Financial market research and analysis

Although the recent pound appreciation prevents the FTSE from running like the wind, the UK’s biggest caps managed to join the global stock rally in London this morning. Though, the FTSE remained slightly behind its European peers.

The industrials (+1.35%) led gains. Having a large pound and US dollar exposure, CRH Plc rallied 2.31%.

Good company news wet investors’ appetite in the mining sector. The UK’s mining stocks pushed 0.42% higher at the open.

BHP Billiton (+1.89%) gained after announcing strong second quarter results for its most profitable iron ore business. The company’s iron ore output rose 9% in Q2.

Glencore (+1.73%) and Rio Tinto (+1.08%) benefited from the positive momentum.

The UK’s Supreme Court decision triggered a sell-the-fact reaction in the pound yesterday. Yet, sentiment in the UK markets have clearly improved, given that the Brexit risks are now well diversified between May's government and Parliament. Therefore, there is an increasing rational behind the GBP-longs. Hence, the pound’s rapid recovery above 1.2500 despite the strong US dollar, hints at the possibility of a further rise to 1.2575 (minor 23-6% retracement on post-Brexit decline). If surpassed, it could encourage fresh longs targeting 1.2774 (December peak).


Could a Mexican wall stop investors from investing in US stocks?

On Tuesday, the S&P500 hit a fresh all-time high of $2284.63 on the back of solid company earnings, the Dow Jones advanced to $19949. The US stock futures were bid in Asia, as the US 10-year yields climbed above 2.45%.

The US dollar firmed against a majority of the G10 currencies, while the Mexican peso (0.20%) sold off the most against the greenback on renewed concerns about the US’ plans to build a wall between the US and Mexico.

US President Donald Trump prepares to unveil his plans regarding the US’ refugee crisis and the Mexican wall on National Security later in the day.

A hypothetical wall may be a costly and inefficient way to stop immigration, yet Donald Trump would still insist on the realisation of the project as his unique signature in US history.

Meanwhile, US stocks are being purchased although the lack of concrete and conventional policy plans from the new leader started worrying the investor community and the US’ protectionist trade stratagem has become a global concern.

Why do investors continue buying stocks?

It may well be because of the lack of reaction from the other nations. None of the US’ trading partners have responded to the US’ sudden exit from the international treaties yet. The non-reaction certainly helps fuel appetite in the US stocks, but may also be hiding a great selling potential.

Nonetheless, the current positive mood is strong enough to gather more momentum for a second day rally in US stocks. The pre-market indicators point at a positive one in New York. The Dow Jones is called 56 points higher at the US open.

On the other hand, the volatility index VIX eased to the lowest levels since the US election, confirming the current positive trend. However, a low VIX could also be an indication of rising risk for higher, and potentially negative volatility in the future.


Gold loses the battle against $1220 offers

Gold weakened to $1202.78 on the back of rising US yields and the broad-based recovery in the US dollar. The failure to clear the $1220 resistance may reinforce selling pressure on the precious metal. The next critical support is eyed at $1195, and if broken, could encourage a deeper sell-off to $1280.