MARKETS: Dovish Fed may not be enough to boost confidence after all

By Hussein Sayed, Chief Market Strategist at FXTM

The first full trading week of 2019 may be characterised by improved investor sentiment, return of risk, and much less volatility in equity markets, thanks to the U.S. FOMC minutes and Fed talk that has shown a willingness to delay further tightening of monetary policy in an obvious sign that policymakers are listening to the markets.

This factor coupled with a return of U.S.-China trade negotiations provided a boost to global and U.S. equities. The S&P 500, Dow Jones Industrial Average, and NASDAQ Composite posted solid gains last week of 2.5%, 2.4% and 3.5% consecutively. 

The Fed’s shift to a relatively dovish tone is undoubtedly good news to risk sentiment, but not enough to keep bulls in control.  Many catalysts may support or end last week’s market recovery including earnings announcements, macro data, the U.S. government shutdown, and Brexit vote.

Data released Monday morning from China was not encouraging. The world’s second largest economy reported the biggest monthly fall in exports in two years, confirming beliefs that the global economy is heading into a slowdown. Increased tariffs by the U.S. are to be blamed, but only partially because Chinese exports to the rest of the world also declined. As a result to the surprisingly negative figures, Asian equities fell and futures pointed to a lower open for Europe and the U.S., while high beta currencies like the Australian and New Zealand Dollar experienced the biggest falls amongst major currencies.

Investor appetite to equities will be heavily tested this week as Corporate America begins to announce earnings results for Q4. Citi Group is the first major U.S. bank to report results Monday. JP Morgan and Wells Fargo will follow on Tuesday. Goldman Sachs and Bank of America will be announced on Wednesday,

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