Financial market research and analysis

Wall Street was already 100 points off when Trump suggested that the Fed shouldn’t be raising rates and whilst the Dow bounced marginally as the dollar receded, this wasn’t enough to stop the Dow closing near its session lows. The broader US market also closed down 0.4% after disappointing corporate earnings and a lacklustre session.

Tradition states that the US President doesn’t comment on monetary policy but given that Trump is a bit of a wild card, it perhaps isn’t that surprising that Trump broke with tradition (for a second time). The dollar plummeted 0.5%, from its 12-month high, in a matter of minutes following remarks that he isn’t thrilled about higher rates and has since clawed some of those losses back. The reality is that Fed Chair Powell is very unlikely to adjust his decision making just because Trump wants a weaker dollar. At the margins, there is a tiny chance that some policymakers are less inclined to hike on the back of Trump’s comments, but this risk is extremely small.

Timing Is Everything

As Trump moaned about the strength of the dollar, the PBOC devalued the yuan by the most since 2016, sending a chill through the markets. Interpreted as China’s response to the US trade war – the starting of a currency war- risk off is prevailing with traders selling out of equities sending Asian markets and European futures sharply lower. It was only a month ago when China denied that they would start a currency war following Trump’s action. A lot can change in a month under Trump.

Can oil extend Thursday’s rally?

Reports that Saudi Arabia expects reduced oil exports this month supported the price of oil on Thursday, but this appeared to be too little too late. Oil has lost over 3.5% across this week so far and has chalked up losses of over 8.3% across the month to date, with the potential to add to these losses when the Baker Hughes US drilling activity figures come to light later today. A government report showed that US production hit a record last week, at 11 million barrels per day, this comes at a time when OPEC are easing their production restriction, Libya are once again back in the game and Treasury Secretary Steve Mnuchin suggested that the US could adopt a softer stance on some Iranian crude buyers, a comment that sent crude tumbling close to 5% at the start of the week.

Last week the rig count was unchanged. An increase in the number of rigs actively drilling could put further pressure on oil, bringing it back towards support at $70.

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