US stock futures are pointing higher today in what would be the second consecutive day in the green following on from a strong Asian session.
This comes against the backdrop of a particularly bullish day for European markets, with the CAC currently testing a 5 year high at 4365 and the FTSE 100 breaking to the highest level since May 2013.
US futures are indicating the S&P 500 will open +1, DJIA +13 points, and NASDAQ +2 points.
It is the DJIA move which takes much of the headlines as markets try to put the conspiracy theorists ideas of a parallel between 1928/29 and 2013/14 to bed.
Such a parallel would place us at the beginning of a more protracted bear trend.
This notion will possibly only be fully allayed with the creation of a new swing high above 16200 which would also take out a key level of resistance.
Bank of Japan Minutes Raise Concerns
Overnight, the Bank of Japan released the minutes from their last monetary policy meeting.
Markets had low expectations regarding this release given the somewhat stable nature of their recent rise back into growth and positive inflation.
However, the minutes showed that there were concerns regarding the pace of the current recovery seen in the region, a view which resonates with many who fail to see how Abe and Kuroda can achieve their targeted 2% inflation within the two years originally speculated.
To some this meant a possible requirement to hike up the rate of asset purchases as a means to drive both growth and inflation, especially ahead of the sales tax hike in April.
That being said, the minutes showed members had few worries regarding the ability of the Japanese economy to cope with the new sales tax rate given that consumption appears to be ‘front loaded’ ahead of such a rise.
UK Retail Sales Drip Lower
The main focus of the European session has been driven by the UK, where the release of the retail sales figure drew increased attention following the updated ‘forward guidance 2.0′.
Retail sales has always been key as a determinant of where the economy is going given that it reflects both current and future expectations for the everyday person from an employment, wage growth and inflation standpoint.
For this reason, retail sales can be seen as both quantitative (how much are people buying) and qualitative (what are expectations of future conditions).
However, it was the inclusion of consumption within Mark Carney’s newly enhanced forward guidance policy which has brought this measure to a head, providing markets with a new range of indicators to look out in addition to the CPI and unemployment rates.
However, with unemployment and inflation closer to target, there will now be increased focus upon the likes of earnings growth and consumption as a driver of market volatility.
The retail sales release was ultimately somewhat disappointing, falling -1.5% from December to January.
On an annualised basis, sales did rise by 4.3% compared to last year, yet this too fell short of market expectations.
Given that potential interest rate increases are now in part reliant upon consumption, the rise in the likes of the FTSE 100 shows that possibly the association between central bank behaviour and markets is not weakening as seemed to be the case.
The shift back towards a scenario where markets take data on face value could perhaps take a little longer.
With the rise of unemployment seen this week, poor retail sales growth and a inflation/wage growth differential that means real earnings continue to fall, it is easy to see that an interest rate hike could still be some way off.
That being said, signs are pointing towards a positive trend for all these measures on the whole and with the inflation rate not finally below 2%, the BoE is likely to be in no rush to begin tightening monetary policy anytime soon.
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