US investors eye earnings season
Most European markets are trading slightly in the green early in the session on Wednesday, with the FTSE being the main exception after the pound rebounded late Tuesday, weighing on the index.
The US is also expected to open a little higher today as indices try to force their way through an important psychological resistance level, one that provided a floor for the indices for most of the second half of last year before being broken the week before Christmas. They stumbled at the first time of asking last week but we saw another run at it yesterday and could see more of the same today.
Attention may be primarily on Brexit in Europe but over in the US, earnings season is upon us and investors will be eyeing results for signs of weakness at a time when the global economy is expected to slow, fiscal stimulus is fading and some major companies – including Apple – are reporting difficulties. The trade war with China may not have massively taken its toll yet but it may start to show itself in the upcoming results and/or guidance.
Brexit soap opera continues with no confidence vote this evening
In the UK, things are getting very feisty but we’re no closer to a deal than we were before Christmas. Yes, we’ve ticked another box – rejection of May’s deal – but this won’t be the last and there are other boxes still to be ticked. Today’s vote of no confidence is also widely expected to fail but again, it’s unlikely to be the last. It may feel like we’re going around in circles and, in many ways, we probably are but this is the only way that parliament will eventually agree on a course of action, be it a deal or second referendum.
What this means is the pound is likely to remain very volatile over the coming weeks, the flow charts will be continually updated to reflect the new reality and slowly but surely, the number of options available to parliament will dwindle. Only then will we reach a point when a vote in parliament will in fact be meaningful. But this may take longer than the 10 weeks or so until Brexit day and there may be a few more surprises along the way.
Gold and oil flat as profit taking pauses rallies
We’re seeing some consolidation in commodity markets today, with gold trading relatively flat on the day, once again mirroring the moves we’re seeing in the US dollar. The yellow metal has consolidated over the last couple of weeks since closing in on $1,300, after which we saw some profit taking. It’s not picked up any downside momentum in that time though which could be a bullish signal. Another run higher would see $1,300 come under significant pressure which I’m not convinced it could sustain.
Oil on the other hand has rebounded strongly since the start of the year – up more than 20% since Christmas – but has been consolidating over the last week as profit taking has kicked in. WTI and Brent have found resistance around $55 and $65, respectively, a level which if broken could be the catalyst for another strong push higher. I think the moves heading into Christmas were overdone and largely driven by a decline in risk appetite on overblown growth fears. With OPEC+ committed to production cuts, the path of less resistance currently looks to the upside.
