Financial market research and analysis

EQUITIES

Global stock markets have been blessed with four straight days of gains this week. Whether we can get five-for-five will probably rest with the monthly US jobs figures later.

On Thursday, the Dow Jones and S&P 500 rose 0.3% to hit record highs. It’s the first time both US benchmarks struck simultaneous new highs since the coronavirus outbreak. Underlying much of the optimism is a sense the enduring strength of the US economy means it can weather any effects of the coronavirus. So far, the S&P 500 is up 3.7%. If we can hold onto gains today, it will be the biggest weekly rise since June.

We’ve seen some big gains across European stock markets this week. Italy’s FTSE MIB is up over 5 ½ % this with a 1% daily gain on Thursday. The DAX is up 4.5% while the FTSE 100 has risen 3%. The jury is still out on the European economy. German factory orders for December were horrific and the more up-to-date PMI survey data hasn’t been much better. The going logic for adding Europe to the portfolio is that the economic rebound is just lagging the US.

The shares of unicorns that had IPOs in 2019 are starting to look interesting. Uber and Pinterest both reported earnings after the close and look set to make gains when Wall Street opens. The results were a bit shaky but investors like that Uber is now forecasting profitability in 2020 rather than 2021. With Facebook facing some headwinds, Pinterest is another place to look in social media that still has double-digit user (MAU) growth.

FOREX

It’s been all about the buck in forex markets this week. That should continue into Friday ahead of the release of non-farm payrolls (at 13:30 GMT). The Dollar has been up across the board: GBPUS fell -2.01% while EURUSD is lower by -1.04% over the week through Thursday. On top of the economic performance, Trump’s acquittal and the China tariff reductions also underline a bullish case for the buck.

Consensus expectations are for the US to have created 160k jobs in January, up for a lacklustre 145k in December. Our bias is for an upside surprise given the almost universally good data from the US of late. Bearing in mind average hourly earnings growth was soft last month, we could get a blowout on jobs growth and wages. Jobs growth above 200k and we can probably kiss 1.10 goodbye in EURUSD.

It’s setting up as a rough week for the pound ever since Boris’ post-Brexit speech went down like a tonne of bricks with investors. Traders are bracing for phase two of Brexit where the two central scenarios both look unattractive for investors. Neither an FTA that diverges heavily from the EU nor crashing out with no deal succeed in achieving the economic stability that markets are craving.

COMMODITIES

Gold looks resilient above $1550 per oz but its hard to see how a blowout NFP number wouldn’t be damaging for the yellow metal. If gold can finish lower by less than 1% this week (-0.8% so far), we’d view that is a good result for a haven asset given the exuberance across stock markets. Also, if one were to look at gold in euros, it’s almost breakeven this week.

Oil markets are feeling the pressure though there are tentative signs of a rebound as coronavirus fears ease. Brent crude oil is down 5% this week. We think Russia probably made the right call in blocking the Saudi efforts at OPEC to further slash output. It would have been too soon to act without the evidence of the genuine economic impact of the coronavirus. The result is that oil investors now know OPEC doesn’t have their back, which probably limits the upside for oil prices.