U.S. main equity markets close down, U.S. dollar rises moderately, sterling slides as Brexit negotiations heat up
The main USA equity markets, the DJIA and SPX, experienced a modest pull back during Monday’s New York session, whilst the dollar rose moderately as bond rates also rose. Viewers of Bloomberg news and other financial media, will have noted that market experts were immediately lined up to be asked if “the equity markets were overheating?” The presenters and some experts questioned the impudence of markets, for not defying gravity in a perpetual unbroken pattern. They appeared both worried and aghast that equity markets hadn’t risen during the day; could the main USA equity markets close down for the first time since December 6th? It only took a retrace of less than 0.75%, after a circa 35% rise year on year, before questions were asked regarding the sustainability of a market rise not witnessed in a decade or more.
“Markets can fall, as well as rise” is one of the basic rules of trading that’s explained to all investors and traders, those who are skilled at trading markets long or short know this and thrive as a consequence. However, there appears to be a class of: speculator, investor and market commentator, who have arrived since after 2008/9, who have no concept of bearish markets. They only know an occasional pause and if such a ‘time out’ takes place, the new investors become instantly bemused. Any pause in long term momentum could be due to: a political policy change, central bank intervention, or simply profit taking, yet the nervousness across the media spectrum is palpable. Notably the various assembled experts neglected to mention the potential elephants in the rooms; the bond market bubble potentially bursting, rising interest rates and refinancing costs.
The DJIA closed down 0.67% and the SPX also closed down 0.67% on Monday, the U.S. dollar rose versus the majority of its peers; GBP/USD falling by circa 0.5% on the day, retracing by circa 300 pips since posting a post Brexit referendum high above 1.4300, late last week, the dollar index rose by circa 0.30% on the day. Gold fell to an intraday five day low of 1,337, whilst WTI briefly fell below the $65.00 handle. The USA published positive economic metrics on Monday; personal income rose by 0.4% in December, spending fell to 0.4%, whilst the Dallas manufacturing index beat the forecast of 25.4 by some distance; coming in at 33.4.
European markets slipped marginally during Monday’s trading sessions, during a day that delivered very little in the way of economic calendar news; the import index for Germany (year on year) rose by 1.1%, sight deposits in the Swiss banking system remained stable. Two officials from the ECB delivered speeches suggesting that the tapering of the APP scheme may be more aggressive than previously mentioned. The euro experienced mixed fortunes versus its peers, whipsawing versus many peers in tight ranges, whilst only closing the day out up versus the kiwi and U.K. pound. The pound suffered moderate falls as Brexit issues are beginning to become crystallized; chief E.U. negotiator Barnier (once again) reminding the U.K. that there’ll be no special deal during any transitional period and during such time the U.K. will have to be subject to all E.U. rules.
USD/CAD traded in a tight neutral range with little bias, closing out the day flat at 1.233 and close to the daily PP. USD/CHF oscillated in a tight range around the daily PP, with a bias to the upside, closing out the day up circa 0.1% at 0.937. USD/JPY also followed the pattern of USD base currency pairs, by trading in a tight range, closing out up circa 0.1%, reaching above the daily PP. all three pairs have sold off sharply to date in 2018.
Sterling sold off versus the majority of its peers during the day’s sessions. GPB/USD had risen from circa 1.340 at the start of the year, to a 2018 high of circa 1.435, a considerable 6.7% rise. During Monday’s trading sessions cable continued the retrace which began on Friday, closing out the day at circa 1.405, down circa 0.6% on the day, below S1 having reached an intraday and three day low, which saw the currency pair breach the second level of support. GBP/CAD also sold off sharply during the day, closing out at circa 1.736, down circa 0.4%, whilst breaching S1.
EUR/GBP traded in a wide range with a definitive bullish bias during Monday’s sessions; initially breaching R1, the cross currency pair then gave up its gains to fall back through the daily PP, to once again develop momentum to break back up through R1, threatening to reach R2 whilst reaching the 88.00 handle, closing out the day up circa 0.4% at 0.879. EUR/USD traded in a bearish range during the day, finally closing out down circa 0.3% at approx. 1.238, having printed an intraday low of 1.233. EUR/CHF whipsawed through a range with a bias to the downside, closing out at 1.160, recovering from a 0.4% intraday loss, to end the day down circa 0.1%.
XAU/USD traded in a wide bearish pattern during the day’s trading sessions, falling through S2 and posting an intraday low of 1,337, before recovering to close the day out at circa 1,340, down circa 0.6% on the day, resting just above S2. Since printing a yearly high of 1,366 last week, the precious metal has retraced circa 2%. The 200 DMA is sited at 1,277.
EQUITY INDICES SNAPSHOT FOR JANUARY 29th.
• DJIA closed down 0.67%.
• SPX closed down 0.67%.
• FTSE 100 closed up 0.08%.
• DAX closed down 0.12%.
• CAC closed down 0.14%.
KEY ECONOMIC CALENDAR EVENTS FOR JANUARY 30th.
• EUR. French Gross Domestic Product (YoY) (4Q A).
• GBP. Net Consumer Credit (DEC).
• GBP. Mortgage Approvals (DEC).
• EUR. Euro-Zone Gross Domestic Product s.a. (YoY) (4Q A).
• EUR. German Consumer Price Index (YoY) (JAN P).
• USD. Consumer Confidence Index (JAN).
• GBP. Bank of England Governor Carney Speaks Before Lawmakers.