Incisive market commentary from David Morrison

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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

European equities mixed in early trade

Draghi press conference in focus

It was another mixed start for equities this morning. But the major European indices began to drift lower as the session progressed. The US dollar is a touch weaker in early trade but this has done little to boost buying interest in gold or silver. Both metals closed lower yesterday as the dollar got a boost following Fed Chair Janet Yellen’s speech last night. Dr Yellen said that the US was close to maximum employment and inflation was near target. However, she couldn’t give any clear guidance over the timing of the next hike, which would depend on the economy “over the coming months.” This suggests that the Fed will be paying close attention to Donald Trump’s first 100 days as president and his plans for fiscal stimulus.

Financial markets appear to be stuck in a holding pattern with investors unsure of what to do next. So far, there doesn’t seem to be any great concern that risk assets could suddenly correct to the downside or even suffer some mild profit-taking. Yet there’s also an unwillingness to add to existing exposures. This could be due to some apprehension ahead of Donald Trump’s inauguration tomorrow.

The European Central Bank (ECB) releases its rate decision this afternoon. The central bank is expected to keep monetary policy on hold so this is of limited interest. However, ECB President Mario Draghi will hold his usual press conference at 13:30 GMT. Analysts will be listening carefully to see if Mr Draghi has any response to the unexpected pick-up in inflation which came in through December’s CPI.

Stock Index Update

Global indices mixed

Investors uncertain as Trump presidency approaches

There was a generally cautious tone to yesterday’s trade in equities. The major European indices ended the session mixed with modest gains for the FTSE, German DAX and Italian MIB, and small losses for the French CAC and Spanish IBEX. It was a similar story in the US. The NASDAQ and S&P500 posted modest gains while the Dow Jones Industrial Average ended a touch lower. The Dow was weighed down by losses from Goldman Sachs and UnitedHealth.

Goldman Sachs posted a set of better-than-expected quarterly results, helped along by a surge in trading revenues. Citigroup posted better-than-expected adjusted quarterly profits, but missed the consensus estimate for sales. Despite this, shares in both banks ended lower on the day - Goldman Sachs closed down 0.6% while Citi fell 1.7%.

Investors seem unwilling to take on additional exposure to equities. But many aren’t yet ready to give up on the stock market as they look ahead to Trump’s promises of fiscal stimulus. There’s also a feeling that the US economy has finally turned a corner and is showing definite signs of improvement. The downside to this is that the Fed may be forced to tighten monetary policy more aggressively than previously forecast.

Yesterday’s US economic data was mixed. Headline CPI (which includes food and energy) rose 0.3% in December which was as expected and a touch above the prior month’s reading of +0.2%. The year-on-year number showed headline inflation at +2.1%, its highest reading since 2014. This suggests that inflation is picking up and should help to lift the Fed’s preferred inflation measure, Core PCE, up to, or even beyond, the US central bank’s 2% target. Later on, Industrial Production showed its biggest bounce-back in two years, rising +0.8% in December. However, this was tempered to some degree as November’s number was revised down to show a fall of 0.7% from -0.4% previously.

In other company news shares in Pearson ended the European session 29% lower yesterday. The former owner of the Financial Times and part-owner of The Economist now concentrates on publishing educational materials and yesterday it issued its fifth profit warning in four years. It also said that it was cutting its dividend and would be selling its stake in publisher Penguin Random House.

Commodities Update

Crude mixed as US shale production set to rise

Precious metals consolidate

Crude turned lower yesterday afternoon following comments from International Energy Agency (IEA) Executive Director Fatih Birol. Mr Birol said that rising oil prices would trigger a sharp increase in output from US shale oil producers. This is, of course, something that most traders have been expecting as oil prices rose in the wake of the agreement between OPEC and non-OPEC producers to cut output by around 1.8 million barrels per day.

Oil services provider Baker Hughes has reported an increase in US rigs since this time last year, although there was a decline last week. On Tuesday the US Energy Information Administration predicted that US shale production was set to snap a three month fall next month, thanks to the pick-up in international crude prices since November.

Gold and silver had mixed fortunes yesterday. Both metals spent most of the session consolidating above prior resistance levels (now support) despite a bounce-back in the US dollar. Gold seems to be digging in above $1,200 while silver looked happy above $17. But both dipped lower following Fed Chair Janet Yellen’s speech last night. Much now depends on where the dollar goes from here. In this respect, all eyes will be on Donald Trump’s inauguration tomorrow. The hope is that in his first speech as President, Mr Trump will prove to be as conciliatory as he was when he won the election back in November. It could be that he emphasises his wish to cut taxes and boost infrastructure spending. If so, this is unlikely to be good for precious metals as anything which is pro-growth is likely to boost inflation expectations and lift the dollar.

Forex Update

Dollar steadies after sell-off

Trump blames China for dollar strength

The US dollar steadied yesterday after Tuesday’s sharp sell-off. The greenback made solid gains against all the majors as traders booked profits on short positions or used the pull-back over the past fortnight to re-establish longs. The Dollar Index had lost over 3% between the 14-year high it hit just over two weeks ago and its low from yesterday morning. The sell-off on Tuesday followed on from comments made by Donald Trump in an interview with the Wall Street Journal. The president-elect said that the dollar was too strong and was holding back US companies from competing globally. He also blamed China for deliberately holding down the yuan to keep its exporters competitive.

But China has taken measures to slow down the yuan’s depreciation, including capital controls and using its reserves to buy the currency. Despite this the onshore USDCNY rate has appreciated by around 8% since April and at the beginning of this year came dangerously close to breaking above 7.00 - a level seen by many as a line in the sand for China’s policymakers. 

Some analysts think that the dollar’s rally may be over now that Trump has openly said that the greenback is “too strong.” However, this could just as easily be a long-overdue correction before another push higher. After all, even if Trump talks down the dollar and delivers less than promised on fiscal stimulus, it will continue to be an attractive proposition if inflation turns higher and the Fed continues to tighten.

Upcoming events

Today’s significant economic data releases and events include the latest rate decision from the European Central Bank and subsequent press conference from Mario Draghi. From the US we have Building Permits, Housing Starts, Weekly Jobless Claims, the Philly Fed Manufacturing Index and Crude Oil Inventories.


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Posted by David Morrison

Category: AM Bulletin

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