Conference Board great, but already priced in

The Conference Board sentiment index moved up to 70,8 pts. – the highest level in a year, signaling that improving labor market conditions and recovering economy in a broader sense makes the US households more optimistic. The index has been – historically – a good indicator for trends on the US equity market. So such a rapid advance is definitely good sign. However, it merely justifies the rally – the levels that we are looking at now have already priced in even a larger improvement.

There are some coincidences: the Richmond’s Fed activity index leaped to +20 pts. – also the highest level since February last year. At the same time we have oil prices once again rising sharply in February – a factor that contributed to a slowdown last year. 

EURUSD rally not backed by the interest rates market

As we wait for the results of the 3y LTRO today it might be worthwhile to look back at the rally that took place on the EURUSD. The pair advanced from 1,26 to nearly 1,35 on a rising risk appetite (which might be well illustrated with a decline of Italian credit premium) – quite similar to the rally that took place in October of last year. By then the rally was not supported by the interest rate market (already looking forward to some monetary easing in the euro zone) and that eventually helped reverse (at least partly) that trend. This time a differential in expectations regarding interest rates in US and the zone has not change as well since the pair was at 1,26! We are looking at a curious situation here: monetary easing from the ECB has encouraged risk taking, reduced risk premiums and thus pushed EURUSD higher – but the same easing is negative for the euro and could be an argument for a decline on the pair.

On the charts:

S&P500 futs. (H4) – the cash index measured with daily closing price is already clearly above ’11 highs but the futures are still struggling with the high (1373 pts.); a good news for the bulls is that historically a failure at a major multi-month high was rarely the case; however, an initial success has often been followed with a correction with some lag 

OIL (Brent ,m30) – we had small setback at the start of the week but the bears had not enough strength to even test the first major horizontal support at 121,15 USD. Therefore the bulls may well be back – they will be locked in as soon as they break a resistance line drawn along the highs of a recent profit-taking  

Przemysław Kwiecień PhD
Chief Economist
X-Trade Brokers Dom Maklerski S.A.
Przemyslaw.kwiecien@xtb.pl