Headlines

* Dollar in doldrums as euro nears 9-month peak, yen bounces

* ECB policymakers spar on rate outlook beyond February hike

* Gold flat as investors await data, oil steadies after hitting 7-week high

* Asian shares climb in the wake of tech-stock fuelled gains

FX: USD printed a “doji” candle on the DXY with the close virtually unchanged from Friday. The index remains below 102 with the recent low at 101.52. Treasury yields have moved higher in recent days. The 10-year Treasury yield, the proxy for global borrowing costs, is back above 3.50%. It bounced off the 200-day SMA, now at 3.34%.

EUR eked out minimal gains. It rebounded from support around 1.0850. This followed much chatter from several ECB officials. GBP lacked firm direction yesterday. But the major is trading just above 1.24 this morning. USD/JPY popped higher for a second day to the topside of the bear channel. But yen buyers have emerged to take the pair down to 130.  The positive risk tone boosted AUD. It has risen above 0.70 again with the recent cycle high at 0.7063. USD/CAD has hit support around 1.3350 with eyes on tomorrow’s BoC meeting..

Stocks: US equities rallied with gains led by tech. The benchmark S&P 500 gained 1.2% with all sectors in positive territory. The index closed at its highest level in six weeks. Some technical support may have come from the dovish Waller speech on Friday. The WSJ’s Timiraos also reported that the Fed is set for a 25bp rate hike next week. Meanwhile there’s a heavy earnings slate this week. Highlights include Microsoft reporting after the close today and Tesla tomorrow. The Dow finished 0.76% higher. The tech-heavy Nasdaq advanced 2.18%. The chipmakers had a bumper day with Nvidia gaining 7.6% and AMD up 9.2%. Barclays, who have previously been bearish, upped their price target for the group.

Asian stocks were positive on the positive tech rally from Wall Street. That said, many markets are closed for Chinese Lunar New Year. The Nikkei 225 continued its outperformance and climbed above 27,000. Reports note that Japan is considering early May for a planned downgrade of its Covid policy.

US equity futures are marginally higher. Futures in Europe are pointing to a higher open (+0.3%). The cash market slid 0.75% yesterday.

Gold is making more fresh 9-month highs at $1940 this morning. US recession fears and slower rate hikes this year are supporting the precious metal. Prices had been rangebound yesterday with the dollar languishing but yields moving north.

Day Ahead – PMIs should solidify rate rises next week

We get the PMI data for the UK, eurozone and US today. This should give us a glimpse into the state of the global economy for the new year. Recent declines in energy prices and unseasonal warm weather should have given a boost to activity. Investor sentiment measures in the eurozone, like the ZEW and Sentix, rose strongly this month and point the way for the PMIs.

A 50bps February rate hike seems locked in for the ECB at its meeting next week. But decent data could see policymakers gain confidence in another half-point move in March. That would dispel the speculation about a step down in hiking gears to a smaller rise. Similarly for the BoE after last week’s strong CPI and jobs data, inline data will cement a 50bp rate hike next week.

Chart of the Day – Nasdaq above trendline resistance

Earnings releases ramp up this week with key results from ASML, Tesla, IBM and Visa. After the bell today, Microsoft is the focus with expectations for lower revenue growth and lower operating margins. The Nasdaq is up nearly 11% from its lows at the start of the month as investors bet on a less aggressive Fed. Risk markets are more confident of a soft landing. This could mean a more positive outlook for rates and inflation. It also helps the expectations for growth and tech companies.

The Nasdaq pushed up above the long-term downward trendline yesterday. Next resistance is the 200-day SMA at 12,049. The December high is at 12,166. Former trendline resistance become support around 11,650.