Weekly Market Insight - January 30th 2018

Jan 30, 2018 Written by LAT

Equity Markets

U.S. equity indices surged on Friday, finishing the day deep in record territory and booking a fourth consecutive weekly advance.

The Dow Jones Industrial Average, rose 223.92 points, or 0.9%, to a record at 26,616.71. This was largely driven by Intel Corp. and 3M Co. MMM, which together contributed a significant portion, approximately 75 points, of the Dow’s solid advance.

That said, most fund managers do not try to match the Dow. They prefer to look at the broader and capital-weighted S&P 500. This index gained 33.62 points, or 1.2%, to an all-time high at 2,872.87 on the
back of a 2.2% gain in the health-care sector and a 1.6% rally in technology, viewed as the growth areas of the market.

The technology based Nasdaq Composite Index surged 94.61 points, or 1.3%, to 7,505.77, closing at a record.

All three benchmarks finished at their best levels of the day, suggesting that investors continue to favour equities amid the relentless rise for assets perceived as risky despite rising concerns about extended valuations.

There is a growing sense that the tax cut agenda will provide the U.S. economy with at 14% tailwind so boosting profit growth.

German stocks were higher after the close on Friday, as gains in the technology, retail and consumer &
cyclical sectors will maintain strong top-line performance. By the close in Frankfurt, the DAX added
0.31%, while the MDAX index gained 0.60%, and the TecDAX index climbed 1.17%.

French stocks were higher after the close on Friday, as gains in the consumer goods, healthcare and industrials sectors led shares higher. At the close in Paris, the CAC 40 rose 0.87%, while the SBF 120 index added 0.82%.

Weekly Market Insight - January 30th 2018

Reading into U.S GDP growth:

A reading of Q4 2017 GDP growth was slightly softer than expected but was viewed by investors as healthy enough not to derail the perception that the economy is on firm footing.

The U.S. economy expanded an annualised 2.6% Q4 2017 QoQ, below 3.2% in the previous period and market expectations of 3.0%. (Source: BEA).

The deceleration in real GDP growth in Q4 2017 reflected a downturn in private inventory investment that was partly offset by accelerations in personal consumer expenditure, exports, nonresidential fixed investment, state and local government spending, and federal government spending, and an upturn in residential fixed investment. Imports turned up as goods and services flowing into the U.S. increased
USD 6.0 Billion from the previous month to an all-time high of USD 250.7 Billion in November 2017.

Foreign Exchange

The Dollar Index fell against on Friday by 0.36% at 88.87 and recorded its largest weekly decline since June, following comments by the U.S. Treasury secretary earlier in the week welcoming a weaker currency. Steven Mnuchin said on Wednesday at Davos that weaker dollar is good for trade. For the week, the index was down 1.64%; its largest weekly percentage decline since June.

The dollar recovered after President Donald Trump said Thursday the U.S. currency would get stronger as he seemed to contradict Mnuchin’s comments. The comments were seen by markets as a departure from traditional U.S. currency policy. The risk of a weaker dollar is that it could undermine confidence in a wide swath of U.S. assets, including the Treasury Bond market.

The Dollar remained lower after the GDP data (see above).
USDJPY retreated to four-and- a-half month lows on Friday, settling at 108.58 after Bank of Japan Governor Haruhiko Kuroda said the bank expects the economy to continue growing at a moderate pace and inflationary expectations are picking up. GBPUSD pushed higher rising 0.15% to 1.4159 amid growing optimism over Brexit and the economic outlook.

Naturally the rate for EURUSD was higher on Friday at 1.2427 after hitting a more than three-year high of 1.2537 on Thursday.

European Central Bank President Mario Draghi criticized Mnuchin’s comments about the Dollar on Thursday, warning that such language violated longstanding international agreements designed to prevent currency wars. Draghi added that recent exchange rate volatility is a source of uncertainty and needs to be monitored for its impact on short term price stability.

However, on Thursday at the ECB press conference, Draghi did nothing to curb the rise of the Euro, even though the week before members of the Governing Council had tried to talk the EURUSD rate lower. Keep an eye on the upcoming Federal Reserve meeting. It will be the last under the leadership of Janet Yellen before she hands the chairmanship over to Jerome Powell.

BTCUSD fell for the third-straight week as traders struggled to shake off the looming threat of regulation, while reports that one of Japan’s largest exchanges, Coincheck, was hacked did little to allay

Coincheck had to restrict withdrawals from their platform which on top of news that South Korea would look to ban non-residents from having accounts at South Korean exchanges from February sent shockwaves throughout the industry.

The hack is highly disturbing as Japan had been the safe-haven for cryptocurrencies and it accounts for 40% of global Bitcoin transactions. Some reporting sources said that we are now seeing cryptocurrency traders abandon the philosophy of  HODL as billions were wiped off the market.

The total cryptocurrency market cap fell to USD474 Billion. This is below the USD478 Billion level last
seen following the so-called crypto-bloodbath on January 16.

The Week Ahead: (all times GMT)

Tuesday, January 30:

15:00 USA  Consumer Confidence (Jan)  expect 123.0  previous 122.1

15:30 UK BoE Governor speaks

Wednesday, January 31:

01:00  China  Manufacturing PMI (Jan)  expect 51.5 previous 51.6

02:00  USA  State of the Union

08:55 Germany Unemployment Change (Jan)  expect -20K  previous -29K

10:00 Eurozone  CPI YoY (Jan Preliminary)  expect 1.3%  previous 1.4%

19:00  USA  Federal Reserve Rate Decision  expect 1.5% previous 1.5%

FOMC Statement

Thursday, February 1:

01:45  China Caixin Manufac PMI (Jan) expect 51.3 previous 51.5

08:55 Germany Manufacturing PMI (Jan) expect 61.2  previous 61.2

09:30 UK Manufacturing PMI (Jan) expect 56.5  previous 56.3

15:00 USA  Manufacturing PMI (Jan) expect 58.6 previous 59.3

Friday, February 2:

09:30 UK Construction PMI (Jan) expect 52.0 previous 52.2

13:30 USA Non-Farm Payroll (Jan) expect 180K previous 148K

Unemployment Rate (Jan) expect 4.1% previous 4.1%

Have a great week