Thursday Focus: Is another stock price pull-back beginning?

See-saw sentiment in recent U.S. stock market trading could be a tell-tale sign

Signs of exhaustion

See-saw sentiment in recent U.S. stock market trading could be a tell-tale sign that the rip-roaring start to the year in global markets could be drawing to a close. Another sign of this is that whilst positive Asia Pacific news ought to have been pivotal for Thursday’s European session, shares have started off mixed.

The FTSE is extending a losing streak into a fourth day, with Spain, Italy and France flat or slightly lower. A 4% fall by Associated British Foods is a key weight on the UK benchmark. Despite another strong showing at Primark, ABF’s guidance downgrade for its sugar business—but without quantifying the impact on the bottom line—has spooked investors.

There are others signs that bullish sentiment is near exhaustion, though Germany’s DAX, which has been having a firmer week, is ignoring the memo, with a 60 point rally at time of writing as broker upgrades for large German industrials performing well in view of benign economic conditions, keep rolling in.

U.S. markets point lower after huge rally
Yet U.S. stock index futures were also pointing to a lower Wall Street start. It follows a fightback by bulls on Wall Street overnight which left indices there markedly firm by close—DJIA closed up 322 points—despite a spate of ambivalently received earnings, such as those from Goldman and Bank of America. The pull of the Dow’s latest 1,000-point increment offered more momentum than bears could withstand in the end. But they may have their day on Thursday, even though robust earnings expectations and little sign of an economic downturn, all indications point to stock markets adhering to the global trend higher. U.S. earnings highlights on Thursday include earnings reports from Bank of New York Mellon and American Express.

Asia buoyed by China data

The broadest index of shares in the entire region, excluding Japan produced by MSCI, hit the latest in a string of all-time highs overnight. One trigger came out of China, enabling Shanghai shares to add 0.9 percent, buoyed by data showing the economy grew 6.8% on the year, the same as the prior quarter and better than expected. Much of the rest of Asia also accentuated the positive with Nikkei closing a little lower though that’s after eking out another peak above 1991 levels topping a recent one.

Currencies: dollar attempts to hold ground

In currencies the lack of major economic events left on the agenda for Thursday is leaving traders to their own devices. The dollar is attempting to hold ground in USD/JPY, tracking resilient U.S. yields and the risk-on mood, though the greenback has yet to definitively escape 111.18, a key pivot formed of 38.2% of the up move in 2016.

Having opened at $1.2184 in Europe, after falling sharply late in NY as US yields spiked higher, EUR/USD was last at $1.2218. It drifted back to 1.2204 at one stage before easing again late in the Asian morning. A bearish outside reversal from a 3-year high is in play, though the rate is within distance of kick-off lows at $1.2225 that preceded an attack on $1.2287 on Wednesday. Failure here would suggest no real support before $1.326s, where the current up leg began.

Against the pound, the dollar’s underlying weakness remains very much in evidence. After a stable Asian session for cable it is stymied by $1.3835, near Wednesday’s European daily close, which matches the start-off point of the last uptrend preceding the Brexit vote. Cable is looking heavy, though may not see much fundamental disincentive to hold near 18-month highs before Friday’s Retail Sales data.

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