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From the Floor: How the Trump turmoil is boosting metals — #SaxoStrats

#SaxoStrats
   •  NY Times reports Trump asked former FBI head Comey to drop Flynn investigation
   •  News sees USD head lower while precious metals gain safe-haven ground
   •  Tech sector hits another all-time high, Nasdaq only US index to close green
   •  EURUSD soars beyond 1.10 while USDJPY sells off on presidential intrigue
   •  Oil prices tumble after API report surprise inventories build Tuesday
   •  Tencent, Alibaba, Cisco, and Target slated to release earnings today
   •  EURGBP at critical resistance level, says Saxo Bank forex head John J Hardy

SaxoStrats
 By Michael McKenna

It is not always clear whether the furor over Donald Trump’s alleged collusion with Russia represents deeply held national security fears or a cudgel used to cow an unconventional, illiberal president. Whatever the case, though, the twists and turns of this narrative have very real effects on financial markets with the latest chapter sending risk appetite packing just days after it emerged.

According to the New York Times, Trump asked former FBI head James Comey to halt the investigation against ex-national security advised Michael Flynn in a memo that read “"I hope you can let this go”.

Flynn was dismissed from his position after he misled vice-president Mike Pence about exchanges between him and the Russian ambassador.

While markets are relatively blasé about Cold War-style cloak-and-daggering, perceptions of instability at Washington’s institutional heart are hardly USD-friendly, particularly given the yet-to-be-announced nature of the famed “Trump infrastructure plan”.

“The troubles surrounding president Trump continue to escalate,” says Saxo Bank head of forex strategy John J Hardy, adding that the consequent USD weakness has helped EURUSD to shoot past the key 1.10 handle.

EURUSD
Source: Saxo Bank 

USDJPY also headed lower overnight as the dollar index as a whole retreated by 0.2%.
Saxo fixed income trader Michael Boye says that the whole affair is inhibiting risk sentiment across world markets as the 10-year Treasury yield hovers just above what he terms the “crucial” 2.3% level.

The weakness seen in yields and the dollar, of course, is good news for precious metals traders. According to Saxo Bank commodities head Ole Hansen, gold is testing resistance between $1,245 and $1,255/oz with the 200-day moving average resting at $1,247/oz.

While the Trump turmoil is a key factor in metals markets, Hansen points out that gold has been gathering strength for five days now while the long-liquidation seen in silver markets of late has reduced a source of supply and sent prices back above the $16.83 line; “the worst could be over for silver,” says Hansen.

While Trump’s palace intrigues are boosting precious metals, their industrial equivalents are also enjoying some strength with Dalian iron ore prices rising by 5% overnight and steel and HG copper futures following suit.

One major factor here, says Hansen, is the People’s Bank of China’s recent cash injections which represent a slowing of the central bank’s recent policy tightening. Also, somewhere in the works, may lie hopes concerning Trump’s spectral infrastructure programme, although this certainly appears to be the least of his worries today.

In stocks, Saxo Bank head of equity strategy Peter Garnry reports that the stronger euro has put outperforming European bourses on the back foot into Wednesday’s session following a mixed Wall Street session that saw major names like TJX and Dick’s Sporting Goods plunge lower (by 4% and 14% respectively) while the tech sector made a new all-time high.

On the earnings front, adds Garnry, today sees Alibaba, Cisco, Tencent, and Target on tap.

Another crucial release today will come from the US Energy Information Administration, which is set to publish its latest crude oil inventories data. According to Hansen, investors expect a 2.6 million barrel drop, although investors expected a drawdown Tuesday as well ahead of API’s report that showed nearly 900,000 barrels worth of new supply.

Look for crude developments and US headlines to shape today’s session.

Donald Trump
Never a dull moment. Photo: Shutterstock 

Michael McKenna is an editor at Saxo Bank
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