Incisive market commentary from David Morrison

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Collapse 2017 <span class='blogcount'>(348)</span>2017 (348)
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EURUSD breaks above resistance - PM Bulletin
31 Jan 2017
Equities recover after Monday’s sell-off - AM Briefing
31 Jan 2017
Trending markets and Andrews’ Pitchfork -Trading Guide
30 Jan 2017
Investors rattled by Trump’s curbs - AM Briefing
30 Jan 2017
Dow holds above 20,000 as dollar firms - AM Briefing
27 Jan 2017
Dow breaks above 20,000 - Video Update
26 Jan 2017
Dow at 20,000 boosts risk appetite - AM Briefing
26 Jan 2017
Dow finally breaks 20,000 - PM Bulletin
25 Jan 2017
Wall Street leads stocks higher - AM Briefing
25 Jan 2017
Consolidation continues - Video Update
24 Jan 2017
Dollar recovery helps lift sentiment - AM Briefing
24 Jan 2017
Money management and stop-losses -Trading Guide
23 Jan 2017
Stocks fall on US protectionism fears - AM Briefing
23 Jan 2017
Trump inauguration in focus - AM Briefing
20 Jan 2017
A look-ahead to Trump’s inauguration - Video Update
19 Jan 2017
ECB President Draghi’s press conference in focus - AM Briefing
19 Jan 2017
Dollar steadies after sell-off - Video Update
18 Jan 2017
Equities drift in featureless trade - AM Briefing
18 Jan 2017
Dollar pull-back lifts precious metals- PM Bulletin
17 Jan 2017
Dollar slumps in early trade - AM Briefing
17 Jan 2017
Charting analysis for beginners - Trading Guide
16 Jan 2017
Sterling slumps on “Hard Brexit” concerns - AM Briefing
16 Jan 2017
Earnings in focus - AM Briefing
13 Jan 2017
Fourth quarter earnings in focus - Video Update
12 Jan 2017
Market Info Update: Martin Luther King Day Monday 16th January 2017
12 Jan 2017
Dollar lower as Trump skips stimulus talk - AM Briefing
12 Jan 2017
Trump news conference - Video Update
11 Jan 2017
Trump press conference in focus - AM Briefing
11 Jan 2017
Has gold turned a corner? - PM Bulletin
10 Jan 2017
Another mixed start for Europe - AM Briefing
10 Jan 2017
Trading Psychology - Trading Guides
09 Jan 2017
Sterling slips on "Hard Brexit" fears - AM Briefing
09 Jan 2017
Non-Farm Payrolls in focus - AM Briefing
06 Jan 2017
Non-Farm Payroll look-ahead - Video Update
05 Jan 2017
FOMC minutes viewed as hawkish - AM Briefing
05 Jan 2017
Look-ahead to release of FOMC minutes - Video Update
04 Jan 2017
FOMC minutes in focus - AM Briefing
04 Jan 2017
Strong start to 2017 - PM Bulletin
03 Jan 2017
Equities push higher in first session of 2017 - AM Briefing
03 Jan 2017
Expand 2016 <span class='blogcount'>(483)</span>2016 (483)


Dollar recovery helps lift sentiment

US indices continue to consolidate

The dollar fell sharply yesterday in a move which saw the Dollar Index trade below its key 100 level for the first time since early December. The greenback has managed to recover in early trade this morning. But it continues to look vulnerable to further losses having pulled back sharply from a 14-year high against a basket of currencies at the beginning of the year. The move is weighing on precious metals, although both gold and silver remain comfortably above support around $1,200 and $17 respectively.

European equities and US stock index futures are mixed in early trade. The European majors are mostly higher taking some comfort from a late recovery in US markets last night. But there’s still plenty of uncertainty around and this looks set to continue for now. Investors were rattled by President Trump’s protectionist rhetoric during his inauguration speech, and later his abandonment of TPP and his eagerness to renegotiate NAFTA. At the same time, the US earnings season has been decidedly mixed so far leading some market participants to wonder if the rally since November is overcooked.

So far, the US majors have done a good job of consolidating at elevated levels. But we now need to see a continuation of strong US data releases, some more encouraging corporate earnings and a reminder from Trump that he will cut taxes, boost spending and roll back regulations for stocks to push higher from here.

