Commodities still lead the way

While there was a holiday in the US overnight for Martin Luther King day, there was no holiday for President-elect Trump.

Gold
Source: Bloomberg

Trump continued to offer his version of sage comments via Twitter to German auto makers, further commenting on there not being many American cars seen on German roads and threatening import tariffs should they set up in Mexico. The German deputy councillor Sigmar Gabriel offered his reply by saying they need to build better cars.

This is always a risk of protectionist policies within any borders, as it stifles innovation and productivity. This is something that may be pointed out to the President-elect in his first days in office.

From a market’s perspective, it should be pointed out that the transports index, S&P 500 and the Dow 30 along with the Russell 2000 have failed to make a weekly close over their 12 December 2016 respective highs, made two hours before Janet Yellen announced a rate hike. An unwillingness to advance the indices, even in the wake of solid reporting from JP Morgan and Goldman Sachs, has the markets awaiting the first week of the presidential inauguration.

Commentary from the meeting by heads of governments in Davos will be watched closely as first time attendee Xi Jinping’s, the Chinese president, opening speech will centre on the defence of free trade.

US traders seem to be taking a cautious line leading into the remainder of the reporting season. In the past nine weeks, the S&P has traded within a 2% range, while the ASX has advanced over 5% in the same period.

Last night saw the second down close in the FSTE 100 in 26 sessions, with 75% of the FSTE company earnings coming from overseas. The lower GBP/USD at 1.2050 offers a very favourable exchange rate profit boost. The British Prime Minister Theresa May will give a major speech at 10.45pm AEDT and provide more details around a hard Brexit. The GBP has recovered back over 1.200 last night on comments from Downing Street that a hard Brexit can be achieved.

For the Australian session, very few leads have come from overseas, except to say commodities continue to make new highs with iron ore futures up 3.8% again at $83.65 and crude holding $52.64/lb. The material sector has again become the leading sector in the Australian region making gains of over 4.8% for 2017.

Gold looks to be finding resistance in the USD $1200 area, based on the FX cross rate for AUD. Gains look to be limited for the Aussie sector, with the commodity at AUD $1609 and consolidating within a small range.

The index futures are suggesting a lower open by ten points. We are expecting some caution to enter the markets as political speeches and company reporting news take hold of traders’ attention.

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