Morning Call from FXCC

Morning Roll Call

Dec 29 • Morning Roll Call • 2123 Views • Comments Off on Morning Roll Call

USA equity markets in retreat mode, UK’s FTSE 100 closes at record high, the dollar rises, whilst sterling and the euro fall versus their major peers.

During the New York trading session on Wednesday the main USA equity markets sold off sharply. The reasons put forward were many and various; trading is still circa thirty percent down on the thirty day average, the USA pending home sales data shocked to the downside, the Santa rally has run out of steam, the 20,000 DJIA psyche level is littered with take profit limit orders and short instructions, hey, maybe even the ‘robots’ (HFT/algo trading methods), had taken a holiday.

Whilst the last reason may seem the least likely, it must be noted that up to 85% of equities’ trading is now algorithmic, therefore (with a thirty percent volume trading gap) there’s precious little to fill the void and make a market in order to keep USA equities at such dizzying heights, if the robots aren’t active.

The SPX closed the day printing its worst loss since Oct. 11th, higher mortgage rates, leading to a drop in pending home sales, appeared to unnerve the prevalent bullish market sentiment observed since early November. Pending home sales slumped by 2.5 percent (the forecast was for a 0.5 percent gain) after rising 0.1 in October.

Analysts quickly crunched the data, predicting that this phenomena is likely to worsen, if the Fed sticks to its loose plan broadcast earlier this month; to tighten monetary policy and raise base rates up to three times in 2017. The National Association of Realtors in Washington remained bullish, suggesting 5.42 million home sales this year, up from 5.25 million in 2015 and the strongest since 2006. No prediction was made for 2017.

The Russell 2000 (small caps) index slumped by 1.23% to close at 1360. The SPX closed down 0.8 percent to 2,249.96 in New York. The year to date gain is currently 10 percent in 2016, with a 2.3 percent gain in December. The DJIA sold off by 110.88 points to end the day at 19,834.16. Equities related to real estate were the main fallers in the SPX.

In Europe, the UK’s FTSE 100 index opened after the Xmas break and subsequently printed record highs, finally closing at all all time record high of 7,106, representing a year to date return of 18.50%. France’s CAC and Germany’s DAX were flat, whilst the MIB sold off, closing at 19,239, down 0.79%, once again Italian banking concerns rattled confidence.

The Dollar Spot Index rose by 0.2% on Wednesday, close to the highest level reached in over a decade. The New Zealand dollar enjoyed solid gains versus it’s peers; rising by 0.5% versus the USA dollar, continuing its recovery from the seven month low witnessed on Dec. 23rd. The yen rose circa 0.2% to 117.19 per dollar. after falling 0.3% during Tuesday.

Traders appeared bearish on sterling during Wednesday’s sessions as GBP/USD fell by as much as 0.5% to a session low of $1.2201, the weakest level seen since Oct. 31st. Although the dollar enjoyed gains as a consequence of the equities sell off, combined with belief that Donald Trump’s administration will boost USA growth through fiscal stimulus, Brexit fears (and as a consequence the pound’s value) are never far from the thoughts of investors and speculators. The euro crashed through S3 on Wednesday, falling by as much as 0.8 percent versus the dollar, to print an eight day low of $1.0372.

Notable economic calendar events for Thursday 29th December 2016, all times quoted are London time.

13:30, currency effected USD. Advance Goods Trade Balance. Analysts polled expect to see a slight improvement in the USA trade balance figure for the month of November, down to -$61.5b from $62.0b.

13:30; currency effected USD. Initial Jobless Claims. The expectation is for a reversion to the mean of circa 264k initial weekly claims, versus the slight shock figure of 275k published last week.

16:00; currencies effected USD and CAD. DOE U.S. Crude Oil Inventories. Inventories for oil are anticipated to come in at circa 1500k, versus the 2256k previously. Any significant miss on this weekly prediction could effect: oil price, equity prices and the price of the USA dollar and in particular the Canadian dollar, given its sizeable energy sector and reliance on it as a driver of economic performance.

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