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TRADING THE WEEK: Risk Remains in Focus
Traders Magazine Online News, April 24, 2017
Risk – whether it be geopolitical or interest rate – is still the first thing on traders’ minds as April draws to a close.
William Mingione, head of equities at Drexel Hamilton, said that U.S. markets continue to digest quarterly earnings results, geo-political issues and France’s presidential election. Optimism continues to wane as investors still have concerns on the validity of Trump policies and the ability of the White House and Congress to work together, he added.
William Mingione
“Also, earnings season is off to a strong start; nonetheless we did see several blue chip names disappoint (Goldman Sachs and IBM). Over 75% of the 95 S&P companies that reported beat estimates. French presidential election is held over 2 rounds; the first one will be held Sunday and the second on May 7,” Mingione said. “Uncertainty around the election has grown over the past month as concerns over a victory from far-right candidate Marine Le Pen rose after a shooting in Paris in which she has repeatedly said she'd pull France out of the European Union and the euro zone. However, polls still indicate pro-European candidate Emmanuel Macron is still the favorite to win.”
Mingione also said that with Congress reconvening Monday, he senses the market has exhausted these current levels and will eventually break and test the next level.
“Another signal we’re watching is the 10yr, which concerns us more. Cautious money has moved over to bonds, with the 10 year Treasury breaking 2.3% level, as it sure feels like it wants to test 2%,’ he said. “ As confidence around policy change in Washington wanes, French elections upon us, we remain cautious until we get some validity on Trump policies. We will also have to keep a watchful eye on the north Korean situation as they tried to test a missile again this week and it failed. It was rumored on the trading desks that the US had actually jammed their launch.”
Given the continued focus on geopolitical risk in the markets, traders are tempering earlier calls for at least three interest rate hikes this year back to two. Last week’s weak retail sales and inflation data have tempered expectations and according to one floor trader, Fed Funds are only pricing a hike in September. Looking further out the curve, another trader said a final interest rate hike could be seen by the end of the year, but there was only a 20 percent chance of it.
“Despite criticism of the Fed’s March rate hike, they certainly now look very prudent to have put at least one rate hike on the books this calendar year before the series of risks and economic headwinds picked up,” the BMO strategists Ian Lyngen and Aaron Kohli wrote in a note to clients last week.
Trading this week was slow with only 6.21 billion shares changing hands, according to Bats Global Markets.
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