Oil Rally Aids Rebound in US Indices
It’s been a relatively calm start to trading on Friday, bringing an end to what has actually been a similarly quiet week, despite the US’ decision to withdraw from the Iran nuclear deal.
From a markets perspective, the reaction to Donald Trump’s announcement was primarily felt in oil prices and energy stocks and didn’t have a detrimental impact on wider risk appetite, which is not surprising given how indifferent they’ve been to geopolitical events in recent years. Even oil prices have now stabilised after hitting three and a half year highs in recent days as traders try to determine how significant an impact sanctions will have on oil output.
General risk appetite has probably improved over the last week in spite of the latest flare up in tensions and potential strains it puts on the US, EU relationship. US equity markets are on course for a perfect week – five consecutive daily gains – which when you consider the drop off in sentiment and markets since the end of January is actually quite encouraging.
Dow Faces Test Around 25,000
If the Dow can find a way above 25,000 in the process, it could signal a shift in sentiment in equity markets which have looked extremely vulnerable to another sharp decline. Of course, this may depend on whether the gains have been primarily built on the rally in energy stocks in response to the withdrawal of the US from the Iran nuclear deal, or an actual belief that the market sell-off has run its course. It’s interesting though that a very good earnings season has so far no been enough to trigger such a move which makes me question whether the recent move has legs.
Dow Daily Chart
There isn’t too much for investors to look out for today from an economic data standpoint, with Canadian employment data and US consumer sentiment figures the only notable releases. We will hear from ECB President Mario Draghi who is due to speak at the State of the Union event in Florence and investors will be keen to get his assessment of the economy and potentially any hints about what that means for the bond buying program later this year.
Bitcoin Dip Below $9,000 Worrying
One area where we have seen movement this morning is in cryptocurrencies, with bitcoin having fallen around 4% and broken below $9,000 in the process, a level that had provided strong support over the last couple of weeks. It’s worth noting that while this could be a significant breakout to the downside, we have pierced the $9,000 level a few times throughout this time but each time price has rebounded back above.
Bitcoin (Bitstamp) Daily C hart
Source – Thomson Reuters Eikon
A significant close below here today could signal another period of downside for bitcoin, which has seen a number of false dawns since the collapse in its price around the turn of the year. To the upside, $10,000 remains a significant barrier for bitcoin, with it having failed to break above here on a few occasions in recent weeks.
For a look at all of today’s economic events, check out our economic calendar.