by Eli Wright
The US dollar is weaker this morning, oil is slightly lower, and global indices are mixed. US markets in particular are being cautious, waiting to see which Donald Trump shows up in the Oval Office this week, the man who will focus on deregulation, lowering taxes and fiscal stimulus, which would likely be a boon to markets, or the combative chief executive who might spark a trade war, to the dismay of investors. Safe haven assets, including gold, silver, and the Japanese yen, are up.
Overnight, Asian markets finished mixed. The Shanghai Composite rose 0.43%, to close at 3,136.77 and the Hang Seng inched 0.06% higher, to 22,898.52. The Nikkei however, fell 1.29% to 18,891.03, as the stronger yen weighed on Japanese businesses.
In Europe this morning markets are lower: the FTSE is down 0.83% at 7,138.55; the DAX is down 0.87% at 11,528.50; and the Stoxx 50 is 0.86% lower, at 3,269.50.
On Wall Street this past Friday, the Dow rose 0.48% to 19,827.25; the S&P 500 closed up 0.34% to 2,271.31, and the NASDAQ gained 0.28% to 5,555.33.
In pre-market trading this morning, major US indices are down: the Dow is 0.15% lower, the S&P has lost 0.24%; and the NASDAQ is down 0.32%. However, technical indicators show the potential for a break higher.
US Treasury yields are also lower this morning. The 2-year yield is at 1.184%; the 10-year yield is at 2.447%; and the 30-year yield is at 3.028%.
Forex
The US dollar is lower against all the currency majors today as uncertainty reigns.
Though the dollar rose after Trump’s election on promises of $1 trillion in fiscal stimulus and infrastructure growth, the new President's shine may have diminished considerably; since his inauguration speech on Friday, in which Trump mostly emphasized a protectionist agenda, the dollar has weakened.
The British pound rallied 3.5% since last week; it’s currently trading at $1.247. The British Supreme Court is expected to rule tomorrow on whether Parliamentary approval is necessary to trigger Article 50 in order to begin the Brexit process. Their ruling could agitate markets, but with PM Theresa May already stating last week that Brexit will go to a Parliament vote, it's unlikely to cause substantial upheaval. Of additional significance for the pound's outlook this week, May is scheduled to meet with Trump on Friday. Depending on how their trade discussions go, headlines from the event could impact the cable’s trajectory.
The yen is up to 113.36 versus the dollar. According to Boris Schlossberg 115 is a pivotal battleground for yen bulls and bears. If USD/JPY advances past 115, it could signal that the Trump Rally is back on.
One poorly performing emerging market currency of note: the Turkish lira. One of the worst-performing currencies in 2017, the lira has declined nearly 7% since the New Year holiday. Economic growth in Turkey turned negative in the third quarter, and the full-year 2016 forecast calls for growth of just 3.6%, a far cry from the upper single digit growth rates the country experienced under Prime Minister Erdogan from 2003-2014. Since Erdogan became President of Turkey in 2014, adding considerably to his power, and ahead of an April 2 referendum on constitutional reform it's likely the lira could fall further.
The Mexican peso is currently trading at 21.4279. Sentiment regarding the peso appears to be closely tied to what is said in Washington, so unless Trump changes his rhetoric about immigration, trade, and the US-Mexico border wall, expect the peso to remain under pressure.
Finally, after Chinese regulators cast a spotlight on Bitcoin two weeks ago, three Chinese exchanges which trade in the crypto-currency, BTCC, Huobi, and OkCoin, said late yesterday that they would begin charging traders transaction fees in efforts to curb market manipulation and curb extreme volatility. Bitcoin is flat today, trading at $923.52.
Commodities
Crude oil is down 0.45% this morning, to $52.98 and Brent is 0.31% lower, at $55.31. OPEC and non-OPEC nations wrapped up their meetings in Vienna yesterday with encouraging news, saying they were ahead of schedule in implementing their agreement to cut output.
However, as Jeffrey Halley, senior market analyst at OANDA said:
“In the medium term it is going to be tough for oil to break out. The more oil goes up, the more these [US] shale drillers are going to hedge by the futures.”
Indeed, last Friday, Baker Hughes reported a weekly increase in US oil rigs, from 522 to 551.
As risk-on sentiment declines, precious metals have moved up. Gold moved 0.68% higher, to $1,213.15, while silver is up 0.53%, to $17.123.
Stocks
Earnings season is in full swing, and thus far growth prospects look good. Of the 54 S&P 500 companies that have released quarterly results, 74% have beaten earnings, by a median of 5%. Of course, as the new administration settles in, that could change.
Thirty-four S&P 500 companies are slated to report this week.
On the docket for today:
McDonald’s (NYSE:MCD) is set to report Q4 2016 earnings, with expected EPS of $1.41 on $5.98 billion in revenue. For the full year, EPS is projected to rise 14% YoY to $5.69, while revenue is expected to fall 3.2% YoY, to $24.59 billion.
Halliburton (NYSE:HAL) is reporting Q4 2016 earnings with expected EPS of just $0.02 on revenue of $4.06 billion, significantly lower than last year’s Q4 report of $0.31 EPS on $5.08B in revenue.
Yahoo (NASDAQ:YHOO) is set to announce Q4 EPS of $0.21 on $1.39 billion in revenue. However, rather than focusing on earnings, shares of the company are more likely dependent on Yahoo’s pending takeover by Verizon (NYSE:VZ), and the possibility that Verizon will seek a discount on account of data breaches that Yahoo failed to disclose in a timely manner, and which are currently being investigated by the SEC.