Financial market research and analysis

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Commodities up & tracking Wall St records

Wall Street opens 2018 with fresh records

Wall Street opened up 2018 with record highs, boosted by energy, tech and consumer discretionary sectors. S&P 500 and Nasdaq indices hit record intraday and closing highs. The rise in tech stocks helped the Nasdaq Composite close above 7k for the first time. The gains come in contrast to the signs of sector rotation evident in the shift out of tech and into financials toward the end of 2017. Moreover, investors seem to be jumping in both feet first to the same things that have been doing well. It is tempting to predict a correction this year, simply because last year was up a lot, but evidence is to the contrary. History shows big stock market gains slowdown before they turn to losses.

 

Europe to open up with commodities, tracking Wall St records

European stocks look set for a mostly higher open on Wednesday following a soft first day of the New Year. Energy and commodity sectors should be in demand after a jump in crude oil and metals prices. The ASX mining index reaching a five-year high bodes well for the shares of the same miners listed in London. Strength in domestic currencies may be sapping some of the strength in European markets. Traders in FTSE 100 shares may be looking for the index to re-test the old highs at 7600 before pushing on toward new records.

 

Dollar softens before FOMC minutes

Weakness in the US dollar looks to be having far-reaching effects. A near $20 jump in gold, other commodity prices moving higher, as well as gains for the shares of multinationals will large foreign earnings are repercussions of a weakening dollar. The dollar index fell to a 3-month low in the lead up to the release of FOMC December meeting minutes later today. There has been a sense in markets that the Fed is gearing up to backtrack on its forecast for three rate hikes this year because of low inflation. The minutes could help explain how Fed members are juxtaposing lower inflation expectations with planning the same pace of rate increases.

 

Euro approaches 3 year high before

As the dollar weakens, the euro has been leading the charge in G10 FX. Chances are good that we see a new three-year high in the euro against the dollar today. Data today should support euro strength with the German unemployment rate expected to remain near record lows at 5.5%.

 

Iran tensions help Brent breach $67 per barrel

Brent crude oil reached an intraday high of over $67 per barrel, the highest since May 2015.

The ongoing Iran protests have been pushing prices higher. Previous instances of geopolitical tension have quickly been priced out of oil, only for fundamental traders and trend followers to buy up the dip. We suspect a repeat of that pattern here. With no direct impact on oil production/exports from Iran, the oil price is edging back lower again. The test for further oil appreciation will be whether Brent can hold above the top of its flag pattern near $65 per barrel.

 

A New Year’s resolution to buy gold

Gold rose almost $20 on Tuesday. According to Reuters data, gold has risen 12 days on the trot for its longest winning streak ever. Gold making gains alongside US stock markets is a repeat of the same phenomenon that saw both asset classes make double digit gains in 2017. Weakness in the dollar, a seasonal tendency to do well in December/January and Trump responding to Kim Jong Un with his own threat about having a nuclear button “that works” all came to the aid of precious metals. For the record, we think the decline in Bitcoin and the rise in gold prices is correlation without causation. There is some crossover between gold and bitcoin ‘tinfoil hat investors’ betting on a fiat monetary collapse, but they are a small minority.

 

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