FTSE -45 points at 7153
DAX -65 points at 11565
CAC -26 points at 4824
Euro Stoxx -23 points at 3276
It has been a quite risk-off start to the week, following Donald Trump’s shaky inauguration due to protests. The US dollar lost ground against all of its G10 counterparts.
The GBP/USD (+0.55%) traded higher on the back of a broadly softer US dollar and on hopes that the UK’s Supreme Court would ask Theresa May to consult policymakers before triggering the Article 50. Many expect lawmakers to refuse a sharp divorce with the European Union. Therefore, this could take some pressure off the pound’s shoulders.
The yen (+1.12%) gained the most against the greenback in Tokyo. The USD/JPY traded down to 113.36 despite the Bank of Japan (BoJ) Governor Kuroda’s comments that the US dollar should strengthen with rising US growth prospects. Apparently, traders were less enthusiastic after Donald Trump’s inauguration speech. Rising US protectionism, disassembling of trade agreements such as TPP and NAFTA, risks of social unrest and polarization at the heart of the world’s number one economy dented the global investors’ appetite this Monday. UK PM Theresa May is preparing to meet Donald Trump on Friday to discuss the post-Brexit options. Investors are curious about the outcome of a meeting between two protectionist leaders.
The Nikkei (-1.29%) and the Topix (-1.23%) sold off on the back of a stronger yen. Australia’s ASX 200 slid 0.77%.
Gold (+0.59%) extended gains to $1219 (major 38.2% retracement on Jul-Dec decline), if surpassed, should encourage a further rise to $1235 and $1268 (100 and 200-day moving averages respectively). Support is building above the weekly support level of $1195.
The world’s leading oil producers, mostly including the OPEC countries met in Vienna over the weekend to put in a place a system to monitor whether each country sticks to its output cut promises. According to Bloomberg news, the cartel has already reduced its total production by 80% of the 1.8 million barrels targeted by day. Venezuela and Saudi Arabia, which provide nearly 60% of OPEC supplies to the US, gave little credit to Donald Trump’s plans to end the US’ oil dependency.
Markets gave little attention to news. Soft US dollar helped the WTI (-0.13%) holding ground above $53.00, while the Brent crude (-0.11%) traded above $55.00. The supply side action is necessary to cap the downside in oil markets, yet it is important to note that the upside potential is contingent on demand, and the stalling global demand keeps investors unconvinced for fresh longs, hence the barrel of WTI is subject to a solid resistance into the $55.00 hurdle.
The FTSE futures (-0.43%) made a sluggish start to the week. The global risk-off, combined to a stronger pound and Brexit uncertainties could encourage a deeper downside correction in the FTSE 100 stocks. The FTSE is called 38 points lower at 7160p at the London open. The critical mid-term support stands at 7088p (major 38.2% retracement on Dec 12th to Jan 15th rally), if broken, would suggest a mid-term bearish reversal.
The Turkish lira (-0.28%) has been among the rare losers against the US dollar. After weeks of chaos, Turkish Parliament finally approved a constitutional referendum, which could take place as soon as early April. The referendum could give the actual President Recep Tayyip Erdogan the supreme power at the heart of the country. ‘This will take Turkey out of the democratic column and turn into a dictatorship, pure and simple’ reported Bloomberg Intelligence.
We could expect to see an acceleration in capital outflows due to political uncertainties. The Central Bank of Turkey (CBT) will meet tomorrow and is expected to raise the overnight lending rate by 75 basis points. There is a risk of smaller action or inaction. We prefer staying clear from Turkish lira and lira-denominated assets.