Retreat After Recent Record Highs

Equity markets in Europe eased back early Friday after hitting fresh all-time highs during the previous day’s session as heads of both the European Central Bank and Federal Reserve indicated a firm belief that rate cuts are imminent.

The DAX knocked out a fresh intraday high above 17,879, closing at 17,842 for a record close. The Stoxx 600 breached 500 points for the first time. Even the FTSE 100 got in on the action to test the 7,700-resistance level once more before easing off – again failing to sustain any bid above this level.

Wall Street also rallied strongly; the S&P 500 was up 1% for another fresh closing high, whilst the Nasdaq jumped 1.5% to also mark a new high, though it just missed out on a record closing high. Meta, Nvidia and Coinbase closed at records.

The ECB

Between the ECB’s policy meeting and Jay Powell’s comments before Congress, there is real confidence cuts are on their way. Treasury yields fell further with the 10yr to a month low of 4.07% and the dollar extended its run south to bolster risk further. Gold pushed up further as the dollar and Treasury yields fell, whilst oil advanced again to move clearer away from its 200-day line.

"We will know a little more in April, but we will know a lot more in June". Those words from European Central Bank president Christine Lagarde, spoken during yesterday’s press conference after the latest meeting at which policymakers left interest rates on hold, signalled very strongly that rate cuts will be coming in June.

Inflation and Growth

Growth and inflation projections were revised down...markets moved to price in additional easing this year than before the meeting. Markets had priced roughly 90bps before the statement and moved to about 100bps after it came out. 

The euro was quite volatile after the meeting - EURUSD fell a bit to start with, then rallied, then came back down a touch overnight hitting its best since mid-January.

The Fed

Of course, it wasn’t just the ECB in action. Fed chair Jay Powell was back on Capitol Hill in Washington for the second day of testimony before Congress, indicating that it won’t be long before the central bank begins easing. 

He said: “We’re waiting to become more confident that inflation is moving sustainably at 2%. When we do get that confidence, and we’re not far from it, it’ll be appropriate to begin to dial back the level of restriction”.

Elsewhere...

Today sees the latest nonfarm payroll report from the US. We talked yesterday about potential signs of cooling - ISM’s manufacturing and services employment components are both in contraction, whilst the quits rate is falling.

Quits rate – a sign workers are staying put and less confident about finding work elsewhere.

Keep your focus on the average working week - the last NFP report showed a work week of 34.1 hours, which is in recessionary territory. The headline number is expected at 198k vs the thumping 353k last time, whilst average earnings are seen at +0.2%, and unemployment at 3.7%.  

Dollar wobbling - DXY tests the 102.70 lows from late January

USDJPY – yen extends rally to reach its best since early Feb

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