Global Commentary
Asian markets were mixed Thursday, with most of the region gaining, but Chinese linked markets showing weakness ahead of the National Day holiday which will see Chinese markets closed all next week. Japan’s Nikkei outperformed as the Yen remains weak, and the index is looking as if it will score its best monthly gain of the year.
European markets endured a choppy session, but finished higher for the sixth session in a row, marking a two-month high and their longest winning streak since April. The industrial and technology sector led the way higher as banking shares pared early gains to finish nearly flat as enthusiasm over potential tax reform in the U.S. lost steam. London’s FTSE also gained, with bank shares in the U.K. holding on to their gains after the chief economist at the Bank of England spoke in support of raising U.K. interest rates.
U.S. markets began the day on weak footing, but picked up later in the day on investor hope that U.S. tax reform would become a reality by the end of the year. Gains were modest, but broad based, with only two of the eleven S&P sectors finishing in the red, and that by 0.1% or less. Record closing levels were reached by the S&P 500 and the Russell 2000, as well as by the Dow Transportation Index. The Transportation Index move is seen as bullish since both the Transportation and Industrial indices are now moving in lockstep to new highs.
FOREX
EUR/USD
The pair halted the three session slide suffered this week and turned higher Thursday as the 1.1725 level provided support. Broad based softness from the USD helped the pair turn higher as well. The move was likely due to some profit taking, and we could see another test of the 1.1725 level before we head into the weekend.
USD/JPY
The pair formed a candle that was nearly the opposite of the previous sessions’ candle, taking it back below the 113.00 level as that handle has now proven too resistant for two sessions in a row. There was little news to send the pair lower, but there was broad based weakness from the U.S. dollar, and it’s likely some of the drop can be attributed to profit taking after the strong run higher made by the pair. While we could retest the 113.00 level Friday, it’s not probable traders will take the pair above that level ahead of the weekend.
Cryptocurrencies
The cryptocurrency market took a breather after the strong leg higher in the previous session. Bitcoin remained flat, while the next two largest cryptocurrencies by market cap saw modest declines with Bitcoin dropping 0.3%, Ethereum 2% lower and Litecoin losing 3.5%. Still, traders remain bullish as Bitcoin remained around the $4,150 level, Ethereum held above the $300 level and Litecoin was near the $55 level.
Commodities
Metals
Precious metals edged higher on Thursday as the weaker USD helped support gold. The recent pullback in gold prices have made the precious metal more attractive to buyers of physical gold, who are taking advantage now and stepping in to add to their positions. Any rally is likely to be short-lived however, in the absence of any risk event.
Oil
Crude erased early gains and settled lower Thursday, primarily as a result of technical trading and booking of profits as the month draws to a close. U.S. crude is looking at a 7.6% monthly gain at current levels, and money managers and traders were happy to close positions and lock in profits for their September trading results. The case for crude still looks bullish however, after U.S. crude inventory levels unexpectedly dropped this week, and OPEC is poised to extend production cuts set to expire this coming March.
Indices
Dow Industrials
Shares of McDonald’s helped lift the Dow, with the fast-food chain’s stock gaining 2.2% to lead the 30 components of the benchmark index after Longbow Research analyst Alton Stump upgraded the stock to the equivalent of a buy. Still, losses from the likes of Disney and Wal-Mart (NYSE:WMT) kept a cap on gains and the Dow ended Thursday just modestly higher by 0.18%
FTSE 100
London’s benchmark index ended higher Thursday despite a firming Pound as speculation that the bank of England will raise interest rates for the first time in a decade helped lift financial shares. The speculation came about after the chief economist at the bank of England spoke in favor of raising interest rates. In addition to gains from the banking sector, the material and industrial sectors also saw solid gains in response to the possibility of tax reform in the U.S. as soon as this December.
Stocks
McDonald’s
Despite its recent dip, McDonald’s remains one of the best performing Dow component stocks, with only Boeing (NYSE:BA), Apple (NASDAQ:AAPL) and Visa delivering better gains so far this year. While the stock has declined in the past week, that is likely to do with profit taking, and with the company announcing a 7% increase in its dividend this past Tuesday we believe that the stock will turn higher once again as investors move in to capitalize on the profit growth at the world’s largest fast food retailer.