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

- Dow holds above 20,000

- US dollar steady

European stock indices are sharply lower this morning as investors react to President Trump’s immigration curbs. There’s been widespread condemnation of Trump’s executive action and overall his decision has been interpreted as divisive and isolationist. It’s also seen as symptomatic of an administration prepared to turn its back on a world unless it gets its own way on everything.

US stock index futures are also weaker in early trade although the Dow is still trading above 20,000. The question now is whether this latest move in US stock indices is the precursor of another leg higher or a final blow-off before we get a sizable downside correction. As things stand, markets remain calm. But investors are looking ahead to a busy week with central bank meetings for Japan, the US and UK with US Non-Farm Payrolls on Friday.

Stock Index Update

- Dow holds above 20,000

- US GDP and Durable Goods disappoint

European and US stock indices ended mixed on Friday to end a week which saw the Dow break above 20,000 for the first time ever, and fresh record closes for the S&P and NASDAQ. This was somewhat anticlimactic end to the week given the apparent pick-up in risk appetite earlier on as Donald Trump’s presidency kicked off. Initially Mr Trump made some market-negative comments about trade tariffs and taxing imported products manufactured by US companies overseas. However, he was soon signing executive orders to help expedite the construction of the Keystone XL and Dakota Access pipelines while ensuring that only US-manufactured steel would be used in the projects. President Trump also took measures to reduce the influence of regulations covering manufacturing and the environment. He told business leaders that he was confident of cutting back around 75% of existing regulations and thereby freeing up businesses and commerce. At the same time he’s made an assurance that rules would still be “just as protective of the people.”

Friday brought the release of some disappointing US economic numbers. Advance GDP for the fourth quarter came in at +1.9% annualised. This was well below the 3.5% recorded in the third quarter and less than the 2.1% consensus expectation. In the absence of a significant upside revision this suggests that overall growth for 2016 is capped at 1.9%. However, economists expect a decent pick-up for 2017 with the latest survey from Bloomberg giving a median projection of +2.3%.

Meanwhile, Core Durable Goods rose 0.5% last month in line with expectations. However, it declined by 0.4% when transportation items were included which was well below the +2.7% consensus expectation. The durable goods numbers are notoriously volatile. Nevertheless, the data appears to contradict surveys for manufacturing and services which were very bullish at the end of last year. We get an update on the key ISM Manufacturing and Non-Manufacturing PMIs later this week, along with Non-Farm Payrolls.

Commodities Update

- WTI backs away from resistance

- Surprise late rally in silver

On Friday crude oil gave back some of its gains from earlier in the week. Analysts blamed the sell-off on concerns that a sharp pick-up in US production will offset the “positive” effects of the output cuts agreed in November between OPEC and a number of major non-OPEC producers. Crude oil had rallied sharply in advance of that meeting and rose further once the agreement was announced. This was to cut output by around 1.8 million barrels per day (bpd). So far, they’ve managed to reduce output by around 1.5 million bpd. Earlier this month both WTI and Brent hit their highest levels since July 2015.

But the question now is whether crude can maintain this upside momentum should US production continue to accelerate. There’s a feeling that oil prices could be capped by a sharp pick-up in US shale oil output. At the end of last week oil services provider Baker Hughes reported another increase in the oil and gas rig count. There were also larger than expected builds in US crude stockpiles. In addition, figures show that overall US production has risen by 6.3% since last summer to 8.96 million bpd. It’s also worth noting that front month WTI is running into resistance around $54 per barrel, and it will need to break and hold above here to give traders the confidence to increase their long-side exposure.

There was a build-up of selling pressure in gold and silver last week. Both metals were on course to record their worst week in over a month, until there was a sharp, inexplicable rally in silver shortly before the European close. The two precious metals had rallied sharply since mid-December following the vicious sell-off which followed Donald Trump’s surprise victory in the US presidential election. Many investors were wrong-footed by the surge in the dollar after Trump’s win. This came on the back of increased growth and inflation expectations on the back of Trump’s campaign promises to cut taxes, roll back regulations and boost infrastructure spending. Dollar strength, together with the anticipation of Fed rate hikes and a return of risk appetite led to a slump in precious metals. This was only reversed as it became apparent in mid-December that both were seriously oversold. But it now looks as if some consolidation is in order, particularly as gold failed to break above resistance at $1,220. Much will now depend on where the US dollar goes from here. This has also pulled back from recent highs. But if it manages to rally from here then it will put more downside pressure on the two precious metals.

Forex Update

- Dollar Index hovering around 100

- Trump’s first week boosts risk appetite

The dollar began last week on the back foot, continuing a sell-off that began in the New Year. On the first trading day of January the Dollar Index hit a 14-year high while the EURUSD fell to a 14-year low. However, the greenback has declined steadily ever since and last week the Dollar Index broke back below the technically significant 100 level for the first time since early December. But it suddenly found some support as investors rushed back in to trigger a sharp rally on Thursday. The move seemed to be technical rather than anything else, although the dollar probably got a bit of a lift on the inflation trade. This stems from Trump’s election victory back in November when investors suddenly woke up to what that could mean in terms of fiscal stimulus. Mr Trump promised tax cuts for corporations and individuals, a regulatory roll-back and a raft of infrastructure spending. All this has boosted growth and inflation expectations, particularly as any fiscal stimulus would come on the back of the US Federal Reserve hitting its employment target and being well on track to achieve 2% inflation. The dollar rallied sharply, helped on its way by a 25 basis point rate hike from the Fed in December with a forecast of an additional 75 basis points to come over the rest of the year.

At the beginning of the week Mr Trump signed a number of business-friendly executive orders including two which will expedite the completion of the Keystone XL and Dakota Access pipelines.


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Posted by David Morrison

Category: AM Bulletin

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