Morning Call from FXCC

Trump press conference causes stocks to rally and the dollar to crash, whilst hedge funds take on record long positions.

Jan 12 • Morning Roll Call • 2583 Views • 1 Comment on Trump press conference causes stocks to rally and the dollar to crash, whilst hedge funds take on record long positions.

dollar drop-250x180During the London trading session on Wednesday morning, there was a raft of publications from the UK’s official statistics bureau (the ONS) released, concerning the UK’s current economic performance. The markets and investors appeared to ignore the data on the: continual deteriorating balance of payments, balance of trade and visible trade balance, instead preferring to concentrate on the improving manufacturing and industrial output figures, which printed ahead of analysts’ expectations. Industrial output rose by 2.1% in November, recovering from a 1.1% drop in October and beating the expectations for a 0.8% rise.

However, the data did little to initially stop the pound slipping versus its major peers, as once again hard Brexit fears weighed heavily on the currency’s performance. At one point cable (GBP/USD) took out the October 2016 thirty one year lows, only to recover some lost ground in the New York session, as a consequence of Trump’s press conference, severely effecting the dollar’s value versus its major peers.

In 2016 equity hedge fund managers turned in their worst performance since 2011, the majority staying stubbornly bearish, despite the late 2016 Trump inspired secular rally in equities and the dollar. So now, in a complete turnaround, they’ve decided to ditch their short positions and become the least bearish on record. As to whether this is clever strategy, or can be used as a contrarian indication to: dump stocks and move into cash, bonds, super-cars and tangible assets you can hang in an art gallery, is anyone’s guess. What is for sure is that it’s still a mystery how these funds charge their 2:20 model; 2% management fee and 20% of any profits generated.

The SPX closed up 0.3% to 2,275.32 in New York, just two points below its record high reached on Jan. 6th. The benchmark index is up 6.4% since the election, virtually unchanged since Dec. 13th, the day before the Federal Reserve increased the base rate by 0.25%. The DJIA closed up 0.5% at 19,954, bringing into sight the 20,000 level. The UK’s FTSE 100 once again closed at a record high, up 0.21% at 7290. DAX closed up 0.54%, CAC up 0.01% and Italy’s MIB up 0.32%.

The Dollar Spot Index, the gauge of the greenback versus its ten major peers, fell by 0.2% on Wednesday, erasing an earlier advance of 0.7%. It’s advanced by circa 0.3% since the Fed’s rate decision.

GBP/USD briefly dipped below $1.21 for the first time since Oct. 25th, before recovering to $1.21941. Sterling has fallen approx 19% versus the dollar since Britons voted on June 23rd to leave the EU, it’s down by approx 12% versus the euro.

EUR/USD rose by as much as 0.6% after the Trump conference, to a session high of $1.0622, just below the eleven day high of $1.0626 reached on Tuesday, rising from the one week low of $1.0455 reached earlier on Wednesday.

USD/JPY slumped at one stage by 1.3% to a one month low of 114.26, after rising by 0.9% to 116.85, before the conference. Finishing the day at 115.25.

WTI crude finished at $52.25 a barrel in New York, after a government report revealed that U.S. refiners processed a record amount of crude last week, combined with the Trump presidency appearing to be promising a boost in infrastructure development, ergo consumption of energy will rise. Gold futures ended the day at circa $1193, after approaching $1,200 an ounce as the dollar fell. Silver spot was up 0.27% on the day, at $16.78 per ounce.

Economic calendar events for Thursday January 12th, all times quoted are London times.

09:00, currency effected EUR. Germany GDP NSA (YoY) (2016). The prediction is for a modest rise to 1.8% for Germany’s GDP from 1.7% previously.

10:00, currency effected EUR. Euro-Zone Industrial Production w.d.a. (YoY) (NOV). The expectation is for a rise to 1.5% for the single currency bloc’s zone form the previous trading of 0.6%

12:30, currency effected EUR. ECB account of the monetary policy meeting. Whilst not generally creating the impact when the Fed reveals its minutes after a policy announcement, nevertheless this meeting of the ECB, dependent on the commentary produced, does have the power to alter sentiment where euro currency crosses are concerned.

13:30, currency effected USD. Initial Jobless Claims (JAN 7th). The anticipation is that, as seasonal jobs evaporate, weekly claims in the USA will have increased, by 255k from the 235k reading previously.

19:00, currency effected USD. Monthly Budget Statement (DEC). The anticipation is for a dramatic improvement of the USA monthly budget, down to -$25.0b from the previous reading of -$136.7. Although late in the trading day, this statement and the accompanying narrative from Janet Yellen the chair of the Fed, does have the power to effect the FX markets relating to the US dollar significantly.



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