Headlines

* Japan ruling party said to be divided if Kishida seeks BoJ pivot

* Fed officials signal higher rates will be needed to contain inflation

* Strong dollar still rattles US multinational corporate earnings  

* Asian markets track Wall Street lower amid chorus of Fed speakers

FX: USD closed slightly higher after posting an “inside day”. This is where the whole day’s range is inside the previous day. It denotes consolidation. Prices on the DXY remain trapped between 102.99 and 103.82. The benchmark 10-year yield remained afloat but off earlier highs in the week. There was a lot of Fedspeak and also a significantly strong 10-year auction.  

EUR stabilised also printing an “inside day”. The 50-day SMA at 1.0702 is currently acting as support. The delayed German GDP out this morning was generally lower than expected. GBP is pushing above support at 1.2052. Its rebound from the 200-day SMA, now at 1.1943, continues. USD/JPY was choppy but found support at the 21-day SMA. The market is cautious ahead of the BoJ nominations. The Antipodeans reversed the prior day’s gains amid mild gains in commodities.

Stocks: US equities ended lower due to more hawkish Fed commentary hitting tech stocks. The S&P 500 finished lower by 1.1%. The tech-laden Nasdaq was the worst performer of the three main indices. It ended down 1.83%. The index was also weighed down by Google after a technology glitch on its new AI software, Bard, disappointed investors. Its parent, Alphabet, fell 7.4%. The Dow lost 0.6%.

Asian stocks traded mixed once more as markets focused on the hawkish aspects of the two-sided remarks from Fed officials. The Hang Seng picked up after a slow start. The index closed higher after the PBoC’s liquidity injection provided some relief. The Nikkei was subdued with a slew of earnings results influencing individual names.

US equity futures are in the green and point to a solid open. European futures are also indicating a better open (+0.4%). The cash market closed flat yesterday.

Gold was quiet as it tries to build a base above support at $1861 amid the lacklustre dollar.

Day Ahead – More speakers and US jobs data

We’ve had a mass of central bank speakers this week, as is usual after their policy meetings. The hawks and doves like to be heard, banging the drum for their side of the debate. This continues into the end of the week. The Fed comments have been hawkish warning that most members expect rates to rise above 5%. They generally see 5-5.25% as a reasonable view for the terminal rates. Some have also indicated that rates may have to stay higher for longer.

There are also more ECB speakers lined up today. The Bundesbank’s Nagel is a prominent hawk, but Cos and de Guindos are more moderate and dovish. The message from the ECB members since their meeting has been hawkish. This is a re-tuning of its poorly communicated message from last week. BoE speakers will be on the wires with Bailey and various MPC members. Will they back up their more dovish tilt from last Thursday’s meeting?

The weekly initial jobless claims data will be worth keeping an eye on. Officials are now heavily data dependent, especially on the labour market. So far, jobless claims have not shown any signs of increasing. This points to a still-tight jobs situation.

Chart of the Day – Gold edges up from support 

The yellow metal looks to be well supported around $1860 amid a quiet dollar. Buying by central banks remains resilient and a key driver. China raised its gold reserves for a third month in a row in January.

We could have printed a key reversal pattern with a new low last Friday followed by a higher close and higher high relative to the day before. Bugs hope that we are simply seeing a correction in the larger bullish long-term trend. A Fib level at $1896 is a near-term upside target. The 50-day SMA sits AT $1853.