Financial market research and analysis

Time heals all wounds, and in the case of stock markets the amount of time is about a week to move on from disappointment at Donald Trump’s failure to reform US healthcare.

Stocks

Stocks are still in a bit of a holding pattern with traders lacking a bit of conviction to follow through on the last two days of dip-buying. A positive open in the US, helped by further recovery in crude oil prices improved sentiment in European markets by the afternoon.

A bigger than expected fall in German inflation during March assured investors who have been buying the country’s shares in hopes of an extended period of easy money policies. The German benchmark DAX index touched a two-year high for a second day.

The resilience of the British pound in the face of Article 50 uncertainty was probably the biggest factor behind the underperformance of the FTSE 100. Fund manager Schroders was the biggest loser while Ashtead Group was top gainer.

Currencies

The US dollar was mostly higher on Thursday but fleetingly hit the skids after reports that US President Donald Trump is studying ways to penalise currency manipulators. The ultimate purpose of currency manipulation penalties would be to lower the value of the dollar in order to help the competitiveness of US exports. The reports are not out of character with Trump and other officials describing the dollar as “too strong”.

The pound rose on Thursday as the UK government unveiled its ‘Great reform bill’. Sterling has built on the foundation of a relatively stable showing on ‘Article 50 Day’ when Britain formerly announced its exit from the European Union. GBPUSD rose back above 1.25.

The euro was under pressure after weaker than expected German inflation data has tempered the idea the European Central Bank could begin taper talk as soon as its next meeting in April. EURGBP touched its lowest since March 3 while EURUSD dropped for a third day.

Commodities

Brent crude oil Talk of 95% compliance to oil output cut targets from OPEC counties in March as well as a Libyan production outage has reduced concerns of oversupply, despite record US stockpiles. Given the velocity of the oil price slump three weeks ago, if sentiment has turned, the recovery could be equally fast. $55 per barrel in Brent would be a natural upside objective for oil bulls.

The price of gold touched a three-day low after US GDP data came in slightly ahead of expectations. Gold has stalled this week after hitting its 200 day moving average and is likely to suffer some damage if the US dollar continues to recover. Brexit fallout risk, which was been an important source of demand for gold as a haven seems to be diminishing for the time being, and is one of the reasons we suspect gold is heading into another period of consolidation. Should the EU harden their position in the early stages of negotiations, making the UK leaving the EU without a deal more likely, gold would stand to benefit.

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