Incisive market commentary from David Morrison

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Collapse 2017 <span class='blogcount'>(348)</span>2017 (348)
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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)


Firmer start for European indices

Crude rally helps lift equities

There’s a positive tone across European equity markets this morning. Investors appear to be shrugging off the concerns which overhung the markets at the end of last week and looking to increase their exposure to risk. Mainly this is down to a late recovery on Wall Street on Friday which saw the Dow rally off a triple point loss to end the session higher, posting its longest winning streak in 25 years. 

Crude oil appears ready to make a decisive break above resistance which has held since early December. The front month WTI contract is pushing further above $54 while Brent is once again making another assault on $57. This is helping to offset some nervousness ahead of Donald Trump’s key speech to Congress tomorrow. There’s a lot riding on this. Many investors are hoping that President Trump will finally reveal his plans for tax reform and infrastructure spending. However, last week Trump’s Treasury Secretary Steven Mnuchin gave an interview in which he appeared to warn the markets not to expect too much too soon. While he said that tax reform was the cornerstone at the base of this administration’s pro-growth agenda, it could all take time to implement. Nevertheless, for now the feeling seems to be that Trump is good for business and that any stock market pull-back, however minor, should be treated as nothing more than a fresh buying opportunity. Consequently, there’s plenty of scope for disappointment.

Stock Index Update

Investors cautious ahead of Trump speech

Fourth quarter earnings disappoint

European stock indices lost ground at the end of last week. Investors reduced their exposure to equities ahead of President Trump’s speech before both houses in Congress tomorrow. But there were also some concerns about the political situation across Europe which showed up in plunging yields on German debt. Yields fall as bond prices rise and German bunds were in demand as a safe-haven play ahead of upcoming elections in Holland and France. The move spooked investors across Europe and German equities were particularly badly hit. The DAX ended Friday’s session 1.3% lower.

Friday saw continued weakness in the mining sector. In addition a number of European companies released their earnings for the fourth quarter. These were generally pretty unimpressive with disappointments from BASF and Vivendi while UK banking giant Royal Bank of Scotland posted its ninth consecutive year-on-year loss. Education publisher Pearson reported its biggest ever loss of £2.24 billion, thanks mainly to a charge for impairment of goodwill in the US of £2.55 billion. Pearson has issued four profit warnings in five years.

Commodities Update

Crude fails to hold above resistance

Good week for precious metals

On Friday crude oil pulled back from its best levels as traders reduced their exposure ahead of the weekend. This meant that WTI and Brent have yet to make a significant break above resistance leaving both contracts vulnerable to a pull-back from current levels. Earlier in the week it looked as if crude was finally set for an upside breakout after trading in a narrow and tightening range since early December. Oil was supported by comments from OPEC Secretary General Mohammad Barkindo who said that OPEC compliance on promised supply cuts ran at 90% in January. On top of this it appears that OPEC and non-OPEC producers are considering extending their output cuts beyond June to year-end. There’s also some talk of increasing the output cut by more than the 1.8 million barrels per day currently agreed. In addition, US inventories came in lower than expected. However, it appears that there’s record long positioning amongst speculators which could mean that there aren’t enough buyers left to push crude much higher from here.

Gold and silver got a lift towards the end of last week thanks mainly to a weaker dollar. The rally saw both precious metals hit their highest levels since 11th November, just two days after Donald Trump’s surprise victory in the US presidential election. Both metals have climbed steadily since the end of December. However they had been struggling to break above significant resistance which came in at $18 for silver and around $1,240/50 for gold. But they finally broke through towards the end of last week. The initial push higher followed the release of minutes from the last Fed meeting. FOMC members seemed in favour of further monetary tightening, but were also concerned about continued uncertainty surrounding the fiscal outlook. This led credence to fears that Trump may fail to deliver on his big promises of tax reform and infrastructure spending. Trump is expected to announce his plans on this when he addresses Congress tomorrow. But last week his Treasury Secretary Steven Mnuchin suggested that the administration’s reforms could take time to implement. This appeared to be preparing investors for possible disappointment.

Forex Update

US dollar marks time ahead of Trump speech

Investors fret that Trump could disappoint

The US dollar spent its second consecutive week effectively unchanged, yet with a small upside bias. Despite this, sentiment at the end of last week was slightly more bearish than we’ve seen recently. This stemmed from concerns that the Trump administration’s plans for tax reform may take longer to implement, or be slower to have the desired positive effect on growth than previously anticipated. President Trump is due to address both houses in Congress tomorrow and there are hopes that he will announce details of his plans for tax reform and infrastructure spending. But there appears to be some nervousness ahead of this event. Partly it’s because so much appears to be riding on Trump’s plans.

The dollar rallied sharply in the aftermath of Trump’s election win as investors factored in the effects his promises of fiscal stimulus would have on growth and inflation expectations. However, the dollar has pulled back from the multi-year highs hit at the beginning of the year. This is partly to do with a lack of clarity over fiscal policy, together with fears that the new administration won’t be able to deliver on its promises, or that it will take some time for any positive effects to filter through.

On Thursday Donald Trump’s new Treasury Secretary Steven 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. But he also warned that steps taken by the administration were unlikely to have any effect this year.

Upcoming events

Today’s significant economic data releases and events include Spanish Flash CPI and the Euro zone M3 Money supply. From the US we have Durable Goods, Pending Home Sales and a speech from FOMC-voting member Robert Kaplan.


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Posted by David Morrison

Category: AM Bulletin

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