Thursday has proven to be a very pact day of economic news and market reactions.
For me, the charts became more interesting as soon as the Bank of England announced that they were raising the bank rate by 15bps to 0.25%. The nominal figure is almost irrelevant, but the start of a rate hike cycle could be interesting while the BoE keeps Quantitative Easing at 895bln. The committee’s focus is the medium-term inflation outlook and should the Omicron variant cause much wider disruptions the bank now has some wiggle room to undo the rate hike and become more accommodative again. If, however, the variant is fast spreading and less deadly the BoE has made the first move in what could be a prolonged tightening of monetary policy. The BoE governor Bailey said after the decision that the labour market is very tight now and that there are signs of more persistent price pressures.
The algos that react to this type of news moved the markets by 70 pips within the first minute, so any trader hoping to jump on a quick trade would have been too slow to do so manually and would have had to risk as much to the downside, should they have re-priced lower. Having retraced half of that rate hike move and coming back into the 1.3300 zone it will be interesting to see how bullish the institutions remain for the rest of the year.
Currently, the ActivTrader sentiment indicator shows more retail traders on the platform moved into a bullish position today on the GBPUSD and the price action on the hourly chart is above all 3 moving averages so momentum may be on the pound side. The UK is now also coming under increasing pressure from the Omicron variant and the travel restrictions being imposed by the likes of the European Union.
The most recent data shows that there has been a spike in infection rates though the data is incomplete, that the UK is testing far higher than 12 months ago and that hospital admissions have started to turn higher but are still within levels seen at the start of the flu season. Due to the impact of Plan B on businesses, Chancellor Sunak has cut a business trip to the US short and will return to speak with UK business leaders.
The next central bank up was the European Central Bank. They kept rates unchanged as expected and signalled that they are expecting to reduce their purchases under PEPP. However, the governing council will increase the net purchases of the APP to €40bln and €30bln over the coming 2 quarters, up from €20bln previously. Where reducing PEPP is seen as being more Hawkish, and something that would support the euro, the additional APP and open-ended timeframe is still Dovish for the euro.
This was reflected in the price action on the EURUSD today which is now basically flat for the day. ECB President Lagarde in her press conference reiterated that it is very unlikely that rates will be raised during 2022 adding to the divergence in monetary policy between the UK and USA.
US data started off with US building permits which grew in November. Housing starts were up 11.8% and US continued jobless claims came in under expectations. The US Initial Jobless Claims data was higher than expected at 206K and above the previous weeks reading of 184K, which was revised higher to 188K. Other bad news came from the Philly fed Business index which dropped by >50% to 15.4 and missed expectations by a huge margin. US industrial production for November came in under expectations as did the Flash PMIs, which is adding up to be a lot of worse than expected news on top of the miss in US retail sales yesterday. The US dollar index has broken out of the previous consolidation pattern to the upside yesterday and to the downside today. Which means it is flat for the week.
The S&P500 made a new all-time high before retreating -0.30% but is still green for the week. As the London session closed the 16050 level on the Nasdaq was the level of focus after the US tech index had dropped from around 16,400 for the second time this week.