Buying the dips to record highsCreated: 11th Feb 2020
What a bounce on the US stock markets as the threat of the Coronavirus being downgraded by a reduction in the number of new cases being announced. Also strong US Manufacturing data and Trump’s impeachment acquittal help fuel the rally as the S&P and Dow shrugged off recent losses to new highs.
Today’s Podcast looks at these events and the effect on the markets, and what to look out for in the week ahead, if trading Forex, indices and commodities. Adrian then reviews the movement on US Dollar Forex pairs USDCHF, USDJPY and EURUSD and current trades, plus other opportunities on the Oils and Copper. In Defining Trading, Adrian looks at “Support and Resistance”, defines what it means, what causes it and applies it to the recent GBPUSD chart for some live examples.
Global markets recovered losses from the previous week last week.
In the last week of January stock markets slumped as the spread of coronavirus accelerated with analysts predicting a significant hit to global growth.
Comparisons with SARS from 2003 prompted many of those concerns.
To date the number infected totals 38,000 with the number of fatalities at 800. Despite the mortality rate (approx. 2%) being 1/5th of SARS , the number of fatalities has exceeded that of SARS due to the significantly higher number of infections.
Review of markets
FTSE +2.5% DOW +3% S&P +3.17% DAX +4.1% NIKKEI +2.68%
Whilst coronavirus threat clearly remains, US data on manufacturing helped push US indices higher. The ISM Manufacturing PMI data posted a reading of 50.9, well above the consensus of 48.5 and above the all important 50 level that indicates growth again in the sector.
The week finished with a surprisingly strong Non Farm employment number, with 225K jobs added against a consensus of 163K.
At the same time the People's Bank of China’s pumped $173 Bln into Chinese economy to bolster growth in the wake of the spreading coronavirus epidemic.
Despite the central bank action and more encouraging data, global markets remain very nervous as the coronavirus infection rate accelerates.
Many Chinese businesses are still closed following an extended holiday following the Chinese New Year. However the Chinese administration are keen for businesses to reopen soonest as the likely hit to growth increases.
EURUSD -151 -1.36% GBPUSD -320 -2.42% USDJPY +135 +1.25%
Positive US data helped US dollar post it’s best week in several months.
Sterling weakened more than most as Johnson’s aggressive approach to upcoming trade negotiations increases the risk of troubles ahead. It was always going to be so.
UK OIL -2.00 -3.5% USOIL -0.50 -1% Gold -20 -1.25% COPPER +325 +1.3%
Oil markets are stuck in a downward spiral of gloom as prices slump more than 20% from the peak in early January - indicating a technical bear market.
OPEC are considering dramatic supply cuts to bolster prices as the cartel seeks to protect members interests. The main beneficiary likely to be the US which now leads as the worlds biggest producer.
The turnaround in markets last week inevitably hit safe haven assets such as Gold, which fell in knee-jerk style to the recovery in global stock markets.
Copper recovered slightly but gains hardly dented the significant losses sustained since mid-January.
Data / events
UK 4TH qtr GDP 0.00%. A flat number. GDP data is always backward looking - this data release is particularly less relevant as it largely covers the troubled period in the run-up to the general election.
US Chairman of the federal reserve, Jay Powell, starts his two-day semiannual testimony before Congress on Monetary Policy. USD and equities sensitive to any surprises re rate moves. Unlikely.....
UK BOE’s Carney testifies at House of Lords Economic affairs committee. GBP sensitive.
NZ RBNZ monthly policy meeting. No change in rates expected. As usual, assuming no change, NZD will be sensitive to any comments regarding future plans..
US Second day of testimony by Jay Powell.
US Core CPI data. Inflation expected to remain benign. Risks remain skewed to downside in wake of coronavirus and slump in commodity prices.
US Core retail sales. A pullback from January’s stronger number.
US earnings 4th qtr earnings continues with another 70 companies of the S&P500 slated to report. Notable ones include Kraft Heinz, PepsiCo, CISCO and AIG.