Incisive market commentary from David Morrison

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Collapse 2017 <span class='blogcount'>(348)</span>2017 (348)
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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
Expand January <span class='blogcount'>(39)</span>January (39)
Expand 2016 <span class='blogcount'>(483)</span>2016 (483)


Early moves

·         Trump promises “phenomenal” tax announcement

·         Global indices surge higher

European stock indices got off to a strong start this morning after a solid rally on Wall Street and gains across Asian Pacific markets. Last night the Dow Jones Industrials, NASDAQ and S&P500 indices all closed out at fresh record highs, lifted by a resumption of the “Trump trade” which followed on from his surprise election victory back in November.

Yesterday global stock indices were pushing higher as crude oil recovered from a sharp sell-off earlier in the week. Then there was a sudden surge after President Trump said his administration would be announcing “something over the next two or three weeks that will be phenomenal in terms of tax.” This had investors forgetting their concerns over Trump’s protectionist rhetoric and attempted travel ban. Instead, the focus turned back to the prospect of a more business-friendly environment than the US has seen for many years. On top of this, it was announced that Trump has spoken to Chinese premier Xi Jinping and promised to honour the “one China” policy. This should diffuse some of the tension that has existed between the two leaders following Trump’s call with Taiwan’s leader and his criticism of China concerning supposed currency manipulation.

The equity market rally comes despite a somewhat mixed earnings season which has featured some shaky forward guidance. Nevertheless, there’s a general feeling that the US Federal Reserve is unlikely to raise rates at its next meeting in March. But all eyes and ears will be on Janet Yellen’s testimony in Washington next Tuesday in case she indicates that next month’s Fed meeting is still “live”.

Stock Index Update

·         Trump rally resumes

·         Wider market unaffected by Twitter sell-off

Global stock indices flew higher yesterday as investors rediscovered their risk appetite. Partly this was down to a recovery in the oil price which bounced despite the second highest ever build in US crude oil inventories last week. But investors were also bulled up by a comment from President Trump. During a meeting with airline CEOs Trump said: “We are going to be announcing something over the next two or three weeks that will be phenomenal in terms of tax.” This raised expectations that the Trump administration may soon deliver on another of his campaign promises from last year.

Earnings took centre stage early yesterday as a clutch of European banks reported in the European session while Twitter posted results prior to the US open. European stock indices were given a boost by better-than-expected numbers from SocGen, Commerzbank and Mediobanca. All saw their equity prices trade higher in early trade although Commerzbank subsequently sold off sharply after some disappointing forward guidance through to 2018.

But the headline-grabbing news came from Twitter. The company reported fourth quarter revenues of $717 million, well below the $740 million consensus forecast. Earnings per share came in at $0.16 which was better than the $0.12 expected. However, Twitter slashed its first quarter profit guidance to a range of $75 to $95 million from $191 million. The stock slumped over 10% in pre-market trading. But indicating just how little influence over market sentiment Twitter has these days, all the major US indices were firmer ahead of the open.

Commodities Update

·         WTI and Brent bounce off support

·         Precious metals post losses

Crude oil rallied further yesterday although both WTI and Brent are still some way off their respective highs from the beginning of the week. As things stand, the two main crude contracts are trading around the mid points of ranges which have developed since early December. At the end of last week both Brent and WTI were testing resistance around $57 and $54 respectively. However, they sold off sharply on profit-taking which gather additional momentum after the Energy Information Administration (EIA) forecast a fall in global demand growth for 2017 and 2018. Then the American Petroleum Institute (API) reported was an extraordinarily large build reported in US crude inventories which was confirmed by the EIA on Wednesday. However, traders covered their shorts as the EIA also reported a drawdown in gasoline stocks, contradicting earlier data from the API.

Gold and silver both ended yesterday modestly lower as the dollar rallied. The two metals have had good runs since late December after they hit their lowest levels since the first half of 2016. The question now is whether yesterday’s pull-back is simply some mild profit-taking or the start of a bigger corrective move. Of course, much depends on where the US dollar goes from here. Some observers believe that the Dollar Index is set to rally and take out its 14-year high from the beginning of the year. This is on the expectation that the Fed is set to signal that March remains “live” as far as an interest rate hike goes. In addition, they expect the euro to come under further downside pressure ahead of the Dutch general election and French presidential election where Eurosceptic candidates are expected to do well. On the flip side, the Trump administration is anxious to keep a lid on the greenback and has accused China, Germany and Japan of “global freeloading” by working to keep their currencies weak.

Forex Update

·         USD recovers on Trump pledge

·         Japanese yen retreats ahead of Abe’s US visit

The dollar put in a decent performance yesterday, helped on its way by President Trump’s promise of a “phenomenal” tax plan. Investors rushed to buy equities and other risk assets after Trump said the administration would be announcing “something over the next two or three weeks that will be phenomenal in terms of tax.” This raised expectations that the Trump administration may soon deliver on campaign promises made last year. The flip-side of the dollar rally was the sell-off in the Japanese yen. Typically, when risk appetite is high investors sell (borrow) the yen because of its low yield (borrowing cost) and deep liquidity and use the proceeds to buy higher yielding (riskier) assets. The move saw the USDJPY bounce off support around 112.00 and comes just ahead of Japanese Prime Minister Shinzo Abe’s meeting with Donald Trump later today.

Upcoming events

Today’s significant economic data releases and events include UK Manufacturing Production, Goods Trade Balance, Construction Output and Industrial Production. From the US we have Import Prices, Consumer Sentiment and Inflation Expectations.


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Posted by David Morrison

Category: AM Bulletin

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