European Update – Davos, Earnings, BoE, Gold, Oil

Davos and Earnings in Focus

It’s been a slow start to an otherwise frenetic week, with the bank holiday in the US only adding to the light volumes and absent news flow.

Source – Thomson Reuters Eikon

This comes following a rather eventful start to the year, since which markets have largely stabilized. The signing of the phase one trade deal will allow investors to turn their attention elsewhere and this week that place will be the mountains, more specifically, Davos.

The World Economic Forum gets underway tomorrow which means lots of panel discussions, meetings and interviews for traders to get their teeth stuck into. Given the current environment, it may not be the most market impactful event that we’ll see but when it comes to a gathering of some of the most influential people in the world, you can never be too sure.

US earnings season will also come under the microscope after getting off to a decent enough start last week. US corporates are still on course for another quarter of negative earnings growth but a couple of good weeks may change that. This week tech stocks will be in focus with earnings from Netflix, IBM and Intel, among others.

UK eyeing possible rate cut next week

There’s been no shortage of attention on the UK over the last week and the pound has felt the brunt of it. December election highs above 1.35 feel a long time ago already, with sterling threatening to break below 1.30 against the US dollar as markets continue to increasingly price in a rate cut from the Bank of England this month.

The cut has come from nowhere but a raft of data from a couple of very insignificant months for the economy, combined with dovish views from various central bank speakers has tipped the scales in favour of a cut. The odds now stand at almost 65% next week and that could rise further with the UK jobs data due tomorrow followed by more commentary from policy makers this week.

Source – Thomson Reuters Eikon

Gold pushing $1,560 again

Gold is creeping higher on Monday and building on Friday’s gains but is once again struggling to break through a prior resistance level. The yellow metal has been caught between $1,540 and $1,560 for much of the last two weeks and price action this morning may suggest that is to continue. We have found some upward momentum since threatening to break $1,540 last week but perhaps the rebound in the dollar, simultaneously, is holding it back. Should it break higher then $1,580 and $1,600 will be levels of interest but the latter may take some breaking.

Gold Daily Chart

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Oil spikes on supply disruptions

Oil prices got the week off to a strong start but that momentum rapidly faded and, while we are seeing a bounce over the last couple of hours, it’s now up less than one percent on the day. The initial rally was seeming triggered by supply disruptions in Libya and Iraq, with the former seeing armed forces shutting off an important pipeline. The temporary nature of the rally suggests traders are not concerned about the longer term prospects in a market otherwise flooded by oil, one in which major producers are reducing production for fear of sinking prices. Gaps will therefore quite easily be filled.

Brent Daily Chart

Economic Calendar

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