Incisive market commentary from David Morrison

Stay ahead with our market commentary and webinars from our in house market strategist

Open a Live AccountOpen a Demo Account
+ Show blog menu



Collapse 2017 <span class='blogcount'>(348)</span>2017 (348)
Expand November <span class='blogcount'>(26)</span>November (26)
Expand October <span class='blogcount'>(24)</span>October (24)
Expand September <span class='blogcount'>(33)</span>September (33)
Expand August <span class='blogcount'>(26)</span>August (26)
Expand July <span class='blogcount'>(32)</span>July (32)
Expand June <span class='blogcount'>(28)</span>June (28)
Expand May <span class='blogcount'>(35)</span>May (35)
Expand April <span class='blogcount'>(31)</span>April (31)
Expand March <span class='blogcount'>(38)</span>March (38)
Collapse February <span class='blogcount'>(36)</span>February (36)
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)
 Monday 13 February 2017

Equity rally continues - AM Briefing



Early moves

Fresh record close on Wall Street

Eyes turn to Yellen testimony

US stock index futures are firmer in early trade with investors seemingly uninterested in booking profits following Friday’s sharp rally. European equities are also playing catch-up with Wall Street. All the US majors closed out at fresh record highs last week after President Trump promised some big news on tax within the next few weeks. He also spoke to Chinese premier Xi Jinping and promised to honour the “one China” policy. This has helped to restore positive sentiment after investors suffered a rocky fortnight thanks to Trump’s attempted travel ban and protectionist rhetoric.

But it’s unlikely that a vague promise on tax will be enough on its own to keep equities heading higher. Investors will want to see some meat on the bone. But before that happens attention will once again turn to the US Federal Reserve and the outlook for monetary policy. Janet Yellen testifies in Washington tomorrow and Wednesday and investors will be listening out for clues over future tightening. The Fed has signalled that it expects to raise rates by 75 basis points this year. However, recent data suggests that wage growth is tepid and won’t be adding to inflation anytime soon. This could stay the Fed’s hand for now, although Yellen may well hint that the central bank is keeping an open mind when it comes to next month’s meeting. If so, then this should give the dollar a lift and may take some of the recent gloss off equities.

Stock Index Update

US indices post fresh records

Trump rally resumes on tax promise

The US majors hit fresh record highs at the end of last week as investors continued to respond to the promise of fiscal stimulus from the Trump administration. On Thursday President Trump said his administration would be announcing “something over the next two or three weeks that will be phenomenal in terms of tax.” This had investors forgetting their concerns over the president’s protectionist rhetoric and his thwarted attempt to impose a travel ban on individuals from seven predominantly Muslim countries. Instead, the focus turned back to the prospect of a more business-friendly environment than the US has seen for many years. But despite the stock market getting a second wind after trading sideways since mid-December, there are concerns that equities are becoming overvalued. This is particularly the case as the fourth quarter earnings season has been decidedly mixed with disappointing forward guidance.

Meanwhile, the European majors (with the exception of the Italian MIB) ended Friday modestly higher. Overall, investors were able to capitalise on the positive sentiment coming out of Wall Street. Also adding to this was the news last week that Trump had spoken to Chinese premier Xi Jinping and promised to honour the “one China” policy. This should diffuse some of the tension that has existed between the two leaders following Trump’s call with Taiwan’s president back in December and his criticism of China concerning supposed currency manipulation.

Commodities Update

WTI and Brent retest resistance

Gold and silver post further gains

Brent and WTI performed a complete “round trip” over the course of last week. Both started off testing resistance at $57 and $54 respectively, then plunged to support around $54 and $51 before soaring back up to resistance again on Friday afternoon.

Oil was on the back foot after the Energy Information Administration (EIA) forecast a fall in global demand growth for 2017 and 2018. Then the American Petroleum Institute (API) reported an extraordinarily large build in US crude inventories which was confirmed by the EIA data release on Wednesday. However, traders covered their shorts as the EIA also reported a drawdown in gasoline stocks. This fresh upside momentum was given another boost after the Iranian and Qatari oil ministers suggested that the November production cut agreement should extend beyond the June deadline, despite an impressive compliance rate. OPEC estimates that daily production in January was 32.89 million barrels, versus a target of 32.5 million barrels. This suggests a compliance rate of 91% - well above both the 60% generally expected, and the 80% reported a fortnight ago. The International Energy Agency (IEA) said OPEC had achieved record initial compliance of 90% while demand grew faster than expected. In addition, it appears that Saudi Arabia - the leading OPEC member and the world’s largest producer - set a fine example by cutting output by more than it had committed to at the Vienna meeting in November. On the flip side, the IEA reported that US producers are taking advantage of higher prices to boost daily output to the highest level since April. Consequently, all eyes are focused on what crude does now as it once again tests resistance.

After a strong showing at the beginning of last week, gold and silver appeared to lose upside momentum as the weekend approached. There was a feeling that both precious metals were overdue a correction after a solid rally which began at the end of last year. However, it appears that investors are quite content to use any pull-back as an opportunity to increase their exposure to the two precious metals. This was the case despite the dollar putting in a strong performance with the Dollar Index posting its first positive week since mid-December. Typically, gold and silver (along with other dollar-denominated commodities) find themselves out of favour with investors when the dollar is rallying. Both metals found buyers even as a number of major stock indices hit record highs. This suggests perhaps that although investors have plenty of risk appetite as they consider the prospect of Trump’s promised tax cuts, they are also hedging their bets to some extent and increasing their exposure to precious metals as a hedge. Investors are also convinced that the Fed will hold off from hiking rates at next month’s FOMC meeting. However, they should probably not get too carried away until they hear Janet Yellen’s testimony in Washington tomorrow afternoon.

Forex Update

USD rallies into weekend

Trump builds bridge with China

The dollar crept higher on Friday to round off an impressive week which saw the Dollar Index post its first positive week since mid-December.  The greenback had fallen sharply since the beginning of the year when it briefly hit a fourteen year high against the euro. The rally comes despite investors toning down their expectations for a Federal Reserve rate hike next month. Instead, the dollar has bounced as investors viewed it as oversold to some extent, especially considering the political uncertainty across the euro zone. Next month brings a general election in Holland, followed by the presidential election in France which will probably be decided over two rounds in April and May.  There are concerns that in both cases Eurosceptic candidates could do well enough to threaten the future of the Euro zone.

But the dollar also found support after President Trump said his administration would be announcing “something over the next two or three weeks that will be phenomenal in terms of tax.” This has helped to take the focus off Trump’s protectionist rhetoric and his apparent difficulties in imposing a travel ban. On top of this it appears that Mr Trump spoke to Chinese premier Xi Jinping and promised to honour the “one China” policy. This should diffuse some of the tension that has existed between the two leaders following Trump’s call with Taiwan’s president back in December and his criticism of China concerning supposed currency manipulation. But traders will be wary in case the Trump administration attempts to talk down the dollar again.

Upcoming events

Today’s significant economic data releases and events include German WPI and the Bundesbank Monthly Report.


Spread Co is an execution only service provider. The material on this page is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by Spread Co Ltd or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.


Posted by David Morrison

Category: AM Bulletin

Add a comment Add comment            


© 2018 Spread Co Limited. All Rights Reserved.

Spread Co Limited is a limited liability company registered in England and Wales with its registered office at 22 Bruton Street, London W1J 6QE. Company No. 05614477. Spread Co Limited is authorised and regulated by the Financial Conduct Authority. Register No. 446677.

Spread betting and CFD trading are leveraged products and can result in losses that exceed your deposits. Ensure you understand the risks.

Losses can exceed deposits. Click here to learn more.