Markets elevated by Trump's tax talk

10 February, 2017

Stock markets charged into gains on Thursday after U.S President Donald Trump’s promise of a “phenomenal” tax plan in the coming weeks rekindled investor risk sentiment. Asian shares were positive during early trading on Friday with the risk-on trading mood elevating European markets. The prospects of Trump’s pending corporate tax announcement aimed to positively impact US growth may provide enough inspiration for bulls to propel Wall Street higher during today’s trading session. While the gains displayed across stocks this week have been unquestionably impressive, it continues to highlight how markets remain dictated by Trump.

It must be kept in mind that the bearish fundamentals of political risks across the globe, Brexit developments and Trump uncertainties still have a firm grip on the financial markets in the longer term. Global stocks could come under renewed selling pressure in the coming weeks if investors fail to retrieve the much-needed clarity from Donald Trump’s pending tax announcement. With political risks and uncertainty the key market themes for the first quarter of the year, investors should remain diligent when handling the extremely volatile stock markets.

Sterling remains pressured in the background

The Brexit uncertainty may ensure that Sterling remains depressed for prolonged periods. Sentiment towards the Pound is skewed to the downside with the increasing focus on the Brexit developments diverting attention from the economic fundamentals. Although December’s solid UK Manufacturing Production figure of 2.1% has slightly uplifted Sterling, the selling momentum from the ongoing uncertainty should limit upside gains and send the GBPUSD lower towards 1.2350 in the shorter to medium term. While UK economic data continues to display resilience despite the Brexit woes, the anxiety and investor jitters ahead of the article 50 invoke in March may pressure Sterling further.

From a technical standpoint, the GBPUSD is pressured on the daily charts and a break below 1.2450 could encourage a selloff lower towards 1.2350.

Gold Trumped on Thursday

Gold found itself exposed to downside risks on Thursday after U.S President U.S President Donald Trump stated he would make a tax announcement in the coming weeks which has consequently bolstered the Greenback. The sharp depreciation was complimented with positive US economic data that rekindled expectations of further US interest rate hikes this year. While sellers may be commended on their ability to exploit the period of risk-on to attack Gold, the downside should be limited amid the market uncertainty.

It should be kept in mind that the ongoing Trump developments have heavily eroded investor risk appetite while political risks continue to weigh on global sentiment. Although the yellow metal remains slightly pressured on the daily charts, bulls could reclaim control if the $1220 regions defend. In the scenario where $1220 is conquered, the next level of interest on Gold can be found at $1200.

Commodity spotlight – WTI Oil

The growing optimism over OPEC respecting their pledge to cutting oil production has kept WTI Crude buoyed this trading week. Bullish investors received further inspiration to attack on Thursday following reports showing a draw in U.S gasoline inventories, which suggested that demand remained healthy in the world’s largest oil market. Although OPEC has been compliant with the output cuts, the rising fear of U.S shale pumping incessantly, and even undermining the OPEC cut deal could limit upside gains on oil. Technical traders may observe how WTI crude reacts to the $54 resistance level with weakness potentially opening a path lower towards $52.

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