After Tuesday’s massive rally the major U.S indices presented some choppy action during yesterday session, but managed to close in positive territory. Investors continued to pour back into riskier assets, backed by a better than expected GDP forecast from the Fed and improving housing data.
President Obama took the stand yesterday, commenting on his recent stimulus package. Already a year has passed since the President began to inject funds into the financial system to reduce the recession’s impact. According to his statement, even though unemployment is at high levels, the stimulus helped to prevent over 2 million job losses. President Obama claimed that the stimulus plan is on target to create or save a total of 3.5 million jobs.
It was a Fed day yesterday, as the FOMC released its closely watched minutes. According to the minutes from last month’s policy meeting, the FED now sees some light at the end of the tunnel, but is cautious about making any sudden moves to rattle the markets. Even though some policy members expressed their opinions about moving into a more tightening stance, no formal statement was given. All the members agreed that the balance sheet is extraordinary high and that measures need to be taken to reduce the high figure. Some are now calling for asset sales which could provide an income and reduce the high balance. Despite the high number, the Fed did upgrade their GDP forecast from 3.0% to 3.2% and commented that they do see the economy slowly creeping out of its dire situation.
Economic data also had an impact on the intraday session after housing starts increased 2.8 percent in January, making up for the 0.7% slip in December. Building Permits came out lower than the prior result but hit expectations at 0.62M. Industrial production also helped to boost confidence after the 12 month growth rate was up 0.9%, the first positive reading after nearly two years of declines.
Stocks climbed at the start of the U.S open and managed to stay afloat for most of the session. The S&P500 finished within an intraday range, up by 0.42%, while the Nasdaq closed higher by 0.55%. The leading sector of the day was industrials, partially backed by the improving data.
Forex
On the Forex market the Dollar bounced back, despite a positive equity market. As mentioned numerous times on the site, this year we could witness a higher U.S Dollar along with higher equities, especially as Federal Reserve members are now hinting towards the end of their monetary easing. Furthermore, fundamental data in the U.S is slowly improving while other countries are still dealing with a major recession. This could attract foreign capital into the U.S Dollar, while investors head into riskier assets.
The USD/JPY posted its largest gains yesterday, after the services index dropped at the largest rate in nine months. Over night the Bank of Japan kept its key interest rate on hold at 0.1% stating that the bank doesn’t intend to issue any new policy initiatives. Even though Japan’s economy is picking up, it is still being driven by foreign consumption. From a technical point of view, the USD/JPY confirmed its higher-low, a technical sign for the possible start of a new trend. Even though it is still too early to determine whether this new pattern will lead to consolidation or an uptrend, major stability can be seen around ¥88.10.
The Day Ahead
Looking forward the U.S and Canada will both grab the center of attraction today. Canada is scheduled to release its inflation numbers and foreign securities purchases. CPI is expected to come out at a positive 0.3%, compared to last month’s negative figure. The core figure which excludes food and energy should rise by a mere 0.1%.
Over in the U.S, the Phili index is scheduled to be release along with the leading index. Both numbers are expected to increase, 17 points and a 0.6% increase, respectively. Furthermore Initial jobless claims will be released and is currently expected by analysts to show a lower figure of 435.00k compared to the prior 440.00k.
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