Incisive market commentary from David Morrison

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Bounce in oil helps to steady equities - AM Briefing
30 Mar 2017
US stock indices consolidate - Video Update
29 Mar 2017
Risk appetite returns - AM Briefing
29 Mar 2017
S&P500 - Topping out, or consolidating? PM Bulletin
28 Mar 2017
Risk appetite returns after the Trump wobble - AM Briefing
28 Mar 2017
Beware hidden relationships between seemingly unrelated markets - Trading Guides
27 Mar 2017
Risk assets slump in wake of Trump’s healthcare debacle - AM Briefing
27 Mar 2017
Congress vote puts markets on hold - AM Briefing
24 Mar 2017
Markets on hold ahead of crucial vote - Video Update
23 Mar 2017
Tranquil markets await big data - AM Briefing
23 Mar 2017
Investors rattled after equity sell-off - Video Update
22 Mar 2017
US Markets Snap 109-Day Streak - AM Briefing
22 Mar 2017
Crude oil update - PM Bulletin
21 Mar 2017
European markets stable on the open - AM Briefing
21 Mar 2017
Dollar slips after G20 communique - AM Briefing
20 Mar 2017
FOMC post-mortem - Video Update
16 Mar 2017
Rate hike sends stocks higher - AM Briefing
16 Mar 2017
FOMC rate decision and Dutch election in focus - Video Update
15 Mar 2017
Oil rally gives markets lift - AM Briefing
15 Mar 2017
Crude trades at lowest levels since production cut agreement - PM Bulletin
14 Mar 2017
Politicians take centre stage again - AM Briefing
14 Mar 2017
Trading Psychology: Risk Management - Trading Guides
13 Mar 2017
Article 50 deadline approaches - AM Briefing
13 Mar 2017
European stocks push higher after Draghi’s hawkish stance - AM Bulletin
10 Mar 2017
Non-Farm Payroll look-ahead - PM Bulletin
09 Mar 2017
Fed rate hike seems certain - AM Briefing
09 Mar 2017
Market expects Fed to hike rates next week - Video Update
08 Mar 2017
Another twist in the French election - AM Briefing
08 Mar 2017
Odds slashed on Fed rate hike - PM Bulletin
07 Mar 2017
Investors lacking direction this morning - AM Briefing
07 Mar 2017
Fibonacci Retracement - extensions - Trading Guides
06 Mar 2017
Equities slip in early Monday trade - AM Briefing
06 Mar 2017
Modest profit-taking sees US indices post rare loss - AM Briefing
03 Mar 2017
Crude struggles to break above resistance - Video Update
02 Mar 2017
UK baffled by the origins of their favourite brands - PM Bulletin
02 Mar 2017
Fresh record highs for major indices - AM Briefing
02 Mar 2017
All eyes turn to the Fed - Video Update
01 Mar 2017
Markets react positively to Trump speech - AM Briefing
01 Mar 2017
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Equity market rally continues

Attention turns to monetary policy outlook

President Trump’s speech before Congress has done nothing to dampen investors’ risk appetite. In fact, it was notable how market participants demonstrated little concern ahead of his address, particularly where equity markets were concerned. The general attitude ahead of the speech seemed to be that Trump wasn’t going to say anything that would upset the markets. And he certainly didn’t, even though there was precious little detail over such key issues as tax reform, infrastructure spending, regulatory roll-back and Obamacare. But there was plenty to convince everyone that he was serious about driving forward with these issues. Additionally his tone was far more presidential than we’ve heard of late and the most unifying message that we’ve heard since his victory acceptance speech back in November.

The result of all this is that investors are back in “risk on” mode this morning. The major global stock indices are pushing higher with barely any interruption. Meanwhile the minor “protection” trades which were put on yesterday afternoon (purchases of gold, yen and Swiss francs) have already been unwound.

So now we’re back to considering the outlook for monetary policy, in particular the odds on a Fed rate hike in a fortnight’s time. We’ll hear from FOMC-voting members Robert Kaplan and Lael Brainard later today. But far more important are speeches from Fed Chair Janet Yellen and her deputy Stanley Fischer which take place this Friday.

