Financial market research and analysis

Markets ignore budget, wait for ECB

Some confidence returned to stock markets on Wednesday as official UK growth targets were lifted and China reported a usual trade deficit thanks to strong internal demand. The outside chance that the European Central Bank could announce a surprise tapering of its bond-buying program at its policy meeting on Thursday has some investors sitting on the side-lines.

Investors anticipating higher US interest rates sent financial stocks higher, helping the FTSE 100 to modest gains. Worldpay, Barclays and Standard Chartered were all top risers while L&G fell after poorly-received results. Apart from skimming a few pounds off the top of dividend income, the first and last Spring budget from Chancellor Philip Hammond was a bit of a damp squid. In a time of Brexit uncertainty, a nice boring budget from Spreadsheet Phil was probably the order of the day.

Trump delivers jobs & USD jumps

The US dollar hit a three week high against the yen, gold prices dropped to the lowest in a month and US treasury yields leaped after data showed the biggest monthly private company job gains in six years. Data released on Wednesday showed US private businesses added 298,000 jobs, over 100k more than consensus forecasts.

ADP is not historically the best predictor of the more widely watched data from the BLS. Non-farm payrolls on Friday will be the last possible stumbling block to a March rate rise. Given the strength of the ADP data, it would take a massive statistical aberration for the NFP to miss to such an extent that would justify keeping rates steady again. Odds of a March rate hike have hit 97% according to Fed funds futures, making a rate hike all but a certainty.

It’s only one month’s data - but so far, Donald Trump is delivering on his promise to get Americans back to work. Whether The Donald’s brazen tactics for bringing jobs back home will work in the long run is hotly debated, but it’s not a coincidence that his first full month in office coincided with a stronger monthly rise in jobs than the last six years under Obama. If this employment data is a sign of things to come for the US economy, then the rise in stock markets in the context of higher interest rates make  a lot more sense.

‘Green shoots’ turn oil prices red

Oil markets looked soft for a second day on Wednesday after data showed another weekly build in US inventories. The resurgence of US oil production in conjunction with a steady expansion in oil rigs is undermining confidence that OPEC output cuts will end the supply glut.

Saudi Arabia’s oil minister Khalid al-Falih told a conference of oil magnates in Texas that the OPEC deal was sowing “green shoots” for the US shale industry. Mr Falih is voicing what many oil traders have been thinking. Indeed the concern that cutting output would play into the hands of producers who went part of the agreement was what led to Saudi Arabia’s recently abandoned policy of non-intervention.

US shale as well as other beaten-down parts of the oil industry including in the North Sea are coming back to life. New efficiencies, including a lot of job cuts mean an oil price above $50 per barrel is profitable. The three month consolidation in the oil price that chartists would recognise as a triangle pattern is overdue a breakout. Simply complying with previously agreed cuts may not be enough to prop up oil prices.

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