The geopolitical situation is continuing to direct the markets with the war of words continuing with a new round of back and forth threats between the US and North Korea. For more background and information, I would refer you to the article I wrote yesterday which can be found here.
CurrenciesEUR/USD – remains trading around the upwards trendline as the USD lost ground after the weaker than expected inflation data which does not bode well for the inflation data of today. If that indeed is also on the weak side, we could see the USD weaken further, as that is likely to mean that another rate hike this year is less likely, as inflation is what is holding the FOMC back at doing so.
USD/JPY – is trading at the lowest level in 2 months as the tension between the US and North Korea keeps on increasing and the JPY benefits from an increased demand for safe havens. In addition, the tepid inflation data yesterday out of the US weakened the USD, and as such there were two forces at work, one strengthening the JPY and the other one weakening the USD. It has now breached several support levels and traded below the 109 level as the JPY has gained well over 500 pips in the last month.
GBP/USD – saw some fluctuations after the data out of the UK, which saw better than expected industrial production data which lifted the GBP and the weak inflation data out of the US weakened the USD. However, GBP was unable to hold on to its gains as we continue to be trading around the 1.30 level. Next week there will be a lot of data out of the UK with inflation, unemployment and retails sales data among others.
Bitcoin – continuous to be trading at record highs as the increased geopolitical uncertainty could be helping Bitcoin as well. We continue to see Bitcoin Cash decline, as some problems have been reported there, which causes people to turn more to the “regular” Bitcoin.
IndicesDollar Index – declined some more, although not that much, as the USD is under pressure due to weak US data and also the geopolitical situation is weighing on the USD as money is looking for safe havens and away from the USD. Today’s inflation data is also likely to be important and can cause for some movement of the Dollar Index.
S&P 500 – had the largest drop in months as the saber rattling continued and President Trump fired off new warnings to North Korea. All sectors were in the red, except for the utility sectors which was able to increase slightly.
VIX – the volatility index, or the fear index as it is sometimes called, has jumped sharply on the increased tension surrounding North Korea. This is causing for jitters especially since equities have been trading at or near record highs, and there have been warnings that the indices would be ripe for a correction and this could be the trigger.
CommoditiesCorn, Cotton, Soybean, Sugar & Wheat – all dropped sharply after the monthly WASDE report showed a larger supply than was expected and increased the forecast as well, leading to a sharp drop in the agricultural prices.
Cotton – the WASDE report said that cotton production in the US was the highest in 11 years, and in other parts of the world production was up as well, leading to an upgrade of the forecasted supply.
Wheat – supplies dropped by 21 million bushels as production was down, but that is less than was expected. in addition, production in Russia has broken its previous record and is adding to the overall world supply of wheat and more than helps offsetting lower production in other regions.
Gold – is still trading at the highest level in 2 months and appears on its way to the highest level of the year which is also a resistance level around the 1295 level. We are starting to get closer to the 1300 level and the last time we traded above that level was on the night of the election in the US, back in November. The more North Korea and the threats back and forth remains in the headlines, the higher we can expect gold to climb, especially if combined with weak US data.
Natural Gas – has moved up sharply in recent days, also helped by a reduction in the natural gas storage which was reported yesterday.
Oil – traded shortly above the 50 level before dropping sharply. The OPEC report showed that production increased by 173K bpd to 32.87 mbpd, which is above the quota it set as Libya and Nigeria continue to increase production. Another possible reason for the decline is the fact that the higher than expected gasoline stocks are causing some concern that we will see oil inventories build up again in the coming weeks. The drop comes even though Saudi Arabia and Iraq reiterated once more their commitment to the production cut and the possibility for another extension or deeper cuts is possible if needed as long as it is done by all parties.
StocksSnapchat – missed expectation again for the second time in a row and reported earnings which once again disappointed the market. Losses were larger than expected and revenue fell short of what was expected at $181.7 million versus an expected revenue of $187 million. In addition, the number of active users was lower than was expected. All in all, the earnings report is unlikely to help change the negative sentiment surrounding Snapchat and we see that it is down sharply in afterhours trading and is expected to open at new record lows.
Teva – is getting no respite and dropped as the entire market dropped due to the heightened tensions with North Korea and as such we could see the 10th consecutive drop in today’s trading session. This is a classic case where trying to catch a falling knife is not recommended and it could be better to wait for a stabilization before going long.