Financial market research and analysis

European markets look set to start the week on the front foot, taking the lead from a stronger session in Asia and a sixth straight positive close for Wall Street, on Friday. 

Wall Street managed to eke out another higher close on Friday, although the rally showed signs of running out of steam, as US equity indices ended the day well below session highs. The Dow closed just 19 points higher and the S&P just 0.04% higher as a combination of profit taking prior to the public holiday weekend and political jitters concerning Russian interference in the 2016 US Presidential elections.

If traders were in any doubt over profit taking prior to the holiday weekend after weekly jumps of 4.5% and 4.3% respectively for the Dow Jones and the S&P, the indictment of 13 Russians over interference in US Presidential election, was sufficient motivation for traders to cash in. The US stock markets are closed for trading today for President’s day. However, these political jitters could still be played out in the US dollar, which will trade through.

Dollar sub 89.00

The dollar is seen selling off breaking through 89.00 in early trade. With little on the economic calendar today, fears stemming from the Russian Indictments and nerves ahead of the FOMC minutes release on Wednesday, from a Fed which is unlikely to sound profoundly hawkish, the dollar could be vulnerable to deeper losses.

Weaker dollar & political nerves send gold higher Gold traded close to its 18-month high overnight as the weaker dollar worked to the yellow metal’s advantage. Flows into safe havens, such as gold, have increased following the charges on the 13 Russians for their meddling in the US Presidential elections. Whilst there is still no evidence of collusion between Trump and the Russians, there are certainly jitters in the market, as investors keep in mind the adage “there is no smoke without fire”. Gold is trading at $1353, after having traded $1360 early on Friday. A continued sell off in the dollar and more headlines over Russia could see gold bulls target $1366 in the near term, before attacking resistance at 1380.

Fundamentals supporting WTI bulls

Oil is also seen capitalising on the weaker dollar. Whilst WTI has pulled back from three-year highs, fundamentals are supporting the bulls. WTI bears had been focusing on the rising US production potentially overshadowing any good work by OPEC limiting production. However, with, the latest Baker Hughes Rig count adding just 7 active rigs, compared to 26 the previous week and OECD and China Import Data showing demand forecasts clearly increasing, WTI could look to charge higher towards resistance seen at $63.50. On the downside a move below $58.07 could see open the door to an extended selloff.

Chinese retaliation concerns could weigh on miners
Strong gold and oil prices mean we could see precious metal miners and oil majors leading the FTSE higher. Meanwhile concerns over retaliation from China over Trumps potential tariffs on steel and aluminium could keep the miners out of favour. Given the heavy weighting of the miners this could mean that the FTSE trails behind its European counterparts. Banks will also be under the spotlight this week as they report. The market is expecting a solid set of figures all round so we could see some buying interest before the updates kick off with HSBC on Tuesday.

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