Incisive market commentary from David Morrison

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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

European indices drift lower

WTI steadies below $52

European stock indices slipped lower in early trade after a mixed open. As on Monday it appears that it is the Italian banking sector which is the main drag on the market as investors once again express concern over the high level of non-performing loans held by lenders. The Italian FTSE/MIB was down over 1% soon after the open and this has helped to drag down the other European majors.

Meanwhile, there is relatively little activity in FX this morning while precious metals are a tad higher. Gold continues to probe the area around $1,190 which is currently acting as resistance. Crude oil is a touch firmer in early trade. Yesterday WTI plunged below $52 per barrel. This area has acted as significant resistance for over 18 months. But it broke above here in early December last year following the agreement between OPEC and non-OPEC producers to cut output. Now it has failed to hold as support suggesting that there could be further downside for the oil market.

Later today Mr Trump will hold his first press conference since his election victory. Investors will be listening out closely for further information concerning the president-elect’s plans for tax cuts, infrastructure spending and deregulation. Equity markets have risen sharply on hopes that Trump will quietly abandon plans for tariffs and trade barriers while go full steam ahead with his pro-growth policies.

Stock Index Update

Firmer close for most European indices

US data surprises to upside

Yesterday saw the UK’s FTSE100 close at a fresh record high, helped to a great extent by a continuation of Monday’s sell-off in sterling. Although the British pound managed to recover in the afternoon session, this rally failed to put off investors who hoovered up UK multinationals. The weaker currency helps lift sales and boost the earnings of those corporations that carry out a significant percentage of their business overseas. There were modest gains for the German DAX and French CAC while Spain’s IBEX ended the day with modest losses. The Italian MIB staged a strong recovery ending the day higher after a weak start. Nevertheless, investors remain cautious over the state of the Italian banking sector.

It is usually considered a relatively unimportant data point, yet analysts were taken by surprise by the release of the US NFIB Small Business Index. This index is based on a survey carried out by the National Federation of Independent Business. Yesterday it posted its biggest month-on-month spike since the early eighties, soaring to 105.8 in December from 94.9 the month before. This showed that small business owners are at their most optimistic since 2004 and all of this comes in the aftermath of Trump’s surprise victory in the US presidential election. The news helped to lift the major US indices, and although the Dow and S&P pulled back from their session highs to close down and unchanged respectively, the NASDAQ posted another record close.

Commodities Update

WTI and Brent steadier near support

Gold hitting resistance

Crude oil was steadier in early trade yesterday after falling sharply on Monday. The sell-off saw WTI test support around the $52 level where it appeared to have found a foothold. However, crude took another lurch lower as US trade got underway. If WTI fails to push back above $52 this week then this would open up the possibility of a more substantial pull-back.

Crude has rallied sharply since mid-November when WTI approached $42 and Brent broke below $44 per barrel. Both contracts subsequently made gains as traders covered their shorts and positioned themselves ahead of a crucial OPEC meeting. This was when OPEC and a number of non-OPEC producers agreed to cut output by around 1.8 million barrels per day (bpd). But the agreement only came into force on 1st January and it could take a month or so before it becomes clear if all parties are complying with the deal. In the meantime, there’s plenty of evidence that US oil producers are preparing to take advantage of the recent spike in prices. The oil field services conglomerate Baker Hughes said that US producers had added oil rigs for a 10th week in a row. Meanwhile, analysts at Barclays expect the US rig count could hit 850 to 875 by year-end, compared to 529 now.

Gold and silver continued to make gains yesterday. Gold topped $1,190 at one stage to hit its highest intra-day level since the end of November. Technically, gold is butting up against the lower band of resistance around the $1,190/1,200 area. How it behaves from here could prove critical for its performance over the first quarter of this year. There are a number of analysts who anticipate a replay from last year when gold put in a December low and then rallied sharply over the next six months. And there certainly could be more upside for gold from here, although there is nothing in the calendar over the next few months which could boost safe-haven demand. But both gold and silver will struggle to make further gains if the US dollar pushes higher from current levels. It’s true that since mid-December gold has managed to rally despite dollar strength. But that positive correlation is unlikely to hold. If the dollar continues to strengthen from here as US interest rates diverge from the rest of the developed world, then gold could struggle to push much higher in the short-term. However, precious metals could continue to climb if last week’s 14-year high on the dollar proves to be the top for now.

Forex Update

US dollar consolidates

Yen makes further gains

The dollar spent most of yesterday’s session little-changed when measured against the basket of currencies in the Dollar Index. This continues to trade either side of 102.00 having pulled back from the 14-year high around 103.80 which it hit just over a week ago. It appears that some investors are happy to book profits at current levels, and that seems sensible given that the index rose over 7% between Trump’s election victory back in November and last week’s high. As things stand there’s good support around 100, but that does suggest there could easily be a 2% sell-off from current levels should profit-taking increase, even without a fundamental change in sentiment.

The US dollar fell further against the Japanese yen. The USDJPY fell below 115.50 where there is some mild support, but so far the pull-back looks like little more than dollar profit-taking following the rally since November. Despite this, the corresponding pick-up in the yen has put some downside pressure on the Japanese stock market as a stronger currency makes life more difficult for Japanese exporters.

Meanwhile, the British pound fell further in early trade yesterday although it went on to stage a decent recovery later in the session. Sterling fell sharply on Monday on the back of comments made by UK Prime Minister Theresa May over the weekend. On Sunday Mrs May said she wasn’t interested in keeping "bits of membership" of the European Union (EU). This suggested that the UK government was preparing to take a hard stance in negotiations to leave the EU.

Upcoming events

Today’s significant economic events and data releases include UK Manufacturing Production, Goods Trade Balance, Construction Output and Industrial Production. From the US we have Crude Oil Inventories and a press conference from president-elect Donald Trump.


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Posted by David Morrison

Category: AM Bulletin

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