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Europe joins the rally plus unicorn earnings & NFP

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.

18-5-2020

Gold hits 7-year high after Powell Warning
Fed Chair Jay Powell has warned the US economic recovery might last through the end of 2021. The Fed is normally too optimistic in its forecasts so the outlook feels bleak. Still, warm weather is encouraging countries to continue exiting lockdown. If the flu s… Read more

14-5-2020

Powell predicts more pain to come but no NIRP
A warning from the top of the US central bank that there’s more pain to come isn’t going down well across markets. Fed Chair Jerome Powell warned yesterday that more stimulus will likely be needed in the US to fend off the economic damage done by virus and pol… Read more

13-5-2020

“Suffering and death” warning hurts markets
A sense of caution has taken hold across markets. Shares, riskier currencies and oil are pointed lower. There’s a reassessment of the likely timeline for economic reopening. Our sense is markets juiced up by higher liquidity may have gotten ahead of themselves… Read more

12-5-2020

Bitcoin halving, dollar breakout on second wave fears
Market sentiment remains fragile. There’s a lot of emphasis being placed on the virus numbers in economies that have been gradually reopening.  Wuhan, the City in China where it all began reported its first ‘cluster’ of new cases yesterday after lifting restri… Read more

20-4-2020

US oil lowest since 1999, European shares diverge from Wall St
Another oil crash US crude prices have plummeted over 15% to the lowest since 1999. The 21-year low came as sellers were trying to get ahead of the expiry of the May contract tomorrow. Open interest was five times the average. A condition of Super Contango in… Read more

14-4-2020

Lifting restrictions, Softbank & Gold 7-year high
Stocks rising Markets are restarting after a long Easter weekend with a positive tone. Things have moved on from when there was so much bad virus news that the weekend was to be avoided at all cost. European shares look set for a positive open as more nations… Read more

9-4-2020

S&P 500 enters bull market, lockdowns to extend
The mood in markets continues to improve but it’s patchy. Virus cases continue to rise at a rapid clip but markets are extrapolating the data forward and hoping we’re close to a peak.    Asian and European markets are playing catch-up to the rally on Wall St… Read more

8-4-2020

Rally fizzles out, Tesco pandemic costs, Sterling & Boris
Optimism is fizzling out as doubts grow about how and when exactly quarantine and lockdown restrictions will end. The failure of Eurozone finance ministers to agree joint action underscores the limited capacity of governments to cushion the coming economic fal… Read more