Financial market research and analysis

Dollar jump diverts election jitters

A strong open on Wall Street saw the Dow Jones hit a fresh record high. So far any moments of doubt over Trump’s policies have been a buy-the-dip opportunity.

Weaker currencies helped European stock markets bounce back from election jitters. The euro closed below its 20-day moving average (a technical indication of an uptrend in prices) for the first time since the start of 2017. The British pound has unwound all of its gains since Theresa May’s Brexit speech.

The latest political developments didn’t match the rise in market confidence. Former French President Nicholas Sarkozy will stand trial for fraudulent campaign financing and rumours abound of an Emmanuel Macron extra-marital affair. This comes as Francois Fillon apologises for the dubious payments to his wife for parliamentary work.  If the French electorate are collecting newspaper clippings of political misdeeds, there’s a scrapbook-load of reasons to protest vote for Marine Le Pen.

Homebuilder white paper relief

A weaker Sterling helped the FTSE 100 to modest gains, despite BRC data showing a slowdown in retail sales in January. There was a sense of relief from investors in UK homebuilder shares after the government released its whitepaper. Measures to make planning permission easier and incentivize planning authorities to step up homebuilding are positive for the large homebuilders. Encouraging competition from smaller homebuilders through an investment fund will be difficult in practise.

BP profit miss

BP shares dropped after missing quarterly earnings estimates that left the oil giant with a near $1bn annual loss. BP is nearly at the point of putting the Deepwater Horizon disaster behind it but a low oil price will limit how much it can invest into future exploration. Yield-hungry investors have been tolerant of BP’s unsustainable dividend, banking on an oil price recovery. Should the oil price remain below $70 per barrel over the next couple of years, this could well change.

Record bullish oil bets call a top

Those record bets on a rise in the price of oil haven’t paid off. As of Tuesday afternoon, oil was having its worst two-day drop in a month. CFTC data from Friday showing a net long position of 885m was a sentiment extreme. The result is the market has rolled over. Quite simply, almost everyone in the market has gone long already and it wasn’t sustainable. More nimble oil traders are taking short-term profits as the price turns lower.

So far the evidence is good that OPEC nations and partners including Russia are complying with oil output cut promises. The OPEC & non-OPEC supply deal and the compliance thereafter are the reason for the huge build up in bullish positions. There are still big sources of uncertainty in energy markets; two of them emanate from the US.

Trump carbon reset is bearish for oil

With prices above $50 per barrel, shale oil producers are coming back into the market. The falls this week come ahead of API and DOE inventory data expected to a show a weekly build in inventories. Last week’s US rig count was the highest since October 2015. Total US rigs now stand at 566, a far cry from the peak near 1600 before the oil price crashed, but well up from the 2016 lows.

Donald Trump’s executive orders to build the Keystone and Dakota pipelines suggest US energy policy is shifting. All signs are that Trump’s America will rely more on carbon energy and produce more oil. In summary, more US production dampens the effect of the OPEC cuts, putting $60 oil on hold.