Financial markets yielded many moves that lacked conviction. The US dollar slightly rallied against most of its major trading partners as US stocks continued to rally, and global yields moved higher across the board. Both an emphasis on central bank rate decisions and corporate earnings will be a key theme for the week. Several Fed members are also due to speak this week and they are widely expected to maintain the dovish pivot that Fed Chair Powell delivered last month. President Trump’s State of the Union Address is also on the docket for Tuesday and he could signal key areas where progress has been made on trade talks. The government is funded through February 15th and Trump’s battle with Democrats for border wall funding could be coming to an end with the Democrats possibly compromising by accepting an enhanced barrier that is not a border wall.
US stocks gains were driven by the Nasdaq as both optimism on the trade front supported the rally and M&A activity signaled the tech sector could see further deals, a good sign for the broader market. Technology stocks have been one of the best sectors over the past month and today’s gains were driven by both optimism trade talks between China and US will not fall apart and by a private equity deal in the CRM software space. Ultimate Software will go private after accepting an $11 billion cash offer from an investor group led by Hellman & Friedman. If M&A activity picks up, it is viewed as a positive sign that companies are confident to move forward on deals despite uncertainty with trade wars and geo-political risks.
Alphabet reported strong earning results after the close with a beat on both the top and bottom line. Paid clicks on Google properties rose 66% while cost per click fell 29% annually. Shares reversed their initial surge higher as traders focused on Google’s reduction on cost per clicks by 29%, possibly reflecting a deceleration in revenue growth. The Nasdaq gave up some gains in after hours trade following Alphabet’s results.
Oil prices pulled back after Genscape reported US crude supplies at Cushing climbed 944,000 barrels last week. While the recent run up for crude has been supported by the shortfall of Venezuela’s dense crude oil from sanctions, global support is growing for opposition leader Juan Guaido and that could spell the end for Maduro if he is successful in winning over China’s support. Maduro is also speculated to have attempted funds to Uruguay, a potential sign he is getting desperate in liquidating government assets before conceding to having fresh elections.
A steady flow of Brexit headlines filtered throughout the day, but nothing of substance that will provide any insight as to how PM May will try to win concessions from the EU for a new Brexit deal. She will need new a new plan to be voted on by February 13th, if she fails Parliament will vote the next day on what to do next.
Gold remained vulnerable as the strong dollar kept the precious metal heavy for a second consecutive day. The yellow metal could see a further pullback here as optimism grew the US would avoid a recession as US yields rose across the board and the spread between 10-year and 2-year Treasury yields widened to 18.7 basis points. Continued upbeat news for the US economy could put a dent for traders looking for further upside with the precious metal.