by Eli Wright
Despite encouraging US data yesterday for the ISM Manufacturing PMI and the ADP Employment Change, the FOMC's subdued statement yesterday offering no clear schedule for upcoming rate hikes left the US dollar weaker. The Dollar Index continues to hover below 100, with some analysts calling for a "potential measured downside target of 97".
US Treasury yields are down as well. In yesterday's statement, the Fed did point to several signs of a strengthening economy, including improving business and consumer sentiment, job growth, and increasing inflation during recent quarters. However, they also said that “near-term risks to the economic outlook appear roughly balanced,” an indication that they are unsure where the economy might be headed in the short-term.
It's Super Thursday in the UK, and the Bank of England's Governor Mark Carney will speak following the BoE’s first inflation report of the year. Interest rates are not expected to change, but markets will look for guidance on the possibility of future rate hikes in light of Britain's economic growth.
Alongside the softer dollar, global equities, which mostly gained yesterday, are also struggling.
Overnight in Asia, the Nikkei fell 1.22%, to 18,914.58, while the Hang Seng dropped 0.63%, to 23,171. Chinese markets will reopen tomorrow when the Lunar New Year holiday ends.
In Europe, the DAX is down 0.41% at 11,611.05 and the Stoxx 50 is 0.25% lower, at 3,247.50. However, the FTSE is up 0.16% to 7,119.05 after British MPs voted four to one in favor of triggering Article 50. The Brexit bill still needs to pass through the House of Commons and the House of Lords, but with such a large majority of MPs backing it, it's likely to pass.
On Wall Street, major indices ticked higher yesterday: the NASDAQ rose 0.5% to 5,642.65; the Dow gained 0.14%, to 19,890.94; and the S&P 500 closed up 0.03% at 2,279.55.
However, in pre-market trading, all are down: the Dow and S&P are down 0.25%, the NASDAQ is lower by 0.3%.
US Treasury yields are also lower: the 2-year yield is 1.209%; the 10-year yield is 2.463%; and the 30-year yield is 3.07%.
Forex
The Dollar Index is down 0.28% this morning, at 99.36. Traders will be watching tomorrow’s key monthly nonfarm payrolls report, for signals regarding where the USD will go next.
The euro is up 0.4%, now trading at 1.0812. Further upside exists and the single currency could bounce to 1.09. To the downside, it could find support at 1.058.
The pound is up 0.28% at 1.2696. Despite construction PMI this morning coming in lower than expected, it looks like traders are more focused on the upcoming BoE inflation report and interest rate decision, as well as the publication of British Prime Minister Theresa May’s white paper outlining her Brexit plans.
Safe-haven currencies including the yen and Swiss franc are higher, at 112.51 and 0.988, respectively. Commodity currencies are also stronger; the Canadian dollar is up 0.51%, to 1.2982, while the Aussie is more than one percent higher, at 0.7673.
Bitcoin is up 0.36% this morning to $991.67. It appears as though the crypto-currency may once again be challenging the $1,000 mark.
Commodities
Despite yesterday’s EIA report which showed a sharp increase in US weekly crude stockpiles—inventories rose by 6.466M, 3.2M more than expected—crude oil is trading up 0.5%, at $54.14, while Brent has ticked 0.76% higher, to $57.20. This may be due to a Reuters survey on Tuesday showing that OPEC members have been demonstrating 82% compliance in their agreement to reduce production by 1.2 million bpd.
Looking at the daily technical chart, there appears to be a general uptrend in oil prices. It would need to slip below $51.70 in order to break the channel’s upward momentum.
Gold is 1.34% higher this morning, up to $1,224.55. The weaker dollar and recent risk-off sentiment are the catalysts; the yellow metal is now at a nearly four-month high.
Looking at the technical charts, analyst Gary Savage points to the higher highs and higher lows in 2016 compared to the prior year, to demonstrate that the stronger gold prices we are now seeing may in fact be part of a much larger upward trend.
Stocks
Among the large-caps reporting earnings today:
- Amazon (NASDAQ:AMZN) is expected to report Q4 2016 earnings per share of $1.35 on revenue of $44.60 billion. EPS was 70% lower than anticipated last quarter, but this quarter, Amazon will be looking to capitalize on its burgeoning web services business (AWS). According to Synergy Research, the web retailer is the current market leader in cloud computing ahead of Microsoft (NASDAQ:MSFT), Google (NASDAQ:GOOGL) and IBM (NYSE:IBM). The company will also look to benefit from strong holiday sales, where the e-commerce colossus garnered 38% of total online revenue. Best Buy (NYSE:BBY) was a very distant second with 3.9% of online sales.
- Visa (NYSE:V) will announce Q1 2017 EPS of $0.78 on $3.62 billion in revenue. Rivals, MasterCard (NYSE:MA) and American Express (NYSE:AXP) recently each posted disappointing earnings, which could be a troubling sign for Visa. However, investors will hope for good news based on stronger payment volumes due to Costco’s (NASDAQ:COST) switch from Amex to Visa, and Visa’s re-acquisition of Visa Europe.
- Four pharma titans are also reporting: Merck (NYSE:MRK), Amgen (NASDAQ:AMGN), Novo Nordisk (CO:NOVOb), and AstraZeneca (NYSE:AZN).
Earlier this morning, Royal Dutch Shell (NYSE:RDSb) reported their Q4 2016 earnings, announcing a drop of 55% YoY, to $1B, and an eight percent decline in full-year profits.