Daily Market Roundup: Chance of Fed hike boosted by US NFP, NASDAQ leading the markets higher

Nick Batsford, CEO of Tip TV, was joined by Richard Hunter, Head of Equities for Hargreaves Lansdown, on the Tip TV Finance Show to discuss the build up to a Federal Reserve interest rate hike, as well as the ECB meeting, US NFP figure and key indices.

EUR/USD seen range bound ahead of Fed decision

Batsford highlighted FX Street, who noted that the US NFP figure last week beat estimates and opened the door for a Fed interest rate hike at the meeting on December 16th. They continued that the EUR/USD pair could remain in the range between 1.0750 and the 1.10 area until this date. Amid the new normal of near zero and negative interest rates across the world, they concluded that the Fed lift-off is likely to be less than 25 bps. Hunter added that with the US NFP being above 200’000, people are reacting well to the figure meaning things are lining up for a Santa rally. He outlined that a Fed hike in December is now 80% likely, with the consensus for the future being data dependent and not too far too fast, with Hunter indicating towards 2 or 3 hikes in 2016.

NASDAQ leading markets higher, S&P 500 showing impressive gains

Batsford commented that the NASDAQ 100 was the strongest index on Friday, rallying 2.4%. The index should be the first to break out to new 52-week highs and it could well test its all-time intraday high of 4816.35 this week. Momentum, the 14-day RSI, is sweetly positioned, rising through neutral, and Batsford believed that outperformance should continue and that is positive for the market. In terms of the S&P 500, he noted that all sectors showed impressive gains on Friday, the exception being Energy (-0.5%) which was weighed down by Crude Oil again probing the $40 level. Batsford continued that Gold moved in the opposite direction and as a result the beaten up miners enjoyed a pop, the PHLX Gold & Silver Index surged 5.9%. That chart shows a medium-term base attempt is likely to be underway.

Tension between the markets behaviour and underlying economic conditions

Batsford moved onto Elliott, who expressed that the central banker’s banker, the Bank for International Settlements’ chief economist Claudio Borio said when introducing their latest findings, ‘it is not surprising that markets remain unusually sensitive to central banks’ every word and deed. Just think of the market gyrations following the ECB’s decision to ease even further, but to an extent fell short of market expectations’. He noted that the credit ratings of developed market banks had deteriorated further since 2010 and that the fact their shares trade below book value was a clear sign of ‘mistrust and scepticism’. Eurozone banks in particular still have too many bad debts and must do a lot more balance sheet repair’. There is a clear tension between the markets’ behaviour and underlying economic conditions.

EUR/USD, US, US NFP, Fed, Federal Reserve, interest rate, rate hike, Santa rally, NASDAQ, S&P 500, Energy, Gold, Crude Oil, PHLX Gold & Silver Index, economy, central banks, ECB, credit ratings, banks, Eurozone, debt, balance sheets