- Equities slide ahead of earnings and holiday
- Trump’s comments send USD lower
European stock indices were weaker in early trade with investors rattled by Donald Trump’s dollar-negative comments last night. In an interview with the Wall Street Journal Mr Trump said he thought the dollar was “getting too strong” and that he’d like the Fed to keep interest rates low. The dollar slumped on the news, and while it has steadied this morning the Dollar Index is struggling to hold on above the 100 level. Meanwhile, the USDJPY (a strong barometer of the “risk on/off” trade) fell to a fresh five month low overnight and is still well below key support around 110.00.
Last night gold soared above $1,280 after Trump’s comments and is now back to highs last seen in the immediate aftermath of the presidential election back in November.
Financial markets had already been pulling back from their best levels over the past few weeks thanks to doubts over the Trump administration’s ability to push tax cuts, spending plans and regulatory reform through Congress over the coming months. Then there are the concerns over the likely pace of Fed monetary tightening just as doubts over US economic growth are being voiced. Last night the yield on 10-year Treasuries crashed below support at 2.30%, indicating that for now the reflationary trade is over.
On top of all this, we have elevated geopolitical risk with a serious breakdown in relations between the US and Russia, with North Korea sniping from the sides. And as we go into the long holiday weekend we have earnings from three major US banks – Citigroup, JP Morgan and Wells Fargo.
Stock Index Update
- European indices mixed
- Investors jittery ahead of earnings/long weekend
European stock indices ended mixed yesterday although with a weaker bias overall. All the majors began the day in positive territory, making back some of their losses after the sharp sell-off on Tuesday. But as usual it is Wall Street which leads when it comes to market sentiment and yesterday this was negative yet again.
Equity markets have been drifting lower for the past five weeks or so. This has seen the US majors and FTSE100 unable to build on their respective all-time closing highs made recently. All the major stock indices feel as if they are overdue a corrective pull-back. This would help take some of the speculative froth off the market and give the indices a chance to consolidate at lower levels and make a base from which to launch a fresh rally. However, investors have found few excuses to cut their exposure with every piece of negative news brushed aside by a market desperate for some kind of return on their money, no matter how risky. It could be that the combination of rising geopolitical tensions, tighter monetary policy from the Fed and doubts that Trump can push through tax cuts and infrastructure spending plans will lead to a stock market sell-off. But with so many investors apparently willing to buy into even the shallowest of dips, downside moves appear limited - for now.
Most markets are closed tomorrow for Good Friday and all eyes will be on today’s earnings reports from Citigroup, JP Morgan and Wells Fargo.
- US inventories rise again
- Precious metals consolidate at higher levels
Yesterday afternoon the Energy Information Administration (EIA) released its latest US crude inventory update for the week ending 7th April. This showed a larger-than-expected drawdown of 2.2 million barrels. This compared to an expected drawdown of 700,000 barrels and both WTI and Brent spiked higher on the news. The data helped to corroborate Tuesday night’s update from the American Petroleum Institute (API). This showed a 1.3 million drawdown in crude stockpiles - the biggest decline since December 2016.
In other oil-related news, yesterday OPEC upgraded its global oil demand forecast for 2017 by 10,000 barrels per day (bpd) to 1.27 million bpd. This would take total oil consumption for this year up to an estimated 96.32 million bpd with most of the additional demand coming from India, China and the US. The news helped to underpin oil prices further following reports that Saudi Arabia was canvassing OPEC and non-OPEC producers for an extension to their output cut agreement beyond June. Brent and WTI are now within a dollar or so of completely reversing the price plunge which took place over the first two weeks of March.
Gold and silver were marking time for most of yesterday’s session and both traded within relatively narrow ranges, at least when compared to recent sessions. The two precious metals appeared to be consolidating following the sharp rally earlier in the week. However, both soared following the release of the Wall Street Journal’s interview with Donald Trump. Mr Trump said he thought the dollar was “getting too strong” and that he’d like the Fed to keep interest rates low. The dollar slumped on the news and gold soared above $1,280 and is now back to highs last seen in the immediate aftermath of the presidential election back in November.
- Dollar slumps on Trump comments
- UK unemployment rate hits 40-year low
Investors were rattled by Donald Trump’s dollar-negative comments last night. In an interview with the Wall Street Journal Mr Trump said he thought the dollar was “getting too strong” and that he’d like the Fed to keep interest rates low. The dollar slumped on the news, and while it has steadied this morning the Dollar Index is struggling to hold on above the 100 level. Meanwhile, the USDJPY (a strong barometer of the “risk on/off” trade) fell to a fresh five month low overnight and is still well below key support around 110.00. Last night the yield on 10-year Treasuries crashed below support at 2.30%, indicating that for now the reflationary trade is over.
The USDJPY continues to trade below the significant 110.00 level which has acted as support on a number of occasions recently. The yen rallied as investors cut their exposure to equities and other risk assets.
Yesterday also brought the release of UK employment data. The Claimant Count rose by 25,500 on expectations of a 10,200 decline. This represented the largest rise in this data series since the July 2011 number. As with the US, the improving employment picture has been one of the standout features of the UK economy since the financial crisis so this was an unwelcome turnaround. Nevertheless, the Unemployment Rate came in at 4.7% which is its lowest level since mid-seventies. Sterling rallied on the news, also lifted by a 2.3% rise in quarterly average earnings when compared to the same period last year.
Today’s significant economic data releases and events include the Bank of England’s Credit Conditions Survey and Canadian Manufacturing Sales. From the US we have PPI, Weekly Jobless Claims, Consumer Sentiment and Inflation Expectations.
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