It was a rough day at the office in US markets on Tuesday as a relentlessly strong US Dollar and a renewal of downside volatility in Crude Oil prices knocked stocks further from the peaks formed just over a week ago. A recuperation of some of yesterday’s losses is expected with a higher open in US markets on Wednesday.
In European trading the euro has fallen below 1.06 to the US dollar having been at 1.25 as recently as mid-December. The European Central Bank’s unconventional policy action is devaluing the euro while the Federal Reserve edges nearer to a rate-hike.
Every man and his dog is long equities and the long the US dollar at this point in a massively overcrowded trade of not fighting the Fed (and ECB and all the other central banks who have cut rates this year). The result is an ongoing source of volatility in FX, dollar-denominated commodities and commodity-heavy stock indices.
The dollar at twelve year highs versus multiple major currencies and US, UK and German equities at all-time highs create unease about holding on through market dips on the fear it could finally be the top.
Oil prices and the energy sector of the stock market sold off on Tuesday; whether the sell-off continues after what is expected to be another large build-up of US crude inventories today will be key for the longevity of the current correction in US stocks.
Express, Krispy Kreme Doughnuts, Men’s Warehouse, Shake Shack and Rosetta Stone report earnings on Wednesday.
Futures suggest the:
S&P 500 will open 8 points higher at 2,052 with the
Dow Jones expected to open 69 points higher at 17,731 and the
Nasdaq 100 16 points higher at 4,345.
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