Incisive market commentary from David Morrison

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Market awaits Trump, and Fed reaction
28 Feb 2017
Markets on hold ahead of Trump speech to Congress - AM Briefing
28 Feb 2017
Fibonacci Retracement - an introduction - Trading Guides
27 Feb 2017
Investors shrug off concerns ahead of Trump speech - AM Briefing
27 Feb 2017
Equities drifting lower ahead of weekend - AM Briefing
24 Feb 2017
Dollar sells off after FOMC minutes - Video Update
23 Feb 2017
FOMC minutes send dollar lower - AM Briefing
23 Feb 2017
Crude oil pushes up against resistance - Video Update
22 Feb 2017
FOMC minutes in focus - AM Briefing
22 Feb 2017
Gold pulls back from resistance - PM Bulletin
21 Feb 2017
US traders return after market holiday - AM Briefing
21 Feb 2017
Identifying market tops, or the trend is your friend - until it isn’t
20 Feb 2017
Kraft Heinz pulls Unilever bid - AM Briefing
20 Feb 2017
Major indices drifting lower as weekend approaches - AM Briefing
17 Feb 2017
US Indices hit fresh record highs
16 Feb 2017
Trump tax promise continues to drive risk appetite - AM Bulletin
16 Feb 2017
Yellen testifies in Washington
15 Feb 2017
Yellen testimony helps lift sentiment - AM Bulletin
15 Feb 2017
Silver hovers around resistance at $18
14 Feb 2017
Focus turns to Yellen’s testimony in Washington
14 Feb 2017
An introduction to the Relative Strength Index - Trading Guides
13 Feb 2017
Equity rally continues - AM Briefing
13 Feb 2017
Trump tax talk boosts risk appetite - AM Briefing
10 Feb 2017
US dollar drivers - Video Update
09 Feb 2017
Recovery in crude lifts equities AM Briefing
09 Feb 2017
Crude volatility picking up - Video Update
08 Feb 2017
Crude lower as inventories soar - AM Briefing
08 Feb 2017
Politics set to drive FX - PM Bulletin
07 Feb 2017
Major indices drift in featureless trade - AM Briefing
07 Feb 2017
MACD - an overview -Trading Guide
06 Feb 2017
European equities drift in quiet trade - AM Briefing
06 Feb 2017
Non-Farm Payrolls in focus - AM Briefing
03 Feb 2017
Non-Farm Payroll look-ahead - Video Update
02 Feb 2017
BoE meeting in focus - AM Briefing
02 Feb 2017
FOMC meeting tonight - Video Update
01 Feb 2017
Markets steady ahead of Fed meeting - AM Briefing
01 Feb 2017
Expand January <span class='blogcount'>(39)</span>January (39)
Expand 2016 <span class='blogcount'>(483)</span>2016 (483)


Stock indices drift ahead of major Trump speech

Dollar lower as investors discount March rate hike

There’s a somewhat bored and listless atmosphere hanging over equity markets this morning. This follows on from some mixed earnings across the UK and Europe and some caution ahead of President Trump’s speech to Congress next week. Hopes are high that Trump will announce big plans for tax reform and infrastructure spending when he addresses both Houses on Tuesday. This is helping to keep a bid under US stocks which last night saw the Dow hit its 10th consecutive record close.

It’s also worth noting that market participants really don’t expect the Fed to hike rates next month, no matter what FOMC members are saying. This is reflected by the pull-back in the US dollar which has brought the Dollar Index back below 101.00. Partly this is to do with uncertainty over the outlook for fiscal stimulus. But it’s possible the situation could become clearer after Trump’s speech on Tuesday. Then attention will turn to speeches next Friday from Fed Chair Janet Yellen and her deputy Stanley Fischer.

Trump’s new Treasury Secretary Steven Mnuchin gave an interview yesterday where he said that the administration’s number one aim was to boost economic growth and tax reform was the cornerstone of this agenda. He said that that this reform would be very significant, focusing on tax cuts for middle income earners. The system would be simplified and that business tax would be made competitive with the rest of the world. This would stem the flow of multinationals that had moved their operations overseas and help to bring cash back from offshore. Mr Mnuchin said he expected Congress to have worked its way through the reforms by the August recess. However, he also said that any steps taken by the administration were unlikely to have any effect this year. The Treasury secretary also said the administration still aims for "sustainable growth of 3 percent or more." He said he expects to hit that mark more toward the end of next year.

