Market News & Insights
25 January 2017

Key Drivers Set the Tone

There was plenty of action across markets yesterday and plenty of key drivers to keep track of throughout the day as several major global market themes developed. We had the Supreme Court ruling on Brexit, Donald Trump signing additional executive orders and directives, committing his approval for certain projects, and detail’s from OPEC tightening supplies. The first up was the Supreme Court ruling that UK parliament must have a vote before Article 50 can be triggered, while any form of devolution for Scotland, Wales or Northern Ireland was ruled out, as the courts did not deem it necessary. The reaction in GBP was mixed, a quick rally on the headline and a sell off on the devolution details, we stated early in the week that it made little difference following May last week saying parliament would get a vote. After initial selling, perhaps on profit taking from last week’s move, GBP soon recovered to press towards Monday’s highs against GBPUSD (1.2544) and EURGBP pressed back below .8600 and towards support between .8560/80. In the US, focus was back on Trump and while the USD continues to look weak, especially under the shadow of Trump protectionist policies, equities managed to rally higher. Led by energy companies as Trump backed two controversial oil pipelines (Keystone and Dakota) as long as US steel was used in the process. Overall risk appetite was positive throughout the day, stocks in Europe rallies higher while in the US fresh 12 months highs were seen in the S&P, while overnight a weaker JPY helped the Nikkei higher. We’ve now come full circle form yesterday’s open and once again we start on the green platform today.

Trump has taken to office with gusto and yesterday we saw the first hint of his plans to make America great again. The approval of two controversial pipelines, one bringing crude oil from Canada, and the other across protected native Indian territories. These controversial projects have been on hold and Trumps approval, “subject to renegotiations” and on the basis that “US steel” is used, provided considerable support for markets. Interestingly it had the opposite impact on USD. While markets view Trumps protectionist views as USD negative, it is unlikely he cares. We are still yet to get a clear picture on Trumps’ view for the USD and he has made several conflicting statements although he broadly seems to prefer a weaker USD. This is especially pertinent of Trump’s plans to get US companies to repatriate their many trillions of currency reserves held off shore. Broadly speaking the USD index has rallied some 40% over the last four years and while better corporate tax rates are one incentive, the USD may also have to be weaker to make this really an attractive proposition. EURUSD continues to run into sellers towards 1.0775, while downside support towards 1.0685 area offers some protection to the downside with 1.0590 area likely offering Euro buyers a better opportunity. GBPUSD continues to test towards 1.2545 highs, failure to close above 1.2555 today will likely see GBPUSD retrace back towards 1.2450 area.

It’s a quiet day on the economic calendar across the board, although GBP looks to be enjoying some further demand this morning, only just taking out recent highs against GBPUSD as I type posting fresh 6 week highs, while GBPJPY also breaking towards 143.00. We already knew parliament would get a vote on Article 50, fair enough that’s it now a ruling issued by the Supreme Court but it shouldn’t have gone that far. Who is to say whether the UK is better in or out of the EU, one thing is certain however and that is if parliament overrule the will of the people, remove the democratic process, then the UK will almost certainly find itself in a state of freefall and anarchy. Perhaps that’s sensationalist but not going ahead with Brexit based on a parliamentary vote would create untold issues, politically, socially and economically for the UK. EURGBP pressing lower now looking for support towards .8515.