The Daily Prophet: Tech Bulls, Euro Bond Woes and Copper Strikes

Connecting the dots in global markets.

Just because the U.S. stocks have been mired in their tightest range in the 120-year history of the Dow Jones Industrial Average doesn't mean there aren't some eye-opening moves happening. In fact, one very important group is sending very bullish signals.

An index tracking the "FANG'' block of Facebook Inc., Inc., Netflix Inc. and Google's parent Alphabet Inc. jumped 9.9 percent in January, the most since October 2015. That compares with a gain of 0.51 percent for the Dow, 1.79 percent for the S&P 500 Index and 4.30 percent for the Nasdaq Composite Index. Facebook said today that fourth-quarter revenue jumped 51 percent to $8.81 billion, topping the $8.51 billion average analyst projection. Investors must now decide whether the group -- seen as a proxy for the technology sector -- can weather Trump's ban on allowing people from seven predominantly Muslim Middle East countries to travel to the U.S.

It sure hasn't been a happy new year for European bond investors. The Bloomberg Barclays Euro Aggregate Bond Index fell 1.47 percent last month, its worst January on record. That performance contrasts with a 1.13 percent gain for the global bond market. Much of the losses are being tied to political uncertainty in the region, and whether elections in France, the Netherlands and possibly Italy may usher in a new wave of populism that weakens members’ commitments to the single-currency bloc. Oh, and Greece’s debt woes are back in the news, with the nation and its creditors at loggerheads over the terms attached to its latest support program.

Foreign-exchange traders are starting 2017 the same way they finished 2016 and 2015, which is to say horribly. The Citi Parker Global Currency Manager Index fell 1.05 percent in January. That poor showing follows declines of 2.55 percent for all of 2016 and 2.26 percent in 2015. In past years, traders have suffered from a lack of volatility in currency markets. This year, they've suffered by all piling into the same trade, which was a bet on dollar strength motivated by Trump's pro-growth, pro-business policies. Instead, the Bloomberg Dollar Spot Index cratered 2.61 percent in its worst monthly drop since March.

Copper briefly rose above $6,000 a metric ton in London trading for the first time since mid-2015. Traders are getting worried after workers at BHP Billiton Ltd.’s Escondida copper mine in Chile voted against the company’s latest wage offer, opening the door for a strike and potentially heralding a wave of stoppages at global suppliers after a rally. The project is the world’s largest copper mine, and is forecast to produce about 1.1 million tons in the 12 months to June 30, according to BHP. Citigroup Inc. has warned of the increased risk of strikes this year as workers seek pay rises, with almost a fifth of global mine capacity facing contract renewals. 

As predicted by 93 of the 94 economists surveyed by Bloomberg, the Federal Reserve decided against raising interest rates. In their statement following the decision, policy makers gave few clues as to when they would increase rates again as they grapple with the uncertainty created by a new presidential administration. Traders are still pricing in two hikes this year, compared with the Fed's forecast of three. The Fed did note that it's still confident that inflation will accelerate to its goal of 2 percent. In fact, inflation across the world is starting to beat analysts’ forecasts for the first time since 2012, according to Bloomberg News' Randall Jensen.

Unlike the Fed's meeting, there's an outside chance that Thursday's Bank of England gathering could offer some surprises. IHS Markit’s monthly Purchasing Managers Index came in at 55.9 for January, comfortably above the key 50 level that divides expansion from contraction. A measure of output rose to the highest in almost three years. Weakness in the pound since the Brexit vote in late July is helping to import some much needed inflation. Bank of America Merrill Lynch economists said that the risk for markets is that BOE policy makers start sounding a bit hawkish. Money market traders are starting to price in rate increases for next year.

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