US Indices on Course For Full House

Futures Point to Full Week of Gains After Sharp Correction

US equity markets could end the week with a full house of gains as long as indices manage to hold onto the small gains being seen in futures ahead of the open.

This would also bring an end to two shocking weeks for equity markets that saw more than 10% quickly wiped off indices, the first time we’ve seen such a move since the start of 2016. While the prospect of higher yields and interest rates, combined with a surge in volatility, have been blamed for the decline, the rebound we’re now seeing reaffirms the belief that fundamentals are still strong which should prevent the situation deteriorating further.

There are a few economic releases that traders will likely be aware of as the week draws to a close. The UoM consumer sentiment reading is always an interesting release, given the importance of the consumer to the US economy. Building permits and housing starts will also be released ahead of the open on Friday. The bulk of companies may have already reporting numbers for the fourth quarter but there are still some more to come today, with 13 due to release earnings including Coca Cola and Kraft Heinz.

US Bond Auction TIPS the dollar

Sterling Resilient After Poor Retail Sales Figures

UK retail sales data for January was once again disappointing, providing further evidence that the post-Brexit squeeze on consumers is heaving an economic impact. While this could be partially reversed as sterling continues to rebound off its lows and wage growth picks up to offset higher living costs – assuming it does – we’re seeing few signs that the squeeze is easing and that’s being reflected in the spending figures.

The pound has actually been quite resilient to the data in the aftermath of the release. While it has since declined against the dollar, this has primarily been driven by the bounce in the greenback. The consumer squeeze and economic implications of it are already known and priced in, traders are far more concerned with wages and inflation and the impact this will have on interest rates, which makes the jobs report next Wednesday far more important.

GBPUSD Daily Chart

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Bitcoin Struggling to Overcome Psychological Barrier

Bitcoin is once again threatening the psychological $10,000 barrier but as was the case on Thursday, it’s struggling to maintain its push above and once again finds itself falling slightly short. While a break above $10,000 should be no more significant than any other, it would appear to represent an end to the plunge in bitcoin that saw it fall around 70% from its mid-December highs and for this reason, it’s proving a difficult hurdle to overcome.

Bitcoin (CME) Daily Chart

Source – Thomson Reuters Eikon

Those expecting a similar response to breaking above $10,000 that we saw last time – a near 100% increase in less than three weeks – may also be disappointed. We’re not seeing the kind of euphoria that accompanied the break at the end of November when the speculative fomo trade was contributing greatly to its meteoric rise. The crash of the last couple of months has made this less of a one-way move and those that got burned may not be so keen to jump back in.

DAX Gains Ground as Dollar Under Pressure

All of this is assuming that bitcoin will break above $10,000 which is far from certain when you consider the gradual – by its own standard – bounce from its lows. This could quite easily be another corrective move and the lows may be tested once again. The absence of a constant negative news flow is helping but whether this can be sustained is debatable.

Economic Calendar

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US Futures Higher After Second Plunge This Week

Indices Remain Vulnerable After Entering Correction

US futures are trading slightly in the green ahead of the open on Friday, a day after stock markets once again tumbled leaving indices in correction territory.

As we saw on Thursday, this isn’t necessarily indicative of calm returning to the markets. The Dow recorded declines of more than 1,000 points for the second time this week, having never done so before, despite futures prior to the open being relatively unchanged on the previous days close.

Equities Lose $5 Trillion as Bulls Slay Bulls

Clearly there remains a lot of volatility and nervousness in the markets and I don’t expect this to ease up heading into the weekend. Stock markets will likely remain vulnerable to further shocks heading into today’s close and possible even next week. That said, with a 10% correction having now completed, I wonder whether investors will now start looking to buy the dips as the fundamental backdrop remains strong.

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US Congress Passes Funding Bill Ending Brief Government Shutdown

On a more positive note, the House and the Senate approved a new funding bill in the early hours of Friday morning that will see the government through to 23 March and increase spending limits for two years, ending a showdown that came into effect overnight.

Markets haven’t been too concerned about the prospect of a shutdown since the start of the year despite two having now taken place so I don’t expect to see any boost now that a deal has been reached. This is merely just another self-inflicted risk that’s been temporarily averted.

