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

Dollar steadies after sell-off

Equities drift in early trade

It’s another soft start for European indices with most of the majors modestly lower in early trade. The dollar is steadier following yesterday’s sell-off while sterling has given back some of its gains, as have precious metals.

Last night Wall Street closed with modest losses across the major indices. Investors appear to be holding back from taking on additional exposure to equities ahead of Donald Trump’s inauguration this Friday. It’s most unlikely that Mr Trump’s first speech as President will prove controversial. Yet the day itself marks the official beginning of his presidency with the first major assessment of his achievements (or lack of them) coming just 100 days later.

Yesterday saw sharp falls for the dollar after Mr Trump said in an interview with the Wall Street Journal that the greenback was “too strong.” He went on to blame China for this situation. However, it’s fair to say that his campaign promises of fiscal stimulus are also responsible. His plans for tax cuts, infrastructure spending and regulatory roll-back are all pro-growth but have also raised inflation expectations. As the US Federal Reserve is already tightening monetary policy while other developed-world central banks remain excessively accommodative, it’s hardly surprising the dollar hit a 14-year high against a basket of currencies just over a fortnight ago.

Today brings earnings reports from Citigroup (C) and Goldman Sachs (GS). Yesterday Morgan Stanley (MS) reported better-than-expected earnings.

Stock Index Update

US indices end modestly lower

Sterling rally weighs on FTSE100

US indices ended yesterday’s session modestly lower as investors pondered the likelihood that Donald Trump’s policy proposals will continue to goose risk assets. This uncertainty follows two months of post-election gains on hopes that a Trump presidency will unleash a wave of fiscal stimulus to boost the US economy. However, some profit-taking has begun to take place ahead of Friday’s inauguration.

European equities and US stock index futures were all weaker in early trade yesterday. The sell-off came as US traders returned from their extended holiday weekend and after Donald Trump said in an interview with the Wall Street Journal that the dollar was “too strong.” Investors were also cautious ahead of key speeches from UK Prime Minister Theresa May and China’s President Xi Jinping. Mr Jinping is the first Chinese premier to attend the World Economic Forum in Davos. He opened the forum with a speech in which he said that nobody would emerge as a winner in a trade war.

There were no unpleasant surprises from Mrs May as most of her key “12 objectives” had been trailed in some detail ahead of her speech. Nevertheless, no one was left in any doubt that the UK government is preparing for a “hard Brexit.” Despite this, sterling rallied sharply. There was widespread relief that at last investors know the UK’s starting position for negotiations. Also, some analysts felt that Mrs May’s promise to give both Houses of Parliament the opportunity to vote on a final deal was market-positive.

But the rally in sterling weighed on the FTSE100 which ended the day sharply lower. The stronger pound is generally viewed as negative for UK multinationals as their goods become more expensive to overseas customers. Other European indices were mixed on the close.

Commodities Update

Crude rallies sharply after quiet start

Gold and silver take out resistance

Crude was little-changed first thing yesterday. However, it shot higher soon after the European open, boosted to some extent by the sell-off in the US dollar. It gave back these gains later in the day on suggestions that Brazil was not in a position to reduce output. But then it subsequently rallied sharply.

There has been plenty of recent speculation that OPEC members will fail to cut output by 1.2 million barrels per day (bpd) as agreed at their meeting last November. At the same time, non-OPEC producers (led by Russia) promised an additional 600,000 bpd of cuts. But Saudi Arabia which is both the world’s top producer and exporter has stated that it is committed to its promise to stick to the quotas agreed last year. However, on Monday Saudi oil minister Khalid Al-Falih said that there was no reason to extend the planned production curbs beyond June as oversupply would no longer be a problem by then. But analysis carried out by Bloomberg suggests that the planned cuts would need to stay in place until the end of this year to eliminate the current global supply glut.

There were big gains for precious metals yesterday. Gold surged above resistance around the $1,200 mark while silver punched through $17 - an area which acted as a barrier to gains last week and also in early December. Both metals got a boost overnight from the sell-off in the US dollar. The greenback was sharply lower after president-elect Donald Trump said that the dollar was too strong, preventing US companies from competing globally.

Some analysts think that the dollar’s rally may be over now that Trump has attempted to talk it down.  If so, then gold and silver could have more upside - particularly if the Dollar Index breaks back below 100. However, this could just as easily be a long-overdue correction before another push higher for the greenback. 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.

Forex Update

Dollar slumps after Trump says “too strong”

Sterling jumps as PM May outlines UK’s Brexit aims

The US dollar fell sharply yesterday after president-elect Donald Trump said that it was too strong and was holding back US companies from competing globally. Mr Trump said that China was deliberately holding down the yuan and so a major contributor to dollar strength. Yet it’s apparent that China isn’t particularly happy with the yuan depreciation which has taken place since April. The Chinese authorities have imposed capital controls in an effort to stem the outflows of currency from the country. Also, back in the summer they sold US Treasuries and used the proceeds to buy yuan. Despite this the onshore USDCNY rate has appreciated by around 8% since April and came dangerously close to breaking above 7.00 at the beginning of this year - a level seen 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.

Yesterday’s other big FX move was in sterling. This soared after Theresa May’s speech on the UK leaving the European Union. By the European close cable was up around 2.7% for its biggest intra-day gain in nearly 20 years. There were a few factors which contributed to this. Firstly, sterling was oversold with cable hitting its lowest level on Monday since October’s flash-crash. Secondly, Mrs May said that parliament would have a chance to debate the deal in its final stages. Thirdly, most of the Brexit aims had already been made public and nothing further which could be considered market-negative came out in the speech. Mrs May also did a good job of talking up the European Union while warning it to behave saying, “No deal for Britain is better than a bad deal for Britain.” Overall, the UK government intends to take back control of migration from the EU and sovereignty from the European Court of Justice. This also means withdrawing from the Single Market. Mrs May hopes that some form of mutually agreeable accommodation could be reached over the customs union.

There was also a pick-up in UK inflation in December as measured by both CPI and RPI. This is evidence that sterling’s weakness since the UK’s referendum vote in June last year is feeding through.

Upcoming events

Today’s significant economic data releases include UK employment data, including Average Earnings and Euro zone CPI. From the US we also have CPI, Capacity Utilisation and Industrial Production. We have speeches from FOMC-voting member Neel Kashkari and Fed Chairman Janet Yellen. There is also a rate decision and press conference from the Bank of Canada.


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Posted by David Morrison

Category: AM Bulletin

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