by Eli Wright
The US dollar remains soft and global equity markets continue to struggle as concerns about President Trump’s travel policies and the risk to US businesses unnerve investors. The VIX moved decisively, up 12.29%, to 11.88, although that is still well below the trailing 12-month average of 14.58. Safe-haven commodities, including gold and silver are higher.
Alongside politics and US earnings reports, over the next several days, traders and investors will also be monitoring guidance from three central banks—the BoJ, Fed and BoE—rather than rate changes which are not expected. Overnight, the Bank of Japan raised its growth forecast to 1.4% from the 1.0% prediction it made last October, though it left monetary policy and interest rates unchanged. The Fed and Bank of England are scheduled to announce rate decisions tomorrow and Thursday, respectively. Neither is expected to surprise, but the forecasts provided could be key.
Markets in China and Hong Kong remained closed for the lunar New Year, but the Nikkei fell 1.69%, to close at 19,041.3.
In Europe, markets started the day on an upbeat note following better-than-expected French and Spanish CPI, positive German unemployment figures, and better-than-anticipated eurozone CPI and GDP data. The FTSE is up 0.2% to 7,130.75; the DAX is 0.11% higher, at 11,693.50; and the Stoxx 50 has gained 0.32%, to 3,269.50.
On Wall Street yesterday, major indices experienced their worst declines of the year. The Dow fell back below 20K, dropping 0.61%, to close at 19,971.13. The S&P 500 fell 0.6% to 2,280.90; and the NASDAQ dropped 0.83% to 5,613.71.
In pre-market trading, all three major US indices—the Dow, S&P, and NASDAQ—are down approximately 0.2%.
However, investor leeriness could fade if the new administration delivers upbeat news on fiscal reform. Yesterday, Trump signed an executive order saying that for every new regulation introduced, two must be revoked. Though there will be exceptions, and the order does not apply to the military or national security, the primary goal of this policy is to cut regulations for small and large businesses.
Additionally, though Senate Democrats delayed a vote on Trump's pick for Treasury Secretary Steve Mnuchin yesterday, the committee will reconvene again today. If Mnuchin is confirmed, which is likely given that he made it through his confirmation hearing, he could immediately start working on new fiscal policies.
Turning to US Treasurys, the yield curve may be signaling uneasiness with Trump's fiscal policies; the 10-year note has steepened sharply versus the 2-year. The 2-year yield is down to 1.208%, but the 10- and 30-year year yields are both higher, to 2.498% and 3.094% respectively.
Forex
The Dollar Index is down 0.36% at time of writing, to 100.07. Overall though it’s been indecisive over the past four days, trading in a tight +/-0.85% range.
The euro is higher, up 0.56% to 1.0755 on the upbeat euro area economic data released earlier.
The yen up 0.29%, higher today versus the greenback, at 113.44. It is up one percent since the start of the week.
The Swiss franc is 0.33% higher today, to 0.9922. Though bulls and the bears are still fighting it out around the key 1.00 benchmark of 1.00, an upside move could be in the cards. USD/CHF could head toward 1.03, though it's also possible the pair could fall to 0.97.
Commodities
Oil prices have dipped as traders await API US inventory figures which will be released later today. Crude oil is down 0.6% at $52.32, while Brent is 0.52% lower, at $55.03.
Precious metals are higher this morning as risk-off sentiment dominates, making safe-havens of all sorts attractive. Gold is up 0.27% again challenging the $1,200 benchmark, at $1,199.25, while silver is up 0.15%, to $17.172. According to Matthew Ashley, research analyst at Blackwell Global:
“Market uncertainty could cap downside risks in the long-term.”
Stocks
More than 100 companies are scheduled to report quarterly earnings today. Among them:
- Apple (NASDAQ:AAPL) is expected to report Q1 2017 earnings per share of $3.22 on revenue of $76.54 billion after the market close. The holiday season is typically Apple’s strongest, plus it's possible the iPhone manufacturer was also able to capitalize on Samsung (KS:005930)'s (OTC:SSNLF) termination of the Galaxy Note 7 this past October.
- ExxonMobil (NYSE:XOM) announces Q4 2016 earnings, with expected EPS of $0.70 on $70.24 billion, before the bell. Moving forward, the company will look to take advantage of stabilizing oil prices.
- Big Pharma behemoths Pfizer (NYSE:PFE) and Eli Lilly (NYSE:LLY) both report as well: Pfizer is expected to post Q1 2017 EPS of $0.5 on $13.61 billion in revenue, while Eli Lilly is expected to report Q4 2016 EPS of $0.97 on revenue of $5.61 billion. Each company will be looking to show strong sales growth for existing drugs while providing guidance regarding product pipelines.
- Mastercard's (NYSE:MA) Q4 2016 earnings will be released this morning; EPS is expected to come in at $0.86 on $2.79 billion in revenue.
- Health insurance provider Aetna (NYSE:AET) is expected to report Q4 2016 earnings per share of $1.44 on revenue of $15.78 billion. Last quarter, Aetna came under pressure from the Affordable Care Act, and in August announced that it had lost $430 million on Obamacare since 2014.
- Electronic Arts (NASDAQ:EA), the maker of popular video games such as Madden, FIFA, and Battlefield, reports Q3 2017 earnings after the close, with expected EPS of $2.30 on revenue of $2.03 billion.
- Sports apparel maker Under Armour (NYSE:UA) is set to announce Q4 2016 earnings per share of $0.25 on $1.42 in revenue. UA shares have fallen close to 30% since January 2016, and the company will look to lure investors back by showing strong sales growth and international expansion.
A quick note on Teva Pharmaceuticals (NYSE:TEVA): shares are down 8% in pre-market trading after a US court invalidated four of its patents on top-selling multiple sclerosis drug Copaxone. The court ruled in favor of Mylan (NASDAQ:MYL), which wants to market a generic version of the drug. Mylan shared are up approximately 3% in pre-market trading.