Stock Index Update

Investors fear US protectionism

Reality of “America first” means less trade

There was a widespread sell-off in global equities yesterday, although the major US indices closed off their lows. The moves came on the heels of statements made by Donald Trump over the weekend. Following on from his inauguration speech on Friday in which he promised to “put America first”, President Trump said he was ready to renegotiate the North American Free Trade Agreement and withdraw from the Trans Pacific Partnership. This raised concerns that the US was becoming isolationist and that global trade could now come under threat from tit-for-tat protectionist measures.

Of course, this is a side of Trump’s campaigning which has been largely ignored since he won the presidency back in November. Global equity markets have rallied since then as investors looked forward to the prospect of a tidal wave of fiscal stimulus coming through. All the focus has been on how tax cuts, infrastructure spending and regulatory roll-back would reinvigorate the US economy and trickle down elsewhere. However, there’s now a feeling that Mr Trump is set to slap tariffs on imports and dismantle trade deals which have, he says, hollowed out the US manufacturing sector.

Commodities Update

OPEC/non-OPEC producers miss target for cuts

Gold and silver rally on dollar weakness

WTI and Brent came under selling pressure early in yesterday’s session and both looked as if they we set to test support around $52 and $54 respectively. The pull-back came after a meeting between OPEC and a number of non-OPEC producers in Vienna on Sunday. This was in order for countries to update each other on the output cuts agreed back in November. Ministers for countries that took part in the agreement said that they had reduced production by 1.5 million barrels per day. This is a touch below the 1.8 million barrels per day target.

Investors were also considering a pick-up in the rig count from US drillers. Oil services company Baker Hughes said that 35 new rigs (including natural gas) were activated last week taking the total to 694. Oil rigs rose by 29 to 551 for the week ending 20th January, the biggest one-week increase since April 2013.  The prior week there was a modest decline, the first fall in 11 weeks. This latest report is further evidence that US production should continue to rise strongly just as other producers are cutting output. In other words, there’s a good chance that global inventories stay at elevated levels as US shale oil steps in to replace OPEC/non-OPEC cuts. This should keep a cap on oil prices going forward.

Precious metals made decent gains yesterday thanks in large part to the sell-off in the US dollar. The dollar came under pressure as soon as Asian Pacific markets opened on Sunday. Investors cut their exposure to the greenback after Donald Trump announced that he was ready to renegotiate the North American Free Trade Agreement (NAFTA) with Canada and Mexico. President Trump has consistently maintained that the agreement is a bad deal for the US and has contributed to the destruction of its manufacturing sector. Mr Trump also said he wanted to withdraw from the Trans Pacific Partnership - a trade agreement (not yet ratified by Congress) between eleven Pacific Rim countries. Gold and silver spent the whole of yesterday’s session trading above support around $1,200 and $17 respectively. What happens next depends on the US dollar. If the dollar pulls back further and the Dollar Index breaks below 100.00 then precious metals could continue to rally. But if the dollar resumes its post-election rally then it’s unlikely support will hold.

Forex Update

Dollar slides on trade fears

Investors worry about protectionism

Yesterday investors dumped the greenback against all the majors. However, it was the “safe-haven” Japanese yen which gained most, followed by the British pound. The GBPUSD hit its highest level since mid-December. But it has pulled back sharply in early trade this morning as traders prepare for the High Court ruling on whether or not the government needs parliamentary approval to trigger Article 50. The decision will be announced at 09:30 GMT.

The US dollar fell sharply yesterday as investors reacted to Donald Trump’s first few hours as president. On Friday, President Trump used his speech to hammer home his “America first” message. Then over the weekend he said he was ready to renegotiate NAFTA with Canada and Mexico while yesterday he signed executive action to withdraw from the Trans Pacific Partnership (TPP). The news fuelled fears that Trump’s first 100 days could be marked by picking fights with old and prospective trade partners and a consequent rise in protectionism around the globe. This came in stark contrast to the optimism which greeted news of Trump’s victory in November. Back then, investors began to factor in the prospect of a wave of fiscal stimulus in the form of tax cuts, infrastructure spending and regulatory roll-back. This in turn raised the outlook for US economic growth along with inflation expectations. Investors revised up their forecasts for rate hikes over the rest of the year and this led to the Dollar Index hitting a 14-year high at the beginning of the year.

Upcoming events

Today’s significant economic data releases and events include Manufacturing and Services PMIs from France, Germany and the Euro zone. From the UK we have Public Sector Net Borrowing and the High Court ruling on whether or not the government needs parliamentary approval to trigger Article 50. From the US we have Flash Manufacturing, Richmond Manufacturing and Existing Home Sales.


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Posted by David Morrison

Category: AM Bulletin

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