by Eli Wright
The US dollar is lower this morning, but US equity markets finally broke out of their tight three-week ranges yesterday, which has pulled global indices higher as well. The resumption of the US stock market rally—at least for now—has traders shifting away from safe haven commodities gold and silver, driving precious metal prices lower as a result. Oil is down on weekly API data charting a rise in US crude stockpiles.
Overnight in Asia, the Nikkei climbed 1.43% to 19, 057.50. Experiencing more modest gains, the Shanghai Composite rose 0.22% to 3,149.55 while the Hang Seng gained 0.43%, to 23,049.12.
In Europe this morning, the FTSE is 0.24% higher, at 7,167; the DAX has jumped 1.16% to 11,730; and the Stoxx 50 is up 1.13%, at 3,316.50.
On Wall Street yesterday, the S&P 500 and NASDAQ Composite both reached new record highs. The S&P rose 0.66%, to 2,280.07, while the NASDAQ climbed 0.86% to 5,600.96. The Dow closed 0.57% higher, at 19,912.71.
In pre-market trading, all three major US indices have continued higher: the Dow and S&P are both up 0.3%, while the NASDAQ is up almost 0.4%.
US Treasury yields are uniformly higher this morning: the 2-year yield is at 1.228%; the 10-year yield is at 2.478%; and the 30-year yield is at 3.062%.
Forex
The Dollar Index is lower this morning, down 0.27% to the pivotal 100.00 level at the time of this writing, as the greenback weakens against a basket of currency majors.
EUR/USD is flat right now, at $1.0731, but over the past few weeks, the euro has recovered its momentum and the trend is mostly positive.
Sterling has also turned bullish. Since falling to $1.20 before PM Theresa May’s Brexit speech, the pound has rebounded to above $1.25, although Brexit still remains a key risk event.
Uncertainty surrounding the US dollar—and the new US administration—continues to drive FX traders toward safe haven currencies. Both the Japanese yen and Swiss franc are up right now, to 113.72 and 1.004, respectively.
The Turkish lira dropped sharply yesterday after the Turkish central bank surprised markets and declined to raise interest rates by the expected 50 basis points. The lira is currently trading at 3.8145. A weaker dollar might help stabilize the currency in the short term, but the lira remains under significant long-term pressure due to the faltering Turkish economy, a recent uptick in terror attacks, and an upcoming constitutional referendum.
The Mexican peso is currently at 21.5439, but it could soon drop to 22—a new record low—since Trump is expected to crack down on immigration and bolster national security today. As the tweeter-in-chief boldly announced last night via social media: “Big day planned on NATIONAL SECURITY tomorrow. Among many other things, we will build the wall!”
Commodities
Oil has dipped approximately 0.4% today, after yesterday’s API report showing US inventory levels increased by 2.927M, more than the expected 2.8M, and significantly more than last week’s decline of 5.04M. EIA weekly crude oil inventories will be released later today, with an expected increase of 2.8M.
Crude oil is currently trading at $52.96, while Brent is at $55.22.
As noted above, global stocks have rallied, and the equity breakout has dampened the appeal of precious metals. Gold is down from its two-month high, off 0.77% this morning, to $1,201.75. Silver is 1.41% lower, chopping below the $17 level, to $16.943.
Stocks
Yesterday, Trump made headlines when he signed executive orders reviving the controversial Keystone XL and Dakota Access pipelines.
Though the President said he wanted to renegotiate parts of the Keystone deal to include more American-made steel, and the pipelines still face hurdles in the State Department and the court of public opinion, the oil industry—and the stock market in general—cheered his decision.
Shares of Energy Transfer Partners (NYSE:ETP), one of the major stakeholders in the Dakota Access pipeline jumped 3.5%. Sunoco Logistics (NYSE:SXL), which announced a merger with ETP in November, 2016, rose 3.75%. Other minority partners in the Dakota Access project saw gains as well: Phillips 66 (NYSE:PSX) rose 2.42%; Enbridge (NYSE:ENB) gained 2.48%; and Marathon Petroleum (NYSE:MPC) bounced 2.81% higher.
Shares of TransCanada (NYSE:TRP), the energy infrastructure company behind Keystone, jumped 3.54%. Importantly, the average consensus 12-month price target for TransCanada is $63.18, representing 29% upside from the current share price of $48.84.
TransCanada also represents a strong dividend play. With a current dividend yield of 3.6%, TransCanada has increased payouts for 16 consecutive years, with an annual compound growth rate of seven percent. If history repeats itself, another dividend hike could be announced next month.
The dividend yield for Energy Transfer Partners is a lofty 11.8%. However, its annual growth rate is lower, due in part to share dilution. Over the past five years, ETP has issued a significant amount of equity in order to finance growth; ETP's change in shares outstanding has risen +215% compared to just +13.19% for TransCanada.
Earnings reports on the calendar for today include:
AT&T (NYSE:T) which is expected to report Q4 2016 earnings per share of 0.66 on 42.16B in revenue. AT&T has been losing cell phone customers, but on the flip side, is the biggest provider of paid-TV in the U.S; its new streaming-video service, DirecTV Now is growing; and it stands to benefit from the proposed merger with Time Warner (NYSE:TWX).
Qualcomm (NASDAQ:QCOM) is expected to report Q1 2017 EPS of $1.18 on revenue of 5.59 billion. Although this quarter's earnings won't be affected, it's important to note that Qualcomm has plunged by more than 12% in recent days after Apple (NASDAQ:AAPL) hit the chip maker with a $1 billion lawsuit alleging unfair royalty charges.
Also reporting today:
- Three Big Pharma stalwarts: Novartis (NYSE:NVS); Abbott Labs (NYSE:ABT); and pharmaceutical distributor and services provider McKesson (NYSE:MCK)
- Airplane manufacturer Boeing (NYSE:BA) and aerospace conglomerate United Technologies (NYSE:UTX)
- And finally, two oil companies, Hess (NYSE:HES) and Murphy Oil (NYSE:MUR)