CAC Loses Ground as Global Sell-Off Continues

Sterling Dips After Worrying Manufacturing Data

It’s a slightly quieter day in terms of notable economic events. The Canadian jobs data will be of interest given that the central bank has been relatively aggressively raising interest rates over the last six months. The UK GDP estimate from NIESR will also be of interest, given that the pound has continued to rise even as the economy experiences a notable slowdown.

The manufacturing and industrial production figures from the UK this morning showed another dip in December, with the latter in particular experiencing no year on year growth. Given that these are among the areas that have benefited since the referendum, it may be a minor concern. The pound dipped after the releases having failed to hold above 1.40 against the dollar in recent days.

GBPUSD Daily Chart

Economic Calendar

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Record Outflows For US Stock Funds

U.S. stock funds saw a record $23.9 billion withdrawn by investors in the last week, according to new data, as the turmoil in global stock markets saw traders shun equities in favor of perceived safe havens.Exchange-traded fund (ETF) outflows alone constituted the bulk of withdrawals, at $21 billion, while mutual fund outflows made up $3 billion of withdrawals, according to data from Thomson Reuters’ Lipper unit. It also showed that tech stock funds suffered $1.1 billion in outflows in its worst losses since 2016.Lipper has tracked fund flows since 1992 and says it was the worst outflows on record. “We’re seeing a flight to safety here, money leaving equities, a lot of money going to money markets,” Pat Keon, senior research analyst for Lipper, told Reuters. Money market funds are hugely popular in the U.S. where they are seen as a safe place to park cash during bouts of volatility. The funds are seen as low-risk vehicles that invest in short-term securities.

Source: US stock funds suffer record outflows of $23.9 billion – CNBC

Hawks coming home to roost

GBP/USD – Pound Gains Ground as BoE Hints at Rate Increase

Weekly FX Market Update – 6 February 2018 (Video)

It’s been an extremely turbulent 24 hours in the financial market with the Dow recording its largest ever daily points drop as panic set in and traders tried to work out what was triggering such a strong sell-off. Markets have stabilized a little on Tuesday but there remains some concern among traders which continues to weigh.

Senior Market Analyst Craig Erlam talks about what he thinks has triggered such a move and goes through this week’s other key events in the markets.

He also gives his live analysis on EURUSD (18:08), GBPUSD (20:02), EURGBP (22:12), AUDUSD (23:32), USDCAD (25:10), GBPCAD (27:16), NZDUSD (28:54), USDJPY (30:58), GBPJPY (32:53) and EURJPY (34:12).

DAX Recovers After Falling to 5-Month Low

Beware: FX Space is Calm, But Appearances Can Be Deceiving

Plop Plop Fizz Fizz Oh What a Relief it is

US Futures Pare Losses After Monday’s Plunge

Markets Stabilise Ahead of the Open on Wall Street

US futures are gradually stabilising again ahead of the open on Wall Street on Tuesday, following an extremely volatile session at the start of the week and more of the same in overnight trade.

The sudden and sharp declines in equity markets over the last couple of sessions is still being attributed to higher interest rate expectations although the move appears to have been exacerbated by a combination of automated trading and panic selling. We’ve become so accustomed to dips being bought over the last couple of years that this appears to have caught people off-guard and that’s generated some of the panic responses that we’ve seen.

Now that the dust appears to be settling, people seem to be reflecting on this as a reminder that market corrections are perfectly normal and not always a sign that something is about to go terribly wrong. The rally over the last couple of years has been very strong and without any corrections of note and it’s possible that this has led to some complacency in the markets, with investors perhaps getting a little ahead of themselves.

Dow (US30) Daily Chart

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Of course we’ll have to wait and see over the next couple of days if the sell-off generates and further fear-driven selling but I’m not currently convinced it would be warranted. The economic fundamentals appear fine and the environment has been gradually improving over the last couple of years. This has led to higher interest rate expectations and it’s possible that these have gone a little too far.

Dow Suffers Biggest Ever One Day Points Loss

Bitcoin Falls Below $6,000 For First Time Since November

It’s not just stock market investors that have been burned in recent days, cryptocurrency traders are also feeling the heat, as another plunge in bitcoin sees it trading back around $6,000, almost 70% off its December highs. Some other cryptocurrencies have fared even worse, with Ripple now more than 80% off its peak which was reached only a month ago. A constant flow of negative news flow hasn’t helped the market for cryptocurrencies and neither, I would imagine, will the exit of speculators that helped inflation the bubble late last year.

