gold-dec212017

Gold slumps, SPX closes down, European markets claw back some losses, U.S. dollar rises versus majority of peers

Feb 8 • Morning Roll Call • 480 Views • No Comments

After Monday’s global market selloff, followed by Tuesday’s recovery in USA markets, USA equities whipsawed throughout Wednesday’s New York session, whilst European and other global indices rose sharply to restore a form of equilibrium, across a broad range of indices. The DJIA fell by 0.09% to maintain a slight market gain for the year, now up 0.70% YTD, the SPX fell by 0.50%, to take the YTD gain to 0.30%.

Economic calendar news for the USA was thin on the ground, instead analysts concentrated on the various appearances by Fed officials throughout the day; influential Chicago Fed President Charles Evans suggested that any evidence of sustained inflation over the coming months, could force the FOMC into more than the already scheduled interest rate hikes in 2018. However, in an overall narrative that kept analysts and investors guessing, he also stated that he expected no FOMC interest rate rises to be agreed until summer, pushing back the initial suggestion that March would be the first of perhaps three rises in 2018. Other political news concerned the threat of another U.S. Federal government shutdown, as government debt continues to breach agreed limits.

The ten year treasury bond rate once again rose above 2.85% on Wednesday, heightening fears that the 3.00% level could represent a watershed moment for both the bond market and global equity markets. USD rose versus EUR, CHF, JPY and GBP, with the dollar index rising by circa 0.6% on the day. WTI oil slumped by 2.5%, falling through the $62 dollar a barrel level, its largest fall in seven months, due to an EIA report suggesting a recent spike in production will cause a glut, due to oversupply issues. Gold fell by circa 0.3% on the day, slumping to an intraday low of $1,311, a level not witnessed since January 14th.

European news was dominated by the key indices clawing back the losses suffered earlier in the week. The U.K. FTSE ended the day up circa 2%, DAX closing up 1.60%. Germany’s economic and political situation came under close examination from several angles on Wednesday. Angela Merkel’s CDU Party finally arranged another coalition agreement with the SDP, whilst Deutsche Bank was under the spotlight, as its share price continued the slump which began on Friday 2nd. Its fourth quarter’s figures disappointed markets, causing the share price to fall to levels not seen since the U.S. department of justice slapped the bank with a negotiated $7.2 billion fine in December 2016. Some analysts suggest the bank has never fully recovered financially from such a fine, or repaired the damage to its reputation in U.S. markets.

European calendar news mainly centered on Germany’s industrial production figure, which came in below forecast at 6.5% growth YoY, Swiss currency reserves fell marginally, whilst house prices in the U.K. fell by 0.6% in January, and the YoY rise came in at 2.2%, falling from 2.7% in December. A report illustrating the economic damage the U.K. will suffer once Brexit occurs was finally published on Wednesday, it listed various scenarios based on the degrees of soft or hard Brexit. Sterling fell versus the USD, JPY and CAD, but rose versus its other peers, including the euro.

U.S. DOLLAR

USD/JPY traded in a narrow range throughout the day’s trading sessions, oscillating above and below the daily PP, the major currency pair traded with no bias, closing out up circa 0.1% on the day at 109.3. USD/CHF traded in a wide bullish range, breaching R2 early in the New York session, before giving up part of the gains to end the day up circa 0.5% at 0.943. USD/CAD traded in a narrow bullish range, breaching R1 to close out the day up circa 0.4% at 1.256.

STERLING

GBP/USD traded in a narrow bearish range throughout the day, breaching S1 to close out at circa 1.387, down approx. 0.3% on the day. GBP made gains of circa 0.2% versus both AUS and NZD. GBP/JPY fell through S1, to close out the day just below S1, down circa 0.3%, at 151.6.

EURO

EUR/GBP whipsawed between initial bullish and then bearish tendencies; initially rising through the daily PP, the cross currency pair then fell back through the daily PP to breach S1, closing out down circa 0.5% at 0.883. EUR/USD traded in a wide bearish range during the day’s sessions, breaching S2 to close out down circa 0.6%, at 1.225. EUR/CHF closed the day down circa 0.1% on the day after trading in an approx. 0.2% range during the day’s sessions, the cross currency pair ended the day just below the daily PP, at 1.156.

GOLD

XAU/USD fell to a daily low of 1,311, the lowest level reached since January 14th, having surrendered circa 55 points since posting its yearly high, price slipped through S1 closing out the day at approx. 1,317, down circa 0.3% on the day.

INDICES SNAPSHOT FOR FEBRUARY 7th.

• DJIA closed down 0.08%.
• SPX closed down 0.50%.
• NASDAQ closed down 0.90%.
• FTSE 100 closed up 1.93%.
• EURO STOXX closed up 1.76%.
• DAX closed up 1.60%.
• CAC closed up 1.82%.

KEY ECONOMIC CALENDAR EVENTS FOR FEBRUARY 8th.

• EUR. German Trade Balance (DEC).
• EUR. German Exports s.a. (MoM) (DEC).
• EUR. German Imports s.a. (MoM) (DEC).
• GBP. Bank of England Bank Rate (8 FEB).
• GBP. Bank of England Inflation Report.
• USD. Initial Jobless Claims (3 FEB).

CALENDAR EVENTS TO LOOK OUT FOR ON THURSDAY FEBRUARY 8th.

Germany’s position, as the engine of European and Eurozone growth, will come under scrutiny on Thursday, as the trade balance and the latest export and import figures are published. Naturally the three figures are intrinsically linked. One of the few major economies to operate a trade balance surplus, as opposed to a deficit, increasingly positive figures for all three readings could effect the value of the euro.

At 12:00pm GMT (U.K. time), the U.K. Bank of England announces the decision regarding the base interest rate and the level of Q.E. Neither are forecast to change, with the rate expected to remain at 0.50%, as the central bank adopts a cautious/dovish approach based on their reading of inflationary pressures and any impending Brexit economic weakness. Naturally attention will turn to the BoE press conference accompanying the announcement, which is twinned with their latest quarterly inflation report. FX traders can expect increased scrutiny on GPB in the: build up, during, after the announcement and during the subsequent press conference. Whilst the base interest rate is likely to remain unchanged, the value of GBP, particularly versus its main peers, may change rapidly.

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