European Open: Fed Evans thinks they need to go beyond ‘neutral’ rate

Asian Indices:

Australia's ASX 200 index rose by 63.8 points (0.9%) and currently trades at 7,176.30
Japan's Nikkei 225 index has risen by 149.18 points (0.56%) and currently trades at 26,808.93
Hong Kong's Hang Seng index has fallen by -145.01 points (-0.7%) and currently trades at 20,457.51
China's A50 Index has fallen by -136 points (-1.02%) and currently trades at 13,194.40

UK and Europe:

UK's FTSE 100 futures are currently up 2 points (0.03%), the cash market is currently estimated to open at 7,520.35
Euro STOXX 50 futures are currently up 1 points (0.03%), the cash market is currently estimated to open at 3,742.51
Germany's DAX futures are currently up 6 points (0.04%), the cash market is currently estimated to open at 14,191.94

US Futures:

DJI futures are currently down -60 points (-0.18%)
S&P 500 futures are currently down -55.5 points (-0.44%)
Nasdaq 100 futures are currently down -11 points (-0.27%)

Hawkish comments from Fed Chair Jerome Powell saw a slight lift in the US dollar, as he reinstated his beliefs that they can fight inflation without creating a hard landing for the US economy. The Fed’s Evans went a hawkish step further by suggesting the near-term neutral rate is likely higher than the longer-term one, and that the Fed will likely go ‘beyond’ the neutral rate to tame inflation. Evans estimates that the neutral rate is between 2.25% - 2.5%, which suggests Evans sees rates at 2.72% or higher to tame inflation. However, he thinks that 50 bps hikes may be done by September before they reduce to 25-bs increments.

This has seen a bid for the US dollar early Asia and send currencies across the region slightly lower. Today’s moves in Asia appear to be tied to the US dollar, as the rise in dollar bids this part hour can be seen across several major pairs, alongside emerging FX.

AU wage data misses the mark

It’s still quite a novelty that RBA are in hiking mode, given their stubborn reluctance to hike unlike their peers. So it came as a disappointment when today’s wage data, the missing part of the puzzle, undershot expectations. Rising just 0.7% q/q and 2.3% y/y – below 2.5% expected. It’s unlikely to deter the RBA from hiking at their next meeting, but a 40-bps hike now appears less likely. AUD/USD puled back to 70c as it also grappled with the stronger US dollar.

GBP/CAD in focus ahead of UK and CA inflation data

GBP/CAD formed a 3-day bullish reversal called a Morning Star yesterday, which now sees it bac above the 2019 low. A bullish divergence on RSI has formed on the daily chart, and prices are consolidating in a tight range near yesterday’s high, although the weekly R1 pivot point is capping as resistance.

We anticipated that prices could break higher should UK inflation come in strong today, or hold above the 10-day MA and 1.5926/37 support zone should prices instead retrace first. Keep in mind that Canadian inflation data is released at 13:30, so the ideal outcome for a bullish move is stronger than expected UK inflation, accompanied with weaker Canadian inflation. Next major resistance level is around 1.6200.

FTSE: Market Internals

The interim target of 7500 was met and exceeded with a high of 7538, which leaves the 7600 target still up for grabs.

FTSE 350: 4183.88 (0.72%) 17 May 2022

253 (72.29%) stocks advanced and 86 (24.57%) declined
11 stocks rose to a new 52-week high, 2 fell to new lows
26.57% of stocks closed above their 200-day average
100% of stocks closed above their 50-day average
14.57% of stocks closed above their 20-day average

Outperformers:

+ 32.89% - ContourGlobal PLC (GLO.L)
+ 7.88% - Imperial Brands PLC (IMB.L)
+ 5.91% - Centrica PLC (CNA.L)

Underperformers:

-14.9% - TI Fluid Systems PLC (TIFS.L)
-6.74% - Baltic Classifieds Group PLC (BCG.L)
-5.52% - Chrysalis Investments Ltd (CHRY.L)

FTSE 100 trading guide

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