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EU/UK equities indices look set to close out what has been a blistering month of January, with the CAC40, FTSE100, DAX40, IBEX35 and EU Stoxx 50 all breaking to new all-time or multi-year highs.
US equity indices aren’t seeing the same rip higher that we’ve seen of late in the likes of the DAX40, but the bulls are certainly holding pocket aces, and new all-time highs in the Dow, and S&P500 are now well within reach. We continue to see traders cover short positions (the Goldman Sachs high short interest equity basket is +1.5%) and are better to sell volatility, with the VIX index pulling down to 15.4%, which is broadly in line with S&P500 20-day realised vol – either way, a further compression in both implied and realised equity vol would bring in further capital into the US equity market.
In the US small-cap space, the Russell 2k (+1.6%) looks perky and is outperforming the large-cap indices - a sign of confidence to hold equity risk. I am certainly warming to longs myself in the R2K but would really want to see an upside break of 2323 before layering into positions - with a potential break set to compel increased long interest from the momentum accounts.
The buying within S&P500 sectors has been broad-based with 67% of S&P500 companies higher on the day, with utilities, comms services, REITs, health care and financials leading the market higher. Tech has been the laggard, with Microsoft and Nvidia subtracting index points and weighing on the NAS100. Apple gets the focus from here, given they are set to release earnings after-market with options implying a -/+4.4% move on the day.
We look toward the Asia open, and while China is still offline for Lunar NY, it’s the ASX200 that garners increased focus, with our opening call of 8533 suggesting we see a new ATH in the cash index, with the local market set to close out the month of Jan on a high. Consumer discretionary names are where the momentum sits right now, but the banks look in fine form too, with the ASX200 banking sector set to print a new high on open.
So, broad market sentiment and risk appetite looks upbeat, and this has spilled over into the FX channels with the MXN, CLP and ZAR outperforming. The flows in the MXN are certainly of interest, and we’ve even seen net buying in the CAD, which speaks to positioning more than anything with Trump set to announce a possible implementation of 25% tariffs on Canada and Mexico, and 10% on China on Saturday, which would then naturally open up the risk of gapping on the Monday FX open.
Most feel a higher probability that Trump and his trade team will detail that progress has been made, and the timeline on tariff implementation will be pushed back – but should we be surprised and Canada – in particular – is slapped with a 25% tariff (with possible carve outs) then it could get very lively on the Monday re-open.
Good luck to all
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