by Eli Wright
Global markets are struggling to determine what, precisely, US President Trump’s latest policies will mean for the US and world economies. Of particular concern—since the fallout is still roiling travel and unnerving businesses with H1B employees—is the executive order he signed on Friday, putting in place a 90-day ban on citizens from seven Muslim-majority nations and a 120-day ban on all refugees. Though portions of the ban have now been stayed by court orders and the White House reversed its earlier ban on green card holders from those seven countries not being allowed to re-enter the US, the overall chaotic effects continue to permeate.
The uncertainty has led global indices broadly lower this morning, perhaps exacerbated by disappointing US new home sales and GDP numbers released at the end of last week. Safe havens, such as the yen and gold are up. Perhaps surprisingly, the US dollar is mixed though the Dollar Index is marginally up.
Many Asian exchanges were closed today for the Lunar New Year. However, the Nikkei was open. It fell 0.51% overnight to 19,368.85.
In Europe this morning, the FTSE is down 0.74%, at 7,132.50; the DAX has fallen 0.61% at 11,743; and the Stoxx 50 is 0.73% lower, at 3,278.50.
The S&P 500 closed down 0.09% on Friday, to 2,294.69 and the Dow closed 0.04% lower, at 20,093.78. The NASDAQ, though, ended the week a bit higher, up 0.1% 5,660.78.
In pre-market trading, the S&P and Dow are both off approximately 0.4%, but the NASDAQ has inched 0.05% higher. Some analyst believe Trump's recent actions might have a dampening affect on the most recent Wall St. rally
US Treasury yields are up across the board: the 2-year yield is 1.22%; the 10-year yield is 2.492%; and the 30-year yield is 3.074%.
Forex
The Dollar Index is currently up slightly, rising 0.13% this morning, to 100.66.
The euro, which has been higher for most of January, is down 0.23%, to 1.0674. It’s been bullish since January 5, trading above 1.05, but the single currency will need to break some further resistance levels to change the long-term bearish view. The first strong resistance handle appears at 1.088, followed by another at 1.12.
The pound is currently trading at 1.2522, moving mostly sideways since Thursday, but downside momentum is picking up. The next support handle is at 1.22. The first line of resistance is offered at 1.29. There are no major UK economic events on the calendar until the UK Manufacturing PMI on Wednesday. That will be followed by Construction PMI, the Bank of England’s inflation report and interest rate decision on Thursday.
The yen is stronger this morning, rising 0.28%, to 114.68. Medium resistance is offered at 115.61, but it’s looking more likely that USD/JPY will head down toward 112.5. The Bank of Japan’s interest rate decision is expected to be announced this evening in the US. Though the central bank may paint a picture of a slowly strengthening economy, rates are expected to be held at -0.1% and the QE program will likely remain as is.
The Mexican peso is currently trading at 0.0478 and has actually strengthened 3% since Trump signed an executive order to build a US-Mexico border wall. Ensuing events have led to a tense stand-off been the two countries and the possibility of a trade war on the horizon.
It’s difficult to predict where the peso will head next. Because of news-driven events the currency’s volatility has been staggering. It could fall to 0.045 support next or, depending on the volley from either the US or Mexico, move higher to 0.049 resistance.
One final note on the USD: The Core PCE price index, one of the items the Fed looks at when making its interest rate decision, comes out today, with an expected boost of 0.1%. The Fed’s next interest rate decision comes on Wednesday. Today's numbers notwithstanding, the markets largely expect the Fed to remain steady, but perhaps offer some language as to its next moves.
Commodities
Gold has ticked 0.07% higher this morning to $1,191.85, boosted by political and economic concerns over Trump’s policies. Expect the yellow metal to again challenge $1,200. Silver is down 0.14%, but the white metal is currently still above $17 and could reach $17.30 (or possibly higher) on a reported sharp increase in speculator interest.
Oil initially extended its declines this morning, dragged down by the increase US output, but has recently turned higher, up 0.28% at time of writing. The commodity's recent narrow price range has become a challenge to traders. Anna Coulling provides three strategies to help garner profits. Crude oil is currently trading at $53.31; Brent is down 0.05% to $55.66.
Last week’s EIA report showed that US weekly supplies had increased by 2.9M barrels. And on Friday, Baker Hughes reported that the US rig count count had increased from 551 to 566. That said, ANZ Bank said in a note that:
“The rise in U.S. output should not be unexpected. However we expect the reductions being made by OPEC will far exceed any rise in the U.S. and quickly reduce the global inventory that has been built up over the past two years.”
Stocks
The Volatility Index is up 5.48% today, to 11.16, so US markets could be in for a ride. VIX complacency alongside other indicators are showing there could be a consolidation or even full scale sell-off ahead
Some action to look for:
- Last week’s existing and new home sales data disappointed; the Real Estate sector was the second-worst performing segment of the S&P on the week. Keep an eye on today’s pending home sales. With an expected increase of 1.1%, the report should provide additional clarity on the housing sector.
- After Trump recommended adding a hefty Mexican import tax last week, shares of publicly traded US supermarkets, which receive much of their produce from south of the border, dipped: Whole Foods (NASDAQ:WFM) dropped 2.82%; Kroger (NYSE:KR) fell 1.13%; and Wal-Mart (NYSE:WMT) declined 1.6%. Suppliers and distributors were affected as well: Fresh Del Monte (NYSE:FDP), one of the world’s largest suppliers of fresh and prepared produce, fell 0.78% and food distributor Sysco (NYSE:SYY) lost 0.62%.
- Trump’s travel ban on citizens from seven Muslim-majority countries and the protests and confusion the move triggered in US airports, has weighed on airlines. Among the losers: Delta (NYSE:DAL) is down 2.36%; Southwest (NYSE:LUV) is 2.26% lower, United Continental (NYSE:UAL) has fallen 1.27%; American Airlines (NASDAQ:AAL) has dropped 5.32%; and JetBlue (NASDAQ:JBLU) is down 6.87%.
- Reportedly, the White House has drafted another, yet-to-be-signed, executive order, this one targeting the H-1B, L-1, E-2 and B1 work-visa programs. The H-1B program in particular is popular with tech companies that use it to hire highly-skilled non-US workers. If the executive order gets implemented, Infosys (NYSE:INFY), and Wipro (NYSE:WIT), two India-based companies specializing in IT staffing and consulting could be affected, as could major US corporate beneficiaries of H-1B visas such as, Apple (NASDAQ:AAPL), Google (NASDAQ:GOOGL), and Microsoft (NASDAQ:MSFT).
- Earnings season continues this week with approximately 20% of S&P 500 companies scheduled to report, including three of the world’s most highly valuated companies, Apple, ExxonMobil (NYSE:NYSE:XOM), and Facebook (NASDAQ:NASDAQ:FB). Today, oil and gas pipeline MLP Enterprise Products Partners (NYSE:EPD), with expected Q4 2016 EPS of $0.33 on $5.94B in revenue reports before the market opens.