As earnings season gets into full swing, investors appear to be buoyed by the earning reports emanating from the USA’s top companies. Combined with confidence that newly elected president Trump will pull out all the stops, in order to reenergise areas of the USA economy neglected over recent decades, the resulting and returning market enthusiasm caused both the SPX and Nasdaq to record record highs during Tuesday’s New York trading session.
Sterling initially fell during Tuesday’s FX trading sessions to then recover, whilst London’s FTSE 100 index ended flat, after the UK’s Supreme Court finally ruled that the Tory government must consult parliament in order to gain permission for leaving the European Union.
The pound initially rallied versus the dollar and the euro to five week highs, as the first sections of the ruling were being read out by the Supreme Court judge. The weak spike gained little momentum and quickly faded, as currency traders realised that the UK’s MPs are unlikely to vote against the referendum result, but will likely cause uncertainty as they demand extra criteria, in an attempt to avoid what’s being termed a “hard Brexit”. GBP/USD was down 0.4% to $1.248 and 86.07 pence per euro, in early afternoon (London time).
However, sterling did recover versus both of its major peers, to finish the day up. GBP/USD at 1.252 and EUR/GBP at 0.856. It’s worth noting that the UK’s pound has fallen from $1.70 in a series of Brexit related sell offs and corrections over the past thirteen months, with many analysts still unconvinced that sterling has stabilised. The next major test will come in late March, should the UK’s prime minister deliver her plan to begin the UK’s European exit.
One unintended consequence of Brexit, has seen foreign exchange trading out of London rising by 3% percent in October 2016 compared with a year earlier, according to a Bank of England survey released on Tuesday. But at $2.18 trillion a day it’s down from the equivalent six months earlier. Trading in the pound, since Britain’s June referendum decision to leave the European Union, has seen an 8% rise in trading of GBP/USD, to an average of $281 billion a day.
The SPX rose by 0.7% to 2,280 in New York, surpassing its Jan. 6th record high to set a new mark, rising the most since Jan. 3rd. What’s termed the small-cap Russell 2000 Index (often considered to be a wider metric of the overall health of USA companies), experienced its best day in approx. three weeks, rising by 1.6%, still 1.4% below its record which was set on Dec. 9th.
The U.S. dollar rose versus both yen and euro on Tuesday, finally arresting several days of losses, which were caused as a consequence of fears that President Trump’s potential trade protectionism, might actually damage the USA economy.
USD/JPY rose by 0.6% to 113.31 on Tuesday. EUR/USD was threatening parity as 2016 closed off, but has now recovered to maintain levels above a $1.07 handle, hitting seven week highs of $1.077 on Tuesday. By late morning in New York’s trading session, the euro was off slightly at $1.0726.
The Dollar Spot Index rose by 0.1% on Tuesday, the overall greenback index has now fallen for four weeks in series, the longest losing streak witnessed since February 2016.
Gold initially fell by 0.4% on Tuesday, to eventually settle down further at $1,208, after closing on Monday at a two month high. Silver closed the day down to circa $17.055, having spiked to over $17.25 during the trading day.
Oil rose by 0.8% to $53.18 a barrel in New York, the highest close since Jan. 6th., after Iraq stated it’s close to implementing output curbs, as part of OPEC’s effort to cut global inventories. However, the futures price of oil slipped back to $52.28 in late trading.
Economic calendar events for Wednesday 25th January, all times quoted London times.
09:00, currency effected EUR. German IFO – Business Climate (JAN). The expectation is for a slight rise to 111.3, from the previous reading of 111.
11:00, currency effected GBP. CBI Trends Total Orders (JAN). The UK’s confederation of British industry is a respected institution which is thought to publish leading indicators regarding future UK economic performance. The trends orders survey, offers up clues of the confidence UK’s managers have to place orders. The expectation is for a rise to 2, from zero previously.
11:00, currency effected GBP. CBI Business Optimism (JAN). Optimism recorded from those surveyed by the CBI was at -8 in the previous publication, the expectation is for little change on this figure.
14:00, currency effected USD. House Price Index (MoM) (NOV). House prices in the USA are expected to have slipped marginally to 0.3%, from 0.4% previously.
15:30, currency effected USD. DOE U.S. Crude Oil Inventories (JAN 20). The expectation is for a reading similar to that previously recorded of 2347k. Any significant change on this figure, could cause oil price and as a consequence the value of the dollar, to fluctuate.