World stock markets hit record highs on Thursday, as optimism over tax reforms in the United States boosted risk appetite.
On Thursday, Republicans approved a fiscal spending blueprint that presented an outline for tax cuts and this instilled U.S equity bulls with enough inspiration to send the Dow, S&P 500 and the Nasdaq to record highs for the fourth consecutive day. With investors becoming increasingly optimistic about the health of the global economy and renewed optimism over U.S tax cuts stimulating risk sentiment, Global stocks are likely to remain supported.
Asian equities ventured higher during early trading on Friday, following the overnight gains on Wall Street. Although the risk-on mood from Asia could roll over into Europe, uncertainty surrounding the future of Catalonia has the ability to limit upside gains on European stocks.
Sterling pressured by political uncertainty
Sterling was exposed to downside risks on Thursday, as uncertainty mounted over Theresa May’s future as prime minister.
The sharp depreciation of the British Pound continues to reflect the growing concerns about the Conservative Party leadership, following May’s poorly received keynote speech on Wednesday. With the unsavoury combination of Brexit risk and political uncertainty weighing heavily on sentiment, investors may start re-evaluating whether the Bank of England will raise UK rates this year.
With Sterling falling into the category of currencies that have become sensitive to monetary policy speculation, further downside is on the cards if the Bank of England fails to raise rates as anticipated in November. From a technical standpoint, the GBPUSD is bearish on the daily charts. The breakdown below 1.3150 has opened a path towards 1.3000.
Dollar higher ahead of NFP
This has been a brilliant trading week for the U.S Dollar, as positive economic data from the States, renewed optimism over Trump’s tax reforms and hawkish comments from Fed officials, all supported the currency.
The Greenback is currently flexing its muscles against a basket of major currencies during Friday’s trading session, as investors await the US employment report this afternoon for fresh insight into the health of the US job market. With the ADP data heavily distorted by the hurricanes, markets will be closely observing if the pending NFP headline figure for September follows a similar pattern. A headline figure above the 82k estimate should elevate the dollar, as expectations heighten over the Federal Reserve raising US rates in December.
Much attention will also be directed towards average hourly wages, as an increase in wage growth is likely to boost optimism over inflation picking up- ultimately supporting prospects of higher rates this year.
From a technical standpoint, the Dollar Index is bullish on the daily charts. A breakout above the 94.00 resistance may encourage an incline towards 94.30 and 94.50, respectively. Bulls remain in control above the 93.00 higher low.
Commodity spotlight – Gold
Gold has received a pummelling in recent weeks on the prospects for higher US interest rates, while a strengthening Dollar continues to fuel the selling pressure.
Prices are currently on track to drop for a fourth week, which will make it the worst streak of losses seen in 2017. With investors charging into the final trading quarter of 2017 – adopting a risk-on attitude, the yellow metal is looking quite dull and may be exposed to further downside. Much attention will be directed towards the pending U.S jobs data this afternoon, which has the ability to drag Gold below $1267 if NFP exceeds market estimates.
The yellow metal remains under pressure on the daily and weekly charts, with $1267 acting as an important support. A breakdown and daily close below is likely trigger a further decline towards $1253. Bears remain in firm control below $1300 psychological level.