Weekly Financial Markets Review
Trump’s proposed voting on health reform became one of the key events at the end of this week. Just to remind you, it was postponed on Thursday. However, market is extremely sensitive to this matter.
So, if Congress still votes for Obamacare abolition, US stock indices can get a new impetus for growth for almost the entire coming week. The fact is that the outcome of the vote is currently indicative of the public perception of any further US President initiative. Let me remind you, Trump announced both tax reform and new infrastructure projects.
Moreover, the final fourth quarter US economy growth data may also contribute to this perception. If the indicator is slightly below tentative estimate, S&P 500 (ES), having experienced a short-term fall, can easily resume its growth to about 2400. This growth will be supported by the expectations that the next US Federal Reserve rate increase will occur no sooner than Q3, 2017.
Oil closes one more week with a decline. Previously, Brent quotes renewed the 4-month minimum, falling down to the level of 49.71. There are no reasons for a more dramatic fall. Likewise there are none for recovery of the recent maximums.
The likelihood of Brent (ICT) forming a new fluctuation range is high. It will be limited to 50.00 - 52.60. This weekend OPEC+ Oil Output Agreement Monitoring Committee will have a meeting. If compliance with the agreements is high, oil will start moving to the upper boundary of the range at the beginning of the next week. Moreover, the range of $50 per barrel for Brent looks quite low as a purchase price.
However, growing number of operating drilling rigs in the United States still remains a risk factor. It results in the production increase and, therefore, hinders reduction of oversupply in the global market. In addition, the market will monitor US commercial stock data. If the indicator continues to reach new heights, Brent will test a 50.00 level for strength again.
Pound experienced a rather dramatic spike in recent weeks. The Brit grew partially against the weakening dollar. However, GBP/USD in many respects was supported by aggressive comments on monetary policy voiced by the Bank of England.
Victorious march of the British currency is likely to interrupt at this point. Next week, the UK government initiates Article 50, officially launching the Brexit process. This fact alone may turn to be a mighty catalyst for the fall.
The fact is that Brexit stirs long negotiations about exit conditions. And they are going to last as long as at least a couple of years, which means that British companies will be cautious. They will temporarily stop investing and cut their costs. This uncertainty will naturally impact the pound. Moreover that the European Union is clearly not going to make any concessions.
Thus, the GBP/USD pair will target reduction to the level of 1.2380. And, if, on top of that, the Q4 GDP data will be revised downward, the pair will go even lower, to 1.2260.
Ivan Marchena, analyst of Libertex