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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
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Early moves

·         Fresh record close on Wall Street

·         Eyes turn to Yellen testimony

European indices are a touch weaker this morning despite a fresh record close for the Wall Street majors last night. The dollar is a touch weaker while precious metals and oil have firmed up.

The rally in equities comes after Donald Trump promised something “phenomenal” when it came to taxes. However, the focus now turns to Fed Chair Janet Yellen and her testimony before the Senate Banking Committee in Washington later today. Investors will be listening out for any clues as regards the timing of rate hikes for the rest of this year. Back in December members of the FOMC produced its quarterly Summary of Economic Projections. In this the consensus coalesced around a forecast of 75 basis-points worth of tightening in 2017. This suggests three 25 basis point hikes. Now, Dr Yellen may want to prepare the markets for the possibility of a hike next month. This would give her the flexibility to make four hikes this year, or avoid suggesting that the Fed would make three in a row. But earlier this month data showed that wage pressure inflation was tepid and that persuaded many investors that the Fed may not be in any great hurry to raise rates this year. On top of this the CME FedWatch Tool shows investors assign just a 13% probability of a March hike. In addition, on Saturday Vice-Chair Stanley Fischer pointed out just how uncertain the fiscal outlook was given the novelty of the Trump administration. Overall it’s fair to say that the dollar will fly higher and equities pull back if Dr Yellen suggests March is live.

Stock Index Update

·         Global indices fly higher

·         Market rallies on Trump tax promise

Global indices flew higher yesterday carrying on the breakout rally which began soon after Donald Trump’s surprise election victory. This came on the back of Trump’s campaign promises to cut taxes, boost infrastructure spending and roll back regulations. However, the rally appeared to be running out of steam as the Trump administration got bogged down over a seemingly ill-conceived travel ban and a volley of protectionist rhetoric.   But last week Mr Trump said that he would be announcing details of a “phenomenal” plan on taxes within the next three weeks. His statement galvanised traders and investors alike who rushed to increase their exposure to equities in belief that a large dollop of fiscal stimulus would soon one on its way.

Yesterday the European Commission released its latest economic forecast and highlighted a number of political headwinds for the Euro zone. These included uncertainty over Brexit, elections in Holland, France and Germany and the lack of clarity over policies from the Trump administration. It expects growth across the Euro zone to slow to 1.6% in 2017, down from 1.7% last year.

Over the weekend Federal Reserve Vice Chair Stanley Fischer said that there was significant uncertainty about US fiscal policy under the Trump administration. However, he went on to say that the Fed would be strict when it came to meeting targets for maximising employment and hitting its 2% inflation target.

Commodities Update

·         WTI and Brent remain range bound

·         Gold and silver lose ground as risk appetite increases

Yesterday Brent and WTI pulled back from resistance around $57 and $54 respectively. Yet again, traders seem unwilling to commit to pushing crude outside the relatively tight $3 range that’s been in place since early December. This not only means that resistance is holding, but that support is too. This comes in around $51 for WTI and $54 for Brent.

The fundamental price drivers remain unchanged. At the end of last week oil services company Baker Hughes reported that the US rig count now stands at 591 - its highest level since October 2015. The report also showed that last month drillers added the most rigs since 2012. The pick-up in activity amongst US drillers is helping to keep a lid on prices. Last week the International Energy Agency (IEA) reported that US producers are taking advantage of higher prices to boost daily output to the highest level since last April. At the same time, US inventories continue to grow. Both the American Petroleum Institute (API) and Energy Information Administration reported a sharp build-up in crude stockpiles for the week ending 3rd February. We get an update from API after tonight’s close with the EIA reporting tomorrow. Meanwhile, yesterday OPEC updated its production figures from cartel members. It now reckons that output is down by 890,000 barrels per day to 32.14 million barrels per day. Reuters calculates that this represents compliance of around 93%.

Gold and silver both lost ground yesterday. The moves were linked to the dollar which made decent gains against all of the majors. However, the overriding reason for the sell-off seemed to have more to do with positive market sentiment which is lessening the appeal of the two precious metals. The major US stock indices traded at fresh record highs yesterday and investors appear to be going back into full risk-on mode. This reduces the appeal of gold and silver which have benefitted recently as safe-havens as concerns grew over Donald Trump’s presidency. This followed Mr Trump’s protectionist rhetoric and his inability to implement his travel ban. However, last Thursday the president put fiscal stimulus back on the agenda when he promised to announce something “phenomenal” on the tax front within the next three weeks. However, it  looks as if it will be monetary policy which will take centre stage today as Fed Chair Janet Yellen testifies before the Senate Banking Committee in Washington.

Forex Update

·         USD builds on last week’s gains

·         Investors to focus on Yellen testimony

The US dollar continued to recover yesterday making solid gains against the euro, Japanese yen and Swiss franc. As much as anything these currency moves indicated that investor risk appetite is improving after a brief hiccup in the New Year. Typically, investors sell (borrow) low-yielding currencies such as the yen and Swiss franc and use the proceeds to buy riskier, higher-yielding currencies and assets. Yesterday investors drove the major US stock indices to fresh record highs after Donald Trump rebooted expectations that significant fiscal stimulus is on its way. This came after his comment last week that his administration would be announcing “something over the next two or three weeks that will be phenomenal in terms of tax.” Last week 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.

Over the weekend Mr Trump met with Japanese Prime Minister Shinzo Abe. However, it appears that neither side brought up the subject of currency strength. This is despite Mr Trump accusing Germany, China and Japan of getting a favourable trading advantage by cashing in on currency weakness. Japan's fourth quarter 2016 GDP came in at an annualized pace of 1%, roughly in line with analysts' expectations, helped by a weaker yen. This also helped to take the pressure off Mr Abe and his controversial programme of "Abenomics".

Upcoming events

Today’s significant economic data releases and events include Swiss PPI and CPI. From the UK we have inflation data in the form of CPI and RPI. From the Euro zone we have Flash GDP, Industrial Production, the ZEW Economic Sentiment survey and the German ZEW Economic Sentiment survey. From the US we have PPI, the Fed Monetary Policy Report and Fed Chair Janet Yellen’s testimony before the Senate Banking Committee.

Disclaimer:

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


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