Europe
European equity markets dropped quickly in the wake of the announcement that Michael Flynn, the ex-national security advisor head, lied to the FBI regarding the Russia investigation. The old chatter from the summer about President Trump being impeached have surfaced again.
After a mixed start basic resource stocks are in positive territory, even though China’s manufacturing sector grew at a slower pace in November – according to the Caixin survey. The reading for the month just gone was 50.8, while traders were expecting a reading of 50.9, and the October figure was 51. The Chinese economy is cooling down and investors are wary their demand for minerals will decline. The push higher in copper has offset the slightly disappointing manufacturing figures from China, and that is helping the share price of Rio Tinto (LON:RIO), BHP Billiton (LON:BLT), and Anglo American (LON:AAL).
RBS (LON:RBS) announced plans to close 259 branches and in turn cut 680 jobs. This fits in with the banks aim to reduce its presence on the high street as more of their customers are accessing their services online. The finance house are investing in online and mobile platforms to facilitate their every growing base of tech savvy customers. Shares in RBS are down 2.2% today, but that is due to a wide sell-off across the sector.
Continental markets have been under pressure due to the rally in the euro. The single currency has waned a bit since the morning and that has given the DAX, CAC 40 and IBEX 35 some breathing space. The manufacturing reports from the major eurozone economies showed high levels of activity, which indicates the loose monetary policy of the European Central Bank (ECB) for the past few years has worked.
US
US markets sold off sharply after the news broke that Michael Flynn, the former national security adviser (NSA) chief is expected to plead guilty in relation to the Russia investigation. Mr Flynn is will cooperate with the government agencies and could implicate President Trump.
Republicans in the Senate delayed voting on the tax reform so they could patch up the tax bill before pressing ahead with the vote. The GOP want to ensure to all the loose ends are tied up and that sceptical Senators are brought on side. Dealers are sensing that progress is being made, but seeing as that a lot of the bill is already priced, they are now in wait and see mode.
The latest ISM manufacturing report came in at 58.2, down from 58.7 in October, and traders were expecting a reading of 58.4. Today’s manufacturing report long with yesterday’s firm PCE figure and Wednesday’s solid growth report paints a picture of a healthy US economy.
FX
GBP/USD is in the red as take their profits as the pond had a good week. Yesterday the currency pair hit a two month high over optimism in relation to the Brexit deal was on the rise. Today, the British government is caught between the Irish government and the Democratic Unionist Party (DUP) – who are in a supply and confidence deal with the Conservative Party. The Irish border issues seems to be slowing down Westminster’s progress, and dealers are cutting their long sterling positions on the back of it.
EUR/USD has been hurt by a combination of a strong US dollar and profit taking. At the start of the week the single currency was at a two month high versus the US dollar, but traders have been exiting their euro longs. The stellar manufacturing reports from France, Italy and Germany today weren’t enough to halt the decline in the euro.
The US dollar has been dragged around by the prospect of the US Senate approving the tax reforms, and the potential scandal involving Michael Flynn and potentially President Trump.
Commodities
Gold has bounced back today after enduring a relatively big sell-off yesterday. The metal has been relatively range bound for the past month and it is currently trading at $1282 – in the middle of the range for the past two months. Dealers are unfazed by the prospect of an interest rate hike from the Federal Reserve later this month, but the outlook for the US central bank in 2018 is less certain.
WTI and Brent Crude are soaring after a study from MIT stated that US output forecast are greatly overstated. The energy market was already is bullish mode this week after OPEC and Russia agreed to extend the output cut until the end of 2018. There was talk the US were going to ramp up oil production over the next few years through shale producers, and now traders seem less convinced.
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