Financial market research and analysis

EQUITIES

European shares are set to open higher on Monday in what may be a more muted day of trading with Wall Street closed for Martin Luther King Jr. Day. Trading in Asia was light with US investors on holiday today and Chinese New Year celebrations set to begin on Friday.

A jump in the price of oil looks like it will give the FTSE 100, home to BP and Shell an extra boost. The UK benchmark index has reached its highest since July last year, benefitting from a weaker pound since most companies earn the majority of their money abroad. British home builder and estate agent shares could benefit from data by Rightmove showing home asking prices jumped by a seasonal record, attributing it to a “release of pent up demand”. Winter time right before Christmas is typically dead but the election result looks like it changed that norm for UK homebuyers.

More broadly across markets, the absence of US liquidity means it should be a relatively subdued to start to a busy week that includes Davos, Donald Trumps’ impeachment trial, the ECB rate decision and earnings from Netflix.

Impeachment papers released by the Democrat-controlled Congress say about the President, “Unless he is removed from office, he will continue to endanger our national security, jeopardize the integrity of our elections, and undermine our core constitutional principles.” In response, Trump’s lawyers have called the impeachment proceedings a “dangerous attack on the right of the American people to freely choose their president.”

We continue to look for any evidence that markets are anything but blasé about impeachment. US and European shares made new records last week after solid China growth data. If gains continue this week, the Euro STOXX 600 equity index will be up over 20% over the past 12 months.

FOREX

The euro, Japanese yen and Canadian dollar will be the ones to watch as the respective central banks in Europe, Japan and Canada decide interest rates this week.

The stats about home prices from Rightmove is in line with mostly upbeat data on the housing market since the election. The housing data is first inkling we have seen of a rebound in consumer confidence since the election. We think that goes some way to explain the rebound in the British pound, where even the worst stretch of monthly retail sales on record couldn’t knock GBPUSD below 1.30 for long.

COMMODITIES

Oil prices have hit the highest in a week after two oilfields in Libya shutdown when forces under the control of General Khalifa Haftar closed a pipeline. If sustained, production will drop to the lowest since 2011. Already initial price gains have been halved and we suspect the effects of the problems in Libya do not endure for two reasons. First is that the summit in Berlin agreed a tentative truce between rival factions vying for power in Libya, and that implies re-opening the pipeline. Second is based on recent experience with tensions in Iran. We have to accept that 2020 will see heightened geopolitical risk in key oil-producing nations. But while supply is so plentiful relative to demand, the effect of these risks will be dampened.

Palladium was the standout mover last week in the commodities space, spiking 10% higher on Friday to reach $2500 per oz.