Equity investors are on alert on Friday morning. Last night’s U.S. session saw a spot of weakness that left the Dow Jones Industrial Average almost 100 points lower after the latest bear attack on major indices that are inarguably overbought. A spot of delayed déjà vu may be in order though. Thursday’s close was quite like Tuesday’s when markets closed lower, but immediately bounced via futures. A massive rally then ensued in the next cash session. Right now Nasdaq, Dow and S&P contracts are 0.2%-0.4% better.
When, not if
The watch is on as to whether another advance can be eked out though any rallies here face diminishing returns relative to earlier this month. Consolidation looks necessary, though macroeconomic signals elsewhere are offering impetus across the global shares on Friday—see below.
Asian stock markets may be at a slightly earlier stage in their momentum cycle. Their run of record highs continued overnight. MSCI APAC (excluding Japan) eked out another incremental advance on top of Thursday's peak for a total move of 1.3% this week as the remarkable pace of world shares at the start of 2018 looks to maintain momentum into a third week.
China data helps
Per Thursday, Asian equities saw a bonus tailwind from Chinese economic releases. A breakdown of quarterly growth data out a day ago showed service industries in the lead. The sector grew 8.3% year-to-year accelerating from Q3's 8% pace. Services accounted for almost half the economy's quarterly growth, underscoring robust conditions for technology and consumer businesses that are supportive of Asian stock markets. Shanghai, Seoul and Tokyo indices all inched ahead.Europe takes the baton
Hence Europe picks up the baton, with FTSE, DAX, Spain’s Ibex, Italy’s FTSE MIB and the broader STOXX gauge all in the black. The DAX has snapped higher the most as continuing strong earnings underpin its economy fuelled advance, whilst the FTSE is aided by miners that routinely perk up when China data does.
FTSE/DAXFTSE prospects may be favoured by plenty of room on the oscillators that have fully unwound during the benchmark’s drift lower since 12th January into support holding on 5th, 8th and 9th at 7690s. DAX is charging into the same top from earlier this month at 13425.
The pound is a good place to start in currencies. One of the worst retail sales readings since December 2010 has not sapped much strength of GBP/USD near recent 18-month highs, mostly shrugging off a 1.5% m/m fall vs 0.6% forecast. With a glaring absence of further attempts on those highs though – after a thin spike to 1.3942, cable looks heavy. The pound has outperformed itself against the euro in recent days, pushing to the lower bound of a 89.28p-87.99p channel last night, where the euro found support. Watch if the pound can do the same at Thursday’s 88.37p high for the euro.
USD/JPYThe yen is a tell-tale sign. A solid 46 sen higher against the dollar at time of writing shows the greenback’s long malaise has further to run. The 38.2% Fibonacci (¥111.18) of the pair’s 2016 advance is still very live, though observe any tendency for circa ¥111.30 to support as per this week.
The euro complex is buoyant elsewhere, on expectations of a more hawkish ECB, which meets next week, with possible changes in forward guidance that shift the focus to rates on the agenda. If that occurs, it would implicitly spell the end of QE. EUR/USD saw 1.2231-65 in Asia, holding off from the 1.2323 trend high on 17th January.