Fundamental Analysis

Financial Markets 'Trumped' Once Again


A feeling of unease gripped the financial markets on Wednesday with investors shrinking away from riskier assets after political turmoil enveloped Donald Trump's administration. Asian shares were mostly lower during early trading on Wednesday and bearish contagion has already contaminated European equities. With the latest bombshell developments in the Trump saga seen as an obstacle that may delay the proposed fiscal spending further, Wall Street should follow the bearish cues from Asian and European markets this afternoon.

UK earnings falling behind inflation

Sterling popped slightly higher on Wednesday following reports of Britain's unemployment rate hitting a 42-year low at 4.6% in the first quarter of 2017. While such news was encouraging, the thorn in the side remained the shrinking average weekly earnings of 2.1% in the first quarter, which was the fastest decline in three years. The ever-increasing signs of real wages failing to keep up with inflation is likely to pressure consumers further and provide even more headwinds for the Bank of England.

The unending uncertainty over Brexit, a dovish stance by the BoE and slower consumer spending are all valuable ingredients needed to revive Sterling bears. Although a catalyst to start the selloff is currently lacking, there may be opportunities provided when the official Brexit negotiations get underway. From a technical standpoint, the GBPUSD remains in a very wide range on the daily charts. Long term bears have some control below the tough 1.3000 resistance level. Intraday bullish traders may exploit a breakout above 1.2950 to send prices towards 1.3000

Greenback punished by Trump woes

The Greenback was robbed of its crown this week after investors became jittery over the political turmoil in the US endangering prospects for pro-growth fiscal policies. Revelations of President Donald Trump sharing classified intelligence to Russian officials has dented appetite for the Dollar with recent reports of him asking the recently dismissed FBI Director, James Comey, to drop a probe into former National Security Adviser Michael Flynn, fuelling the downside pressure. With a growing chorus of Democrats accusing Trump of obstructing justice and even clling for his impeachment, the Trump administration could come to an early season finale.

Although Dollar bullish bets have been an investor's popular choice since Trump's victory in November, the rapidly diminishing optimism over the implementation of the proposed fiscal policies may trigger a shift in sentiment. The thick layer of uncertainty surrounding Trump should encourage short term Dollar bears to look beyond the US rate hike expectations with the Greenback poised to edge lower.

Focusing on the technical side, the Dollar Index is under intense selling pressure on the daily charts. A breakdown and daily close below $98 may provide a foundation for sellers to target $96.

Commodity spotlight – WTI Crude

Oil prices depreciated on Wednesday after industry data showed an unexpected increase in US Crude inventories, which fanned concerns over the excessive oversupply in the global markets. Although oil markets have been somewhat supported by reports of Saudi Arabia and Russia agreeing that supply cuts should be extended until March 2018, the upside may be limited.

While most are optimistic over the cartel's attempt to stabilize the oil markets by cutting production, all eyes still remain on US Shale and how it reacts to further cuts by OPEC and Non-OPEC members in the future. If US Shale continues to pump aggressively, this may simply undermine OPEC's efforts, consequently limiting the upside on oil and even exposing prices to downside shocks.

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