Stock Index Update

RBS posts 9th consecutive year of losses

Mixed earnings dampens European equities

Royal Bank of Scotland (RBS) reported a loss of £6.95 billion for 2016, which means that the bank last posted a profit back in early 2008 - just ahead of the financial crisis that it played such a big part in. But the loss in2015 was a mere £1.98 billion, and last year’s dismal number came as a result of a string of “one-off” cost-cutting and litigation items. Nevertheless, investors took the news calmly with the stock down less than 2% soon after the open.

The FTSE100 along with all the European majors closed lower yesterday. While there was little evidence that overall risk appetite was on the wane, it seemed that investors were wary of adding to their exposure to equities. Part of this reluctance seemed to be to do with some mixed corporate earnings. Mining and trading conglomerate Glencore posted a 48% increase in 12-month profits. These came in at $1.99 billion on expectations of $1.59 billion. This marked a dramatic turnaround in the company’s fortunes which could be marked by the payment of a special dividend later this year. The stock ended the day 1.7% higher. However, this was one of the few bright spots in the mining sector as Antofagasta, Anglo American and Rio Tinto all featured in the weakest half dozen performers in the FTSE100.

Meanwhile, after a firmer start shares in Barclays drifted lower yesterday and this weighed on the European banking sector. The UK-based banking giant reported an improvement in its capital buffers although net profits for 2016 came in below expectations. Pre-tax profits came in at £3.2 billion which was up 182% on the same time last year. However, this was below the consensus expectation and the shares ended the day just under 2.6% lower.

Commodities Update

Falling US inventories boost crude

Precious metals rally on dollar weakness

Crude oil shot higher in early trade yesterday in a move that saw both WTI and Brent burst above their respective resistance levels of $54 and $57. The rally followed the release of the latest inventory update from the American Petroleum Institute (API). This showed an unexpected drawdown in stockpiles of 884,000 barrels on expectations of a 3.3 million barrel build and went against the recent trend. Then yesterday afternoon the US Department of Energy’s Energy Information Administration (EIA) released its own update. This showed a build in crude stocks of 600,000 barrels which was well below the 3.4 million barrels expected. The news helped to support crude as did the news that gasoline stockpiles fell by 2.6 million barrels for the week ended 17th February. But prices subsequently pulled back from their best levels. Traders will be keeping a very close eye on how the markets finish tonight for any indication that oil will struggle to break and hold above resistance.

Gold and silver were little-changed in early trade yesterday. This was despite the pull-back in the US dollar which followed the release of minutes late on Wednesday of the FOMC meeting earlier in the month. The dollar fell despite the minutes indicating that members were comfortable with further monetary tightening. This was predicated on inflation as measured by Core PCE continuing to head up towards the Fed’s 2% target and on unemployment staying below 5% or so.  Yet investors seemed more concerned by indications that Fed members were concerned about the uncertainty of the fiscal outlook. The two precious metals rallied sharply mid-way through the European session as the dollar sell-off accelerated. This followed comments from new Treasury Secretary Steven Mnuchin when he said he expects to see “very significant” tax reform passed by Congress before the August recess.

Forex Update

US dollar falls further

Trump’s Treasury Secretary talks about tax reform

All eyes were on the US dollar yesterday as it continued declines from the previous session. The catalyst for yesterday’s pull-back was comments from Donald Trump’s new Treasury Secretary Steven Mnuchin. Mr Mnuchin said that (economic) growth was “number one” on the new administration’s agenda and that tax reform was the most important aspect of this. He said that that this reform would be very significant, focusing on tax cuts for middle income earners. The system would be simplified and that business tax would be made competitive with the rest of the world. This would stem the flow of multinationals that had moved their operations overseas and help to bring cash back from offshore. Mr Mnuchin said he expected Congress to have worked its way through the reforms by the August recess. However, he also said that any steps taken by the administration were unlikely to have any effect this year.

The euro also found support following comments from German Bundesbank President and member of the ECB’s Governing Council Jens Weidmann. Mr Weidmann said he didn’t support recent moves by the ECB to loosen monetary policy.

Upcoming events

Today’s significant economic data releases and events include UK BBA Mortgage Approvals and Canadian CPI. From the US we have New Home Sales, Consumer Sentiment and Inflation Expectations.


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Posted by David Morrison

Category: AM Bulletin

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