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

GBPUSD briefly breaks below 1.2000

European equities bear brunt of selling

Sterling fell sharply overnight in a move that saw the GBPUSD break below 1.2000 for the first time since the October “flash crash.” The sell-off follows weekend reports that the UK is preparing for a full-blown exit from the European Union - one which would involve leaving the Single Market and Customs Union. Chancellor Philip Hammond (who campaigned to remain during last summer’s vote) adopted a surprisingly combative tone in an interview with German paper Welt am Sonntag. In this he suggested that any attempts by the EU to restrict UK access to Europe’s markets would have repercussions, particularly for German car manufacturers. This comes after BoE Governor Mark Carney’s statement last week when he said that Brexit looks likely to be a bigger problem for the EU than the UK. Prime Minister Theresa May is set to deliver a key speech on the UK approach to leaving the EU tomorrow.

The slide in sterling has led to a general “risk-off” move this morning. European equities and US stock index futures are all lower, although the FTSE 100 is a touch firmer thanks to weakness in the British pound. Precious metals are rallying but off the highs made during the Asian Pacific session, while the Japanese yen has also jumped. Trading volumes are expected to be light as many traders will be off for Martin Luther King Day in the US. There’s always a danger that this could contribute to increased market volatility.

Stock Index Update

FTSE100 hits 12th successive record close

JP Morgan earnings encourage buyers

European stock indices had a positive session on Friday after closing lower the day before. The UK’s FTSE100 hit yet another fresh record high - its twelfth in succession. Meanwhile Italy’s FTSE/MIB bounced back to end around 1.8% higher. The index had fallen sharply on Thursday as concerns built over the health of the Italian banking sector. Italy’s biggest lender, UniCredit, is attempting to raise €13 billion through a rights issue. The money is needed to help execute a recovery plan. However, the bank may have problems finding investors as its market capitalisation is a little under €16 billion. On top of this, shares in Fiat Chrysler ended Thursday sharply lower after the company became embroiled in the emissions scandal. The US Environmental Protection Agency (EPA) has accused Fiat of using hidden software to hide diesel emissions. But Friday saw shares in the Italian banking sector rally, helped along by Ubi Banca which ended the session up over 9%. This followed approval from investors for a capital increase. There was also a recovery in the Fiat Chrysler share price. The stock ended the day 4.1% higher after CEO Sergio Marchionne said the company's financial targets would be unaffected by the move from the EPA.

The US majors were also stronger thanks to better-than-expected earnings from JP Morgan, Bank of America, Blackrock and PNC Financial. Wells Fargo posted earnings and revenues which missed expectations. Nevertheless, the stock ended the day 1.5% higher as analysts focused on an improvement in margins which bodes well for the future. Wells Fargo was embroiled in a sales scandal last year when 2 million bogus customer accounts were created.

US Retail Sales were mixed with the core number (excluding autos) up 0.2% for the month of December. This was below the prior reading of +0.3% (revised up from +0.2%) and well below the +0.5% expected. Meanwhile, when including autos, Retail Sales jumped to +0.6% - well above November’s +0.2% and a touch above the consensus expectation of +0.5%. There was little market reaction to the data.

Equities had fallen earlier in the week following disappointment at president-elect Trump’s unconventional press conference on Wednesday.

Commodities Update

Crude drifts but still in uptrend

Precious metals rise for third week in a row

Crude oil fell on Friday. The sell-off was triggered by the release of the latest trade numbers from China. The Trade Balance showed an overall surplus of $275 billion in December - well below the $345 billion expected. The breakdown of the headline number showed that exports were down by 7.7% over the year. Not only was this the second decline in a row, but it was also the biggest fall since 2009. Imports fell 5.5% in the last 12 months. The numbers play into fears that the world’s second-largest economy is continuing to slow. This comes ahead of Donald Trump’s threat to put tariffs on Chinese imports.

Overall, oil lost ground over the course of last week, although it still looks as if the upside trend since March is still in place. Crude got some support after Saudi Arabia said that it was now producing less than 10 million barrels per day, and output was back to levels last seen in February last year. But helping to keep a lid on prices was news of an increase in US inventories. The Energy Information Administration (EIA) reported a 4.1 million barrel inventory build for the week ending 6th January, way above the 900,000 increase expected. There were also builds in gasoline and distillate inventories.

The rally in precious metals continues to have legs with gold and silver posting solid gains for the third consecutive week. This was despite a mixed trading session on Friday which saw both metals swing between positive and negative territory. The dollar was also mixed and so did little to steer investors when it came to taking positions in gold and silver. This provided some with the perfect excuse to book some profits ahead of the extended weekend due to Martin Luther King Day on Monday. Gold managed to push above resistance around $1,190/1,200 but has been unable to hold above here so far. Meanwhile silver has tested resistance around $17 but been unable to break above here.

Gold and silver spent most of the second half of last year in decline with the sell-off accelerating after Donald Trump’s election victory. Trump’s campaign promises of tax cuts, infrastructure spending and regulatory roll-back are all viewed as pro-growth and inflationary. This has helped to lift the dollar as investors forecast that US interest rates could now rise at a faster clip than previously predicted. Precious metals came under pressure as a result. However, there’s also a view that gold could start to push higher now as investors look to buy up assets which will hold their value if inflation takes off, irrespective of what happens to the dollar.

Forex Update

US dollar continues to decline

Investors disappointed by Trump press conference

The US dollar fell for the third consecutive week when measured against the basket of currencies in the Dollar Index. The Index has now lost just over 2% since it hit a 14-year high at the start of the New Year. Yet despite this pull-back the Dollar Index is still comfortably above 100. This is a level which acted as resistance for over eighteen months until it was broken convincingly soon after Donald Trump’s surprise election victory in November. The area around here should now act as support going forward.

However, investors continued to express their disappointment over Trump’s news conference on Wednesday. The dollar sold off after Trump failed to mention his plans for tax cuts, infrastructure spending of regulation roll-back. Instead he attacked US drug companies over their pricing policies and talked of taxing imports of goods manufactured abroad by US companies. He also reignited concerns about tariffs and trade wars when he brought up building his Mexican wall and dismantling NAFTA. All-in-all, he reminded people of all the bad stuff that came up in his election campaign but none of the pro-growth fiscal stimulus which has driven the dollar sharply higher since November. This has led a number of analysts to speculate that the “Trump Rally” may be coming to an end with some pinpointing his inauguration this Friday as the pivot point.

Upcoming events

Today sees the release of the Euro zone Trade Balance and the US has a partial holiday for Martin Luther King Day.


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Posted by David Morrison

Category: AM Bulletin

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