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)


Early moves

Investors hoover up stocks as Dow tops 20,000

Rally driven by Trump activity

It’s been another positive open for European equity markets following a strong session on Wall Street yesterday. Investors rushed to load up on US equities as the Dow surged through 20,000 on yesterday’s open. It was just 64 days ago that the Dow broke above 19,000 and it’s worth mentioning that it hasn’t once retested that level. The Dow has spent the last six weeks consolidating just below 20,000 and there’s now a feeling that there’s plenty of pent-up buying pressure ready to push US stock indices significantly higher from here. Certainly, Monday’s brief wobble which followed President Trump’s protectionist rhetoric has been largely forgotten, even as the new president insists he will push ahead with a Mexican wall and trade tariffs.

But for now, investors are more bulled up with Trump’s apparent energy and the speed with which he signed executive orders to expedite the Keystone XL and Dakota Access pipelines. Those that warned that the Trump honeymoon rally would end with his inauguration have to face the possibility that it’s only just started.

Stock Index Update

Global stock indices soar

Investors cheered by Trump’s executive orders

Global stock indices soared yesterday with the European majors and US indices all posting big gains for the day. The only index that crawled (rather than leapt) into positive territory was the UK’s FTSE100. The European banking sector posted some of the biggest gains. Germany’s Deutsche Bank ended the day 5.75% higher on a story that it was preparing a partial initial public offering of its asset management unit.

Yesterday the Dow topped 20,000 for the first time. This fresh milestone occurred just 64 days after the index broke through 19,000. Investors shrugged off concerns that President Trump was concentrating too much on rolling back trade agreements and imposing tariffs rather than providing more details of his promised fiscal stimulus. Instead, investors were encouraged after he signed executive orders expediting the Keystone XL and Dakota Access pipelines.

We’re now getting deeper into a crucial US earnings season where investors will want to see that the last quarter’s year-on-year pick-up in earnings wasn’t a fluke. However, in the absence of any major corporate upsets, it looks as if Trump’s first week in office will hog the headlines and provide all the ammunition to drive the major indices higher.

Commodities Update

US inventories keep lid on crude

Precious metals slide despite dollar weakness

Crude oil fell sharply in early trade yesterday, continuing a decline which began late in Tuesday’s session. The trigger for the sell-off was the release of inventory data from the American Petroleum Institute (API). This showed bigger-than-expected builds in crude, gasoline and distillates.

Then yesterday afternoon we got the latest update from the US Energy Information Administration (EIA). Again this showed a bigger-than-expected increase in crude inventories of 2.8 million barrels for the week ending 20th January - well above the consensus forecast of 1.5 million barrels.

This stockpile build comes on the back of a sharp pick-up in the US oil and gas rig count. It also follows on from President Trump signing executive orders to expedite the construction of Keystone XL and Dakota Access pipelines. This has led some analysts to wonder if the US won’t soon be drowning in oil, especially if demand growth moderates if renewables become a bigger part of the mix. Over the short-to-medium term it should go a long way to offset the production cuts agreed back in November by OPEC and a number of major non-OPEC producers. Crude rallied later in the session on a largely technical move as WTI and Brent approached support around $52 and $54 respectively.

In a move which should concern holders of gold and silver, both metals fell yesterday morning despite a sharp dip in the US dollar. Typically dollar-denominated commodities (and particularly gold) rise as the greenback falls. Partly this is because these commodities become cheaper to buy in non-dollar terms, but also gold is still considered an offset to the US dollar. The sell-off in gold and silver saw both fall back below support levels of $1,200 and $17 respectively. The move appears to be a function of investors reducing their exposure to safe haven trades as risk appetite grows on the back of the ongoing rally in equities. At the same time, the corrective pull-back in the dollar looks as if it is a result of a turndown in inflation expectations. This means one less reason to hold on to precious metals as an inflation hedge. There was also some disappointment that Chinese gold demand slacked off ahead of the country’s Lunar New Year festival which kicks off on Friday and lasts for a week.

Forex Update

Dollar slips on lack of stimulus detail

Aussie dollar falls after CPI release

The main news yesterday was the continued sell-off in the dollar. The Dollar Index once again dipped and closed below significant support around the 100 level. Meanwhile, the EURUSD continues to knock up against resistance around 1.0750. A break above here would open up the possibility of a retest of resistance around 1.1000.

It is difficult to pin down a definitive reason for the sell-off in the greenback. The dollar has pulled back a long way since the beginning of the New Year when the Dollar Index hit a 14-year high of 103.80 and the EURUSD broke below 1.0350. The rally came on raised growth and inflation expectations for the US. Some analysts now believe this reflationary honeymoon bubble is bursting as President Trump is yet to provide details about his promised fiscal stimulus. Instead there’s been more focus on protectionism. However, it’s clear that Trump doesn’t want dollar to strengthen too much as he’s based much of his economic plans around a mercantilist approach which sees the US import less and export more. However, it could be that we’re just seeing a healthy bout of profit-taking ahead of another leg higher for the greenback.

In other news the Australian dollar fell yesterday following the release of CPI for the quarter ending December 2016. The headline number rose 0.5% which was below both expectations and the prior reading of +0.7%. This meant an annualised gain for CPI of 1.5% - well below the Reserve Bank of Australia’s (RBA) aim to keep it with a range of 2-3%. This pull-back in inflation means that the RBA has a good excuse to keep its Cash Rate at or below the current record low of 1.5%.

Upcoming events

Today’s significant economic data releases include Gfk German Consumer Climate survey, and Italian Retail Sales. From the UK we have Preliminary fourth quarter GDP, Mortgage Approvals and CBI Realised Sales. From the US we have Weekly Jobless Claims, Wholesale Inventories, Flash Services PMI, New Home Sales and the CB Leading Index.


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Posted by David Morrison

Category: AM Bulletin

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