Whilst the debate regarding the relative inefficiencies and benefits of fundamental analysis versus technical analysis has raged in investment circles for decades, it’s unlikely that anyone within the analysis community would have added the words “presidential tweets” on the list of high impact news events, on their economic calendars.
However, currently the USA equity markets and as a consequence the global reserve currency the dollar, are witnessing changes in value as a direct result of president Trump’s morning tweets. He gets up, stretches, reaches for his iPhone, sends a tweet and the markets move. You’d be forgiven for thinking we’re being trolled, or that we’re stuck in a twilight zone, in which an evil, comic psychopath, you’d find in an Austin Powers’ movie, is holding the world to ransom.
Joking aside we’re making a serious point here; there’s now a separate dimension to fundamental analysis that (as an outlier) was completely unexpected. Being aware of Trump’s announcements; political, economic or both, is now essential.
One piece of fundamental analysis that deserves far more attention and recognition is the COT report. We often talk of not “trading versus the trend”, perhaps this is the best ‘off chart’ trend indicator and analysis there is.
Each Friday the latest data illustrating the weekly Commitment of Traders (COT) report is published by the Commodity Futures Trading Commission (CFTC). Last week it revealed that large position traders and currency speculators reduced their bullish bets on the U.S. dollar for the fourth consecutive week.
Non-commercial large futures’ traders, which traditionally includes hedge funds and large speculators, had an overall U.S. dollar long position of $18.47 billion up to Tuesday January 31st, a weekly change of minus $1.57 billion from the $20.04 billion total long position registered during the previous week. Speculators have reduced their net dollar positions below the $20 billion mark for the first time in fourteen weeks (since October 25th) after reaching a high of $28.14 on December 6th.
It’s a light week for key data during the week. Industrial output and trade data from Germany, the UK and China will also be published, whilst both the Royal Bank of Australia and the Reserve Bank of New Zealand will publish reports and reveal their respective decisions concerning their interest rates.
German industrial orders data is published on Monday, expectation is for a 4.2% annual rise, with German industrial output revealed on Tuesday, predicted to have risen by 0.4% in December, and by 2.5% annually. German trade numbers for December will be published on Thursday. The Eurozone Sentix index out on Monday will be monitored carefully, it’s predicted to fall to 16.8. from 18.2 previously.
In the UK, December industrial and manufacturing output data will be the main British data published in the week. Output rose in November, expectations are for a slower pace in December. The weaker pound has yet to have a significant hit on British exporters, however, import and input costs are now spiking after the Brexit referendum decision due to a plunging pound, therefore the sector’s performance will come under intense scrutiny later in the week (Friday) when the trade data is released.
The RBA meets for the first time in 2017 on Tuesday with a high expectations that rates will be maintained at the current record low of 1.50%. Inflation in Australia is below the RBA’s 2-3% target and despite the annual monthly CPI rate rising to 1.5% in the final quarter of 2016, the weak wage growth in the economy would suggest there’s still sufficient slack in the domestic economy to deter against a rate rise. The Aussie dollar has also gained more than 6% versus the US dollar.
The RBNZ will announce its latest policy decision on Thursday, no change in interest rate from 1.75% is expected. Inflation in New Zealand rose to 1.3% in Q4 2016, to within the Bank’s 1-3% target band for the first time in two years. Jobs growth is sluggish and the New Zealand dollar has risen, since the start of the year versus its peers.
The trade balance for the USA is published on Tuesday and the University of Michigan’s consumer confidence index on Friday. In Canada trade and employment data is released this week. The latest unemployment rate for Canada is 6.9%. The Loonie may continue its rise versus its major currency peers, should the Canadian data prove positive.