NEWS AND ANALYSIS

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Market awaits Trump, and Fed reaction
28 Feb 2017
Markets on hold ahead of Trump speech to Congress - AM Briefing
28 Feb 2017
Fibonacci Retracement - an introduction - Trading Guides
27 Feb 2017
Investors shrug off concerns ahead of Trump speech - AM Briefing
27 Feb 2017
Equities drifting lower ahead of weekend - AM Briefing
24 Feb 2017
Dollar sells off after FOMC minutes - Video Update
23 Feb 2017
FOMC minutes send dollar lower - AM Briefing
23 Feb 2017
Crude oil pushes up against resistance - Video Update
22 Feb 2017
FOMC minutes in focus - AM Briefing
22 Feb 2017
Gold pulls back from resistance - PM Bulletin
21 Feb 2017
US traders return after market holiday - AM Briefing
21 Feb 2017
Identifying market tops, or the trend is your friend - until it isn’t
20 Feb 2017
Kraft Heinz pulls Unilever bid - AM Briefing
20 Feb 2017
Major indices drifting lower as weekend approaches - AM Briefing
17 Feb 2017
US Indices hit fresh record highs
16 Feb 2017
Trump tax promise continues to drive risk appetite - AM Bulletin
16 Feb 2017
Yellen testifies in Washington
15 Feb 2017
Yellen testimony helps lift sentiment - AM Bulletin
15 Feb 2017
Silver hovers around resistance at $18
14 Feb 2017
Focus turns to Yellen’s testimony in Washington
14 Feb 2017
An introduction to the Relative Strength Index - Trading Guides
13 Feb 2017
Equity rally continues - AM Briefing
13 Feb 2017
Trump tax talk boosts risk appetite - AM Briefing
10 Feb 2017
US dollar drivers - Video Update
09 Feb 2017
Recovery in crude lifts equities AM Briefing
09 Feb 2017
Crude volatility picking up - Video Update
08 Feb 2017
Crude lower as inventories soar - AM Briefing
08 Feb 2017
Politics set to drive FX - PM Bulletin
07 Feb 2017
Major indices drift in featureless trade - AM Briefing
07 Feb 2017
MACD - an overview -Trading Guide
06 Feb 2017
European equities drift in quiet trade - AM Briefing
06 Feb 2017
Non-Farm Payrolls in focus - AM Briefing
03 Feb 2017
Non-Farm Payroll look-ahead - Video Update
02 Feb 2017
BoE meeting in focus - AM Briefing
02 Feb 2017
FOMC meeting tonight - Video Update
01 Feb 2017
Markets steady ahead of Fed meeting - AM Briefing
01 Feb 2017
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Early moves

·         Fresh record on Wall Street

·         Investors jump on Trump bandwagon

We had yet another record close on Wall Street last night with the Dow, S&P and NASDAQ all ending at fresh highs. Investors are currently bulled up by Donald Trump’s promise of some “phenomenal” news on taxes within the next few weeks. More generally, it feels as if no one wants to risk missing out on further market gains in what could prove to be the most business-friendly US environment for many years.

Even Fed Chair Janet Yellen’s testimony in Washington has done nothing to dampen positive market sentiment. Dr Yellen seemed anxious for market participants to consider every Fed meeting “live” when it comes to the prospect of monetary tightening. This helped to nudge up the probability of a rate hike at next month’s meeting. But as things stand, there’s a general feeling that even if the Fed were to tighten by 75 basis points this year as forecast by the FOMC back in December, the US economy is robust enough to carry on growing. This may be too optimistic. After all, so much of the stock market’s recent gains are down to Trump’s promises of fiscal stimulus. If the new president disappoints, or is blocked by Congress, then this positive sentiment has the potential to evaporate overnight.

Stock Index Update

·         Fresh buying sends Wall Street higher

·         Fed Governor Tarullo talks about “too big to fail”

European stock indices got off to a storming start yesterday. This was in response to another clutch of record closes for the major US indices on Tuesday. There was a mild pull-back about half way through the main trading session but then equites rallied into the close dragged higher by continued strength on Wall Street.

The US majors went on to post yet another record close yesterday. Short-covering has been replaced by fresh buying as investors rush to profit from Trump’s business-friendly administration with its promises of tax cuts, infrastructure spending and regulatory roll-back. Meanwhile the Fed seems to be saying that the US economy is strong enough to withstand, or even thrive, with some modest monetary tightening, despite uncertainty over the fiscal outlook.