Bitcoin (CME) Daily Chart

Source – Thomson Reuters Eikon

Bitcoin has found some support again after dipping back below $6,000 earlier today for the first time since the middle of November. With cryptocurrencies being such a sentiment driven market, I wouldn’t be surprised to see further losses even if prices do stabilize or even bounce in the near-term. Most cryptocurrencies are still up a considerable amount since the start of last year which some will point to as evidence that they have a lot further to fall and others as evidence of the belief that still exists in the space. Ultimately, we’re seeing the market being flushed out which could prove handy in highlighting which players are serious and which simply piggybacked on the success of others.

EUR/USD – Euro Rebounds After Monday Losses, German Factory Orders Soar

No Room For Bitcoin When Traders Sought Safe Havens

Interestingly, despite the insistence of some that bitcoin could be the new Gold, we’ve seen little evidence of it benefiting from the recent panic. Gold on the other hand did see some safe haven flows late on Monday and is trading a little higher once again today. As is the yen, which is typically seen as a safe haven currency and is trading higher against the euro and pound today. It has pared its gains in the last few hours though as equity markets have pared losses.

Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.

Dow Suffers Biggest Ever One Day Points Loss

US stock markets bounced back following the flash crash on Monday but the Dow still ended the session down 4.6%, having suffered the largest one day points loss ever. The Dow shedded more than 1,500 points at one stage, a large chunk of which occurred in a very short period of time.

Naturally there is a lot of questions being asked about the role of automated trading in the collapse and I’m sure the discussion will happen over the coming days but the important thing is that markets have recovered from the initial shock, while at the same time losing a considerable amount in the process.

With this being the second consecutive session in which we’ve had heavy selling, traders are looking for reasons for the decline and whether further downside is to come. Higher yields on the expectation that interest rates will rise faster than expected has been blamed until now and could be responsible for what will hopefully prove to be a brief and healthy correction.

Still, this is unlikely to be what Jerome Powell was hoping when he started his tenure as Fed Chair and already people are asking questions about whether investors were getting ahead of themselves in expecting three or more rate hikes this year. Once the dust settles we’ll surely have a much better idea of whether higher rate expectations are truly to blame for these suddenly shaky markets and a storming return for volatility.

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US Futures Add to Friday’s Losses

Wall Street Poised For Sharp Losses Again on Monday

US futures are trading back in the red again on Monday, adding to substantial declines seen on Friday when higher interest rate and inflation expectations weighed heavily on stocks.

We’ve seen a sharp increase in US bond yields over the last week after the Federal Reserve released a more hawkish than expected statement – alongside its monetary policy decision – and the jobs data reported a significant increase in earnings. Markets now have three rate hikes this year more than 50% priced in and some people are even anticipating a fourth, which is unusually ahead of current Fed forecasts.

While Friday’s declines were larger than we’ve become accustomed to and the biggest drop in the Dow since June 2016, I don’t think it yet signals that a large correction is underway. Small corrections are normal in markets, even if we haven’t experienced them as often in recent years. Asian and European markets have suffered significant losses this morning in response to the US declines on Friday but we’ll have to see over the coming days whether this will trigger more downside.

Dow 30 Daily Chart

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Equities Slump Deepens; Dollar Steady

Bitcoin Testing $7,600 Lows Again

Bitcoin on other hand is struggling yet again at the start of the week and is trading back below $8,000 at the time of writing. Cryptocurrencies have seriously fallen out of favour since the middle of December and constant negative news flow and speculation of increased regulation has exacerbated the move lower, much in the same way that the constant flow of positive news stories aided the explosion higher.

Bitcoin (CME) Daily Chart

Source – Thomson Reuters Eikon

In much the same way that picking the high on the way up proved to be extremely difficult, it’s tough to establish a realistic low for bitcoin and others. It would appear cryptos can’t rely on the speculators to drive prices higher again as its likely they’ve been severely burned over the last couple of months and may be reluctant to jump back in.

BoE “Super Thursday” Eyed This Week

This week will be a little quieter than the one just gone, although there are a few central bank meetings that traders will be keen on. The Bank of England meeting stands out, with it being accompanied by the quarterly inflation report and press conference with Governor Mark Carney. The central bank raised interest rates last year and many people expect another in 2018. With the economic outlook so uncertain though and inflation probably having peaked, I question whether another rate hike is as nailed on as some would suggest.

DAX Drops to 17-Week Low, Eurozone Retail Sales Slide

Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.