Some potential market movers today. Earnings numbers from Goldman Sachs and JPMorgan Chase, as well as numbers from both Intel and Johnson & Johnson. Individually these are important companies, taken together their results will start to clarify the picture for this earnings season. With regards to Goldman Sachs and JPMorgan Chase, if they post upside surprises like Citibank did then that will be a boost to risk. Intel’s numbers will give us an insight into the technology sector and plans for future corporate investment. But that’s not all, we have retail sales today, and perhaps most importantly, we have the testimony of the chairwoman of the Federal Reserve.
If Yellen does any less than reiterate her dovish view that there’s still plenty of slack in the labour market, traders will view it as an implicit change in the monetary policy outlook, perhaps a hint that the first hikes will be earlier than current expectations – think ‘exit strategy’. That would be a negative for risk as US markets look fully priced, and they have to be vulnerable to any changes in monetary policy. Make no mistake, that scenario would be bigger news than anything else that is likely to happen today.
GBP/USD bounced nicely off former resistance, turned support on the back of the inflation numbers which have just come out this morning, and EUR/GBP pulled sharply back from the highs (the resistance area I identified yesterday). Consumer prices rose to 1.9%, above the consensus expectations of 1.6% after May’s 1.5% number. Again… read exit strategy. Tomorrow’s employment numbers could add further fuel to sterling strength if the unemployment rate is below consensus.
Markets today should generally be cautious, in front of the big data. Traders are likely to pare their positions in order to manage risk, and wait to assimilate new information. The key is likely to be Yellen. While markets ended yesterday on a positive note, it’s worth pointing out that the Bank of Japan has lowered it fiscal year2014 forecast, and some banks have lowered Q2 estimates for the Eurozone. There’s ample liquidity out there, but it’s not all rosey in the garden. If the markets weren’t already so high, I would view this as the kind of environment where there’s just enough information out there to keep the sceptics cautious about markets, and enough looseness in financial conditions to allow the markets to keep grinding higher. But let’s wait and see what happens later on today!