines

*Asian shares, Wall Street fall on Fed officials’ hawkish policy stance

*Surging demand drives China’s exports to record

*Treasury market stages reprieve rally as yield surge pull cash

*Dollar continues to trade heavy falling to 100-day SMA

US equities fell heavily Thursday despite some strong earnings reports as the tech rebound faded.  Growth lagged value with tech and healthcare among the losers. That meant the Nasdaq had its lowest close since October (-2.5%) while the S&P500 lost 1.4% and the Dow was down 0.5%. Asian markets are closing the week in similar vein in the red. So too European markets, though US futures have stabilised and are modestly higher.

USD slipped further yesterday, and its fall continues this morning. This would be its fourth straight day of losses. EUR hit a high of 1.1481 and is challenging that level today. USD/JPY made a fresh year-to-date low at 113.63 after closing below the 50-day SMA. GBP touched 1.3748 before closing back below the 200-day SMA at 1.3735. USD/CAD remains below its 200-day SMA at 1.2498.

Market Thoughts –Ongoing Fed hawkish drumbeat

While markets continue to yo-yo with sector rotation, the major theme is the adjustment to higher bond yields, policy normalisation and Fed liftoff. Yesterday, we had a fresh barrage of hawkish remarks from Fed officials. Evans, Barkin and Brainard all solidified expectations that rates would rise as soon as March. The latter is especially significant as she is one of the biggest doves within the FOMC.

Today is the last day we might get more signals from Fed board members before the blackout period starts tomorrow, ahead of their meeting on 26 January. Interestingly, Waller, who initially guided markets in a more hawkish direction, touched on the potential for five hikes in 2022.

Chart of the Day – Overbought GBP/USD pushes into resistance

Just released UK November monthly GDP beat estimates, printing +0.9% versus 0.4% m/m. A solid beat, though this is before the spread of Omicron. That said, the improvement sees UK GDP now 0.7% above its pre-pandemic level.

Sterling still leads the major charts this year ahead of the oil-fuelled loonie. Political noise isn’t worrying the pound while money markets currently price in around an 85% chance of a 25bp hike at the BoE’s February meeting. Of course, the dollar has sold off this week, which is its worst in eight months.

Cable’s break above 1.36 and trendline resistance has seen it push into overbought territory on the daily RSI and upper Keltner band. Resistance is the 200-day SMA at 1.3735 with late October highs above here in the low 1.38s. Support is 1.3590/00.