Earlier in the day Federal Reserve Governor Daniel Tarullo was interviewed on Bloomberg. Mr Tarullo said more work needs to be done on “too big to fail” financial institutions. He said that progress has been made over the last eight years and that the resilience of largest most systemically important institutions is dramatically better than a decade ago. Progress had also been made on a resolution scheme for too big to fail institutions. However, the Fed Governor said more needed to be done. Unfortunately this won’t be helped along by Mr Tarullo himself, who is the Fed’s top man on banking reform.  Last week Mr Tarullo announced that he is stepping down from the Fed in April, some five years before his term expires. There is a suggestion that his decision may have something to do with the Trump administration’s desire to ditch Dodd-Frank banking regulations.

Commodities Update

·         Oil dips after EIA inventory data

·         Precious metals respond to dollar moves

Crude dipped yesterday following the release of the latest US inventory update from the Energy Information Administration (EIA). This showed a build of 9.5 million barrels for the week ending 10th February which was some way above the 3.7 million barrel build expected. Gasoline stocks were also higher than expected, coming in at 2.8 million barrels against an expected decline of 752,000 barrels. 

For yet another week the EIA release on crude oil stockpiles confirmed data from the American Petroleum Institute (API). The latter showed another unexpectedly large build of 9.94 million barrels for the week ending 10th February - well above the 3.5 million expected.

But despite these bigger-than-expected builds in US stockpiles, it wasn’t long before WTI and Brent made back their initial losses and pushed back into positive territory. Partly this was because a more detailed look at the EIA report also showed a decline in crude stocks at the Cushing, Oklahoma hub. In addition, there’s been recent evidence that there’s been an unexpectedly high level of compliance amongst OPEC and non-OPEC producers with the output cuts agreed back in November. Resistance continues to come in at $57 and $54 for Brent and WTI respectively.

Gold and silver both struggled to make much upside progress in early trade yesterday. Investors seemed unwilling to take on further exposure to the two precious metals as the US dollar continued to rally. The rise in the greenback came in response to Fed Chair Janet Yellen’s first round of testimony before the Senate Banking Committee on Tuesday. The general consensus was that she set a more hawkish tone than was generally predicted, particularly as she said that all FOMC meetings should be considered “live” when it came to the prospect of monetary tightening. There appears to be some profit-taking creeping in following a rally which began back in December. Silver has so far failed to break and close above $18 while gold continues to trade either side of $1,230. The trouble for both precious metals is the current uncertainty over the future direction of the dollar. This became more apparent yesterday afternoon as the dollar pulled back from its best levels. This came as Janet Yellen faced down a barrage of aggressive questioning and grandstanding from the House Financial Services Committee.

Forex Update

·         USD firmer in early trade yesterday

·         But pulls back on profit-taking

The dollar rallied in early trade yesterday as investors continued to consider Fed Chair Janet Yellen’s testimony on Tuesday before the Senate Banking Committee. She said that waiting too long to raise rates would be unwise, potentially requiring the FOMC to eventually hike rates aggressively which could risk disrupting financial markets and pushing the economy into recession. She refused to be drawn on the timing of future rate hikes but said every meeting was “live” when it came to the possibility of the FOMC tightening monetary policy. This helped to raise the probability of a March hike from around 17% to 23%.

Earlier in the day we saw a pick-up in US CPI and Core Retail Sales (excludes autos). Both numbers came in above the consensus expectation. The news helped to push the dollar higher with the Dollar Index hitting its highest level in a month. But the greenback slipped from its best levels as the session progressed. Some of this appeared to be little more than profit-taking initially, but then selling momentum took over. Yesterday afternoon Dr Yellen was questioned by the House Financial Services Committee. This followed on from her testimony before the Senate Banking Committee on Tuesday. However, she offered no additional insight concerning the timing of future Fed rate hikes

Upcoming events

Today’s significant economic data releases and events include the Italian Trade Balance and the ECB Monetary Policy Meeting Accounts. From the US we have Building Permits, the Philly Fed Manufacturing Index, Unemployment Claims, Housing Starts and Mortgage Delinquencies.

Disclaimer:

Spread Co is an execution only service provider. The material on this page is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by Spread Co Ltd or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

 

Posted by David Morrison

Category: AM Bulletin


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