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

Dow holds above 20,000

US dollar recovers

It’s been another mixed start for European equities this morning, mirroring last night’s close on Wall Street. The Dow pushed further away from the 20,000 level, building on gains made earlier in the week. The break above this key psychological level has lifted investors’ spirits as the index spent the best part of six weeks apparently unable to make the final push through. But all the US majors closed well below their intra-day highs yesterday, perhaps suggesting that another catalyst may be needed for the next leg higher. The trigger this week was a string of executive orders from President Trump which signal an administration determined to roll back regulations and put American businesses first.

But the question now is how much more can the new president do without the backing of Congress? And there are still concerns that the US could become an expensive place to do business for outsiders. In the meantime, the fourth quarter earnings season is picking up a gear. After the close we had a disappointing earnings updates from Alphabet (formerly Google). Shares fell sharply overnight (but have subsequently recovered to some extent) after earnings came in well below analysts’ expectations.

Stock Index Update

Dow holds above 20,000

European indices end mixed

There was a strong positive reaction across European equity markets yesterday morning after the Dow closed above 20,000 for the first time on Wednesday night. US stock index futures were also firmer in out-of-hours trade although these pulled back from their best levels as the main US stock markets opened for business. But some profit-taking crept in as yesterday’s session wore on and most of the European majors ended lower on the day.

Risk assets generally got a lift as investors reacted to President Trump’s first week in office. Initially Mr Trump made some market-negative comments about trade tariffs and taxing imported products manufactured by US companies overseas. However, he was soon signing executive orders to help expedite the construction of the Keystone XL and Dakota Access pipelines while ensuring that only US-manufactured steel would be used in the projects. President Trump also took measures to reduce the influence of regulations covering manufacturing and the environment. He told business leaders that he was confident of cutting back around 75% of existing regulations and thereby freeing up businesses and commerce. At the same time he’s made an assurance that rules would still be “just as protective of the people.”

Commodities Update

Crude remains range-bound

Precious metals fall again

Crude oil rallied yesterday. This carried on a move which began on Wednesday afternoon after traders brushed aside the latest US inventory data updates. Both the American Petroleum Institute and Energy Information Administration reported bigger-than-expected builds in crude and gasoline stockpiles.

Both WTI and Brent appear to be stuck in relatively narrow trading ranges which have been in place since mid-December. The range on WTI is clearly defined with resistance coming in around $54 and support at $51 (although the contract has held above $52 for the past fortnight). There’s roughly a $3 range for Brent as well with resistance near $57 and support around $54. Supporting the oil price is the agreement made back in November between OPEC and a number of key non-OPEC producers to cut output by around 1.8 million barrels per day (bpd). So far, they’ve managed around 1.5 million bpd of cuts. But oil prices appear to be capped as data shows a sharp pick-up in the US oil and gas rig count. Figures show that overall US production has risen by 6.3% since last summer to 8.96 million bpd.

Precious metals had another disappointing trading session yesterday. Gold and silver both slipped below their key support/resistance levels of $1,200 and $17 respectively and gold is on course to register its first weekly loss since before Christmas. In fact, traders should keep a close eye on the chart to see how gold fares at today’s close. As things stand it looks as if this week’s candle will be bearish engulfing which can often be the signal for further price weakness. Despite a very strong run since mid-December, gold appears to be running out of upside momentum. The pull-back may just be a combination of profit-taking and consolidation, or a sign of additional weakness to come. Much will now depend on where the US dollar goes from here. This has also pulled back from recent highs. But if it manages to rally from here then it will put more downside pressure on the two precious metals.

Forex Update

Dollar rallies against all the majors

UK GDP comes in above expectations

The dollar bounced in early trade yesterday in a move which saw the Dollar Index push back above the key 100 level and the EURUSD pull back from 1.0750. This suggests that the sell-off in the greenback since the beginning of the year may be coming to an end. Certainly, today’s price action will be watched carefully particularly on the close. If the dollar can hold on to, or build on yesterday’s gains, then it would suggest that the US inflation trade is still in place. This stems from Trump’s election victory back in November when investors suddenly woke up to what that could mean in terms of fiscal stimulus. Mr Trump promised tax cuts for corporations and individuals, a regulatory roll-back and a raft of infrastructure spending. All this came together to boost growth and inflation expectations, particularly as this fiscal stimulus would come on the back of the US Federal Reserve hitting its employment target and being well on track to achieve 2% inflation. The dollar rallied sharply, helped on its way by a 25 basis point rate hike from the Fed in December with a forecast of an additional 75 basis points to come over the rest of the year.

There was further good news for the UK economy yesterday when fourth quarter GDP came in above the consensus expectation.  Preliminary GDP grew by 0.6% in the three months to December, the same rate of growth as the previous two quarters but better than the +0.5% expected.  Sterling slipped following the release but is still on course for its second consecutive week of gains.

Upcoming events

Today’s significant economic data releases and events include Euro zone M3 Money Supply and Private Loans and ECOFIN meetings. From the US we have Advance GDP, Durable Goods, Consumer Sentiment and Inflation Expectations.


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Posted by David Morrison

Category: AM Bulletin

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