By IFCMarkets
Dow Jones grew by 0.54%, while S&P 500 and Nasdaq remained almost unchanged. There was no particular negative on the market, but some investors fear that such a prolonged rise in stocks may result in a strong correction.
In previous reviews, we noted that the S&P 500 has already been traded for 399 days without a 5% correction. This is the longest, uninterrupted growth in its entire history. Since early 2018, three major US indices have already increased by about 6%. At the same time, investors revised the growth forecast for the net profit of the S&P 500 company list only to + 12.7% from + 12.2% before the start of the earnings season. Yesterday positive quarterly reports by Intel and Biogen were published. Thanks to this, today the futures on the US stock indices are growing. Today at 14-30 CET, the US trade balance, durable goods orders and wholesale inventories for December, as well as GDP for the Q4 of 2017 will be released in the US. These important data may affect the market dynamics. Yesterday the US dollar index updated the low on the background of the ECB President Mario Draghi’s statement that the ECB is not going to conduct currency interventions and to stop the euro growth. Later, the index began to grow and ended the day “in the black.” The US President Donald Trump said in an interview that he would like the dollar to strengthen. Trump also added that the US Treasury Secretary Steven Mnuchin’s opinion on the benefits of the “weakening” of the US currency was misinterpreted. Today, the dollar index has been falling, but hasn’t updated the 3-year low.
ECB President Mario Draghi said that he was not worried about the euro strengthening. After that, the euro exchange rate increased significantly, while stock indices fell.
Investors believe that a strong euro will obstruct the European exports. This morning, STOXX Europe 50 rose due to the positive earnings report by the world’s largest manufacturer of luxury goods, the French LVMH (Moet Hennessy Louis Vuitton) company. Its stocks rose by almost 5%, and the assets of Christian Dior and Kering – by 4% and 3%, respectively. Telia company (telecommunications operator) reported a growth in dividends, which increased the demand for the stocks of the entire European telecommunication sector. Today the euro exchange rate continued to grow, but has not updated yesterday’s high yet. Investors are waiting for the speech of the US President Donald Trump at the economic forum in Davos in the second half of the day. They believe that he can voice the next measures of his isolationist economic policy. Theoretically, this may drag the dollar.
Over the week, Nikkei fell by 0.7%. The strengthening of the yen has the main negative impact. Earlier, the Bank of Japan maintained its monetary policy of economic stimulus and announced that in the near future it was not going to cease the issuing and hike rates. This morning moderately positive data for the yen came out – although inflation grew in December, it appeared to be below the preliminary forecasts. The Minister of Finance of Japan Taro Aso said that the G7 countries should not specify the target levels of the national currency rate in order to increase competitiveness. Investors believe that by doing this, he supported the US and the EU authorities, which so far have calmly perceived the weakening of the dollar and the strengthening of other major currencies.
On Thursday, Brent exceeded the level of $71 per barrel for the first time since 2014. Market participants believe that the main reason for this is a strong weakening of the dollar. Despite the API report about the unexpected growth of the US oil reserves on Tuesday, the official data recorded a decline in the reserves for the 10th consecutive week. This was reported on Wednesday by the U.S. Energy Information Administration. An additional factor for the growth of oil quotes was the continual weakening of the US dollar. The OECD said that currently, the oil reserves of developed countries are only by 100 mln barrels more than its 5-year level. A year ago, this excess was about 350 mln barrels. Earlier, the reduction in the reserves of the developed countries was the goal of the OPEC + agreement on oil production limitation.
The growth of soybean quotes stopped after the USDA forecast that its world reserves will reach a historic high and amount to 98.57 mln tonnes at the end of the current 2017/18 agricultural season. Wheat and corn continue to rise on Friday on the background of the ongoing drought in Argentina. Note that the weakening of the dollar supports the price growth of all commodities.
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