Financial market research and analysis

Even the remarkable rally in the global stock markets couldn’t cheer up British investors, as the strengthening pound took its toll on the UK markets. All sectors opened in the red, except financials (+0.11%), however even the UK banks missed the global race in banking shares, as the pound traded over 1.26 against the US dollar.

UK GDP grew 0.6% month-on-month in the fourth quarter according to the preliminary data. The UK’s gross domestic product has shown its best performance in almost eight years since the pound fell below 1.20 on January 16th. Again, we could barely see any negative Brexit impact in the fourth quarter of 2016. Cable extended gains to 1.2671 for the first time since mid-December. Traders now look at 1.2774 (Dec 5th high), as the 200-day moving average is less than three figures away, 1.2900.

On Friday, UK Prime Minister Theresa May will meet the freshly elected US President Donald Trump to seek opportunities for a deal between the two countries, both facing protectionism and isolation. The UK’s EU exit could result in a better than otherwise deal with one of its leading historical partners, nevertheless, the fact that May is under heavy Brexit pressure would also increase the risk of a disappointing deal.


Are investors brushing the problems under the rug?

Nothing could stop the US stocks from renewing records, not even the most doubted policy changes that hit the wires one after the other since US President Donald Trump came into office on January 20th.

In less than a week, Donald Trump has withdrawn from the Trans Pacific Partnership (TPP), cleared the way for a controversial oil pipeline, signed an executive order to kick-off the construction of a wall between the US and Mexico, reinforced teams responsible for deportation and banned several agencies, including the Environmental Protection Agency and the Department of Agriculture, from giving updates to the media.

As strong as the changes may sound, the Dow Jones’ rally from $19K to $20K has been pointed out as the second fastest rally in its history.

The US banking stocks (+0.98%) were among the frontrunners on Wednesday. Industrial (+1.60%) and technology stocks (+1.17%) also jumped on the back of a bull in New York. The Dow Jones traded at $20082 for the first time in history, as the S&P500 recorded a new all-time high at $2299. The US stock futures extended gains throughout the overnight trading session, as Asian traders joined the euphoria.

The US stocks are set to renew records at the US open.

The Dow Jones could open above $20100, while the S&P500 could rapidly take over the $2300 level at the start of the trading day in the US.

How could such controversial news trigger such optimism in the markets?

Prospects of higher spending and rising cash circulation could be the answer. The lack of a knee-jerk reaction from the US’ international partners could be another. Both explanations would be brushing the problems under the rug.

Although it is very difficult to estimate the remaining upside potential in US stocks, the actual blind rally could be compromised if the US’ new internal and external policies threaten the country’s medium to long-term economic perspectives.

An unanticipated backlash is the major downside risk to the actual rally in the US and the global stock markets.