Trump and Central Banks Pave the Way for the Future of Global Growth

Daily Analysis - 22/01/2018

Trump and Central Banks Pave the Way for the Future of Global Growth

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The US President takes pride in the stock markets while the Government temporarily closes, surrounded by Central bank monetary decisions and the party of the elites that will meet for the World Economic Forum in Davos, Switzerland this week.

 

Earnings Season Kicked into Full Gear


The end of the 3rd week of 2018 finds the US market’s performance on the best track since 2003. The S&P 500 made already 5% in 2018 alone. The 4th quarter earnings reports are beating even the most optimistic expectations. Out of all the companies that have reported their earnings as of now, 89% have outperformed. On the other hand the US government came to a halt as the republicans did not find support on temporarily extending the funding to the government for another 30 days. The government shutdown can bring some shocks on the charts as of Monday.

US stocks shrugged off a possible US government shutdown to close at record highs as ongoing optimism over earnings spurred investor appetite for riskier assets. The S&P 500 closed at a record high on Friday.

Financials got the week off to a good start amid quarterly earnings report from Morgan Stanley (NYSE:MS) and Bank of America (NYSE:BAC) that beat Wall Street estimates, while Goldman Sachs (NYSE:GS) reporting its first quarterly loss since 2011.

Among the commodities Crude Oil snapped a 4-Week Winning Streak. The weekly gains in crude oil prices were not expected to end this week as investors weighed the impact of rising US production on OPEC’s efforts to rid the market of excess supplies amid comments from the IEA. Crude oil futures settled at $61.44, down 58 cents.

Among the currencies, it was another miserable week for the dollar as the US administration is under the radar. GBP/USD rose to its highest level since the June 2016 Brexit vote amid growing expectations that the Bank of England would soon have to raise rates as inflation is above 3% target and has to prevent the economy from overheating. EUR/USD had a fifth-straight weekly win, rising above four-year highs. While the US dollar keeps losing, Gold prices held above four-month highs.

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An aggressive 2018 Monetary Policy from Central Banks


Central Banks steal the spotlights this week.

Starting on Tuesday traders will pay close attention to the monetary policy decision from the Bank of Japan after a small pull back in bond purchases earlier this month triggered talk that it would cut back on QE.

On Thursday global financial markets will focus on the ECB (European Central Bank) meeting to further understand the plans towards normalizing their policy should the massive economic stimulus program draw to an end.

One of the important economic announcements investors will keep an eye on is the preliminary US Q4 reading, to see if the world's largest economy is strong enough to withstand multiple rate hikes in 2018.

In the UK, market players will focus on the first estimate of British Q4 GDP for further hints on the health of the economy and the likelihood of the Bank of England raising interest rates this year.

Bank of Canada was the first central bank last week to hike rates in 2018. Investors will pay close attention to post inflation data from Canada on Friday, as this is the third rate hike in seven months.

The world’s elite is meeting at the World Economic Forum in Davos, Switzerland, taking place Tuesday-to-Friday, where U.S. President Donald Trump, German Chancellor Angela Merkel, French President Emmanuel Macron and British Prime Minister Theresa May are all expected to attend.

 

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