Stock Index Update

Stock markets little-moved ahead of Trump speech

Investors convinced president would deliver

There was plenty of evidence that investors were taking precautions ahead of President Trump’s appearance before the two houses of Congress. But these precautions didn’t include reducing their exposure to equities or the broader stock market indices. Instead, investors took out insurance by increasing their exposure to precious metals, Japanese yen and Swiss francs. Few were prepared to close out long positions in stocks and risk missing out on the possibility of another inflationary Trump bounce. Part of the reason for this was the timing of Trump’s speech which happened when all but Asian Pacific markets were open. But there was also the belief that Trump wouldn’t let investors down when it came to delivering the much hyped and promised fiscal stimulus.

In terms of yesterday’s data releases, there was some disappointment with the first revision to the last quarter’s US GDP. This was unchanged at 1.9% annualised which was below the +2.1% expected. But this was offset to some extent later in the day by the release of the Conference Board’s Consumer Confidence index. This rose to 114.8, well above both the consensus expectation of 114.8 and January’s revised reading of 111.6.

Commodities Update

Crude slips ahead of Trump speech

Gold and silver rally on safe-haven demand

Yesterday afternoon crude pulled back from its best levels and this saw front-month WTI break back below the key $54 level. WTI seemed to have finally cleared this level which has acted as resistance since early December last year. Meanwhile, the Brent contract has continued to struggle to break above its own resistance level around $57. Traders reduced their long-side exposure to both contracts ahead of President Trump’s key speech to Congress. However, the sell-off was controlled which suggested that there was no panic in the move and investors weren’t overly concerned about being caught up in a selling rout. This was entirely reasonable as there was no fresh news which could seriously upset the current dynamics behind recent oil price moves. Crude continues to get support from the near-1.8 million barrel output cuts agreed by OPEC and non-OPEC producers. At the same time, oil’s advance appears to be capped by rising US output. At the end of last week the US oil rig count hit its highest level since October 2015 while production topped 9 million barrels per day for the first time since April 2016.

Gold and silver were little-changed in early trade yesterday. But both metals suddenly sold off before spiking higher soon after the US open. It was difficult to explain the initial sell-off, but this hardly mattered as buyers quickly piled in to take advantage of lower prices, and so added to the upside momentum. This latter move came as the dollar dipped on what appeared to be nothing more than investor nerviness ahead of Trump’s key speech to Congress. To say that the president’s appearance was causing some apprehension was an understatement, although it was arguably stock market investors who had most to fear. But rather than cut their exposure to equities ahead of a speech which had the potential to send stocks soaring or plunging, investors hedged their risk by taking on some safe-haven exposure to gold and silver.

Forex Update

Swiss franc and yen rally on carry-trade reversal

Speculators trim exposure ahead of Trump speech

There was some repositioning going on in FX yesterday ahead of President Trump’s speech to Congress. This led to modest losses for the Dollar Index and gains for the EURUSD. However, both the euro and US dollar were weaker against the Japanese yen and Swiss franc. This was a classic “risk off” move as investors trimmed their exposure to riskier, higher-yielding assets. Typically, investors sell (borrow) currencies that are both low-yielding (so cheap to borrow) and highly liquid, making them easy and hopefully cheap to trade in and out of. Investors then use the proceeds of these short-sales to invest in higher-yielding (riskier) assets. But in times of uncertainty, the move reverses so that investors lighten up on riskier assets and buy back the borrowed currencies, in this case the yen and Swiss franc.

Upcoming events

Today’s significant economic data releases and events include German CPI, Spanish, Italian, French, German, Euro zone and UK Manufacturing PMIs. Also from the UK we have Net lending to Individuals, M4 Money Supply and Mortgage Approvals. From the US we have the Core PCE Price Index, Personal Spending, Personal Income, ISM Manufacturing PMI, Crude Oil Inventories and Total Vehicle Sales. We also have the Fed’s Beige Book and speeches from FOMC-voting members Robert Kaplan and Lael Brainard.


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Posted by David Morrison

Category: AM Bulletin

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