Financial market research and analysis

US markets close higher as commodities dominate trading

US equity indices struggled to make any meaningful gains overnight as traders remained away from their desks between Christmas and the new year. Trading volumes hit the second lowest level of the year, with only trading volume on black Friday half day being lower. The Dow gained 0.1%, the S&P 0.1% and the Nasdaq 0.05%.

After such a strong second half of the year for the US indices its hardly surprising that they are pausing for breath. The Dow and the S&P are both on course to finish December higher, which would make the 9th consecutive monthly gain for the Dow since 1958 and for the S&P since 1983.

Commodities were the cornerstone of the quiet session, as oil pulled back from Tuesday’s 2 ½ year high and copper hit a 3 ½ year high. Earlier this week oil hit $60 the barrel for the first time since 2015 on outages in Libya and the North Sea drove up the price. Profit takers moved in on Wednesday causing oil to lose ground pulling energy stocks lower.

Dr. Copper suggests a bullish 2018

Meanwhile copper futures hit the highest level since 2014. Encouraging data showed that China imported 19% more copper on a year on year basis in November. The metal has rallied 25% since the beginning of June, with this in mind Dr Cooper is telling us we could be in for a strong 2018. Copper is often referred to as a good leading indicator for economic growth, which has earnt it the name Dr Cooper or the metal with a PhD. The metal is just seen pulling back slightly as we head towards the European session.

Dollar weakness persists

The dollar remains out of favour, hitting a 4-week low versus a basket of currencies, breaking below 93.00. A surprisingly large drop in consumer confidence did little to support the buck. US consumer confidence fell from a 17-year high, to produce the biggest monthly drop for several years. That statistic on its own is noteworthy, but the fact that the fall in confidence came despite rising expectations of the tax reform bill being passed, could reflect the sentiment of the average American towards the bill.

ECB economic bulletin in focus

The euro is capitalising on the softer dollar, as the pair continues to flirt with €1.19. Today sees the release of the European Central Bank Economic Bulletin, traders will be curious to see how much weight the ECB puts on recent economic developments in Spain following the independence referendum in October and regional elections last week. Catalan makes up around 19% of Spain’s GDP, and whilst the Spanish central bank announced, in the previous session, it expected Q4 economic growth of 0.8% quarter on quarter, the OECD is forecasting an annual decline in GDP from 3% to 2.3% in 2018.

GBP/USD cracks $1.34

The pound has also been taking advantage of, not only the softer dollar, but also the lack of Brexit headlines, allowing it to crack $1.34. Fundamentals were also supporting pound strength moving into Thursday, as business growth picked up at its fastest pace since 2015. The CBI data boosted hopes that the UK economy could finally be rebounding, helping sterling move higher. Technically the pair is mildly bullish, as the 4-hour chart shows GBP/USD above the slightly upward sloping 20 SMA, whilst detaching from the mildly bullish 200 SMA. $1.3465 has been a relevant high on several occasions and this could well be the lid on any upwards movement today.  

Europe points to mixed start

Looking ahead to the European open, futures are pointing to a mixed start. The commodity heavy FTSE futures are pointing to a stronger open, whilst other European bourses are looking at a more lacklustre start to Thursday. Despite the thin trading volumes climbing commodity prices manged to push the FTSE to fresh record highs in the previous session and we could be in for a repeat performance today.

The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced. Losses can exceed deposits.