US open: Trump trips up traders trying to hedge their risk

Wall Street's main equity gauges turned higher following a weak start to the day, with what few remaining traders there were focused on hedging their risk ahead of the long holiday weekend - the US president permitting.

As of 1609 GMT the Dow Jones Industrials was edging higher by 0.02% or 4.16 points at 20,596.90, while the S&P 500 was gaining 0.09% to 2,347.19 and the Nasdaq Composite was ahead by 0.30% to 5,853.40.

In parallel, the VIX volatility index was off by 3.04% to 15.29, having touched an intra-day high of 16.22.

"Traders are more focused towards hedging their positions, than anything else. If you look at the VIX index, the recent spike tells you one, and one thing only; investors are taking advantage of cheap volatility index to hedge their risk," said Naeem Aslam, chief market analyst at Think Markets.

From a sector standpoint, the best performance was coming from: Home construction (0.98%), Business training (0.95%) and Multiutilities (0.79%).

The KBW Bank index was up by 0.40%.

The Trump Factor

Making traders' task that much harder, overnight US president Donald Trump threw global markets a 'curve ball', telling the Journal the greenback was getting too strong and that he did like a low interest rate policy.

He told The Wall Street Journal: "I think our dollar is getting too strong, and partially that's my fault because people have confidence in me. But that's hurting - that will hurt ultimately."

He added: "It's very, very hard to compete when you have a strong dollar and other countries are devaluing their currency."

His comments had sent US 10-year Treasury note yields down by eight basis points to 2.22% early in London trading, and had the knock-on effect of sending the dollar index down by 0.5% in less than 15 minutes immediately after.

Yet by the afternoon in London those yields were bouncing back to 2.25%.

Commenting on the US president's remarks, Aslam said: "Many in the market are focused on weakness in the dollar which was hit hard after Trump’s comments.

"[...] Trump wants to keep the interest rate lower, this would aid in gaining some competitive edge in trade relations with other countries. Finally, Trump’s mammoth infrastructure plan would be fueled by debt and lower interest rates would be an ideal situation."

Aslam neverthless also said that Trump had in effect also given his blessing to a second term for Fed chief Janet Yellen.

At the same time, geopolitical concerns continued to rattle investors amid mounting fears of a new weapons test by North Korea as a US carrier group sails towards the area.

Underlining those concerns, on Thursday China's foreign minister warned against either side resorting to force to solve the current impasse on the Korean peninsula.

Banks mostly higher

Solid results from JP Morgan Chase and Citi have been greeted with gains in their share prices, partially offset by losses in Wells Fargo stock.

JP Morgan's first quarter financials blew past the Street's forecasts thanks to robust trading at its Corporate and Investment Banking arm. Net revenues were 6% ahead on the first quarter of 2016 at $25.6bn (consensus: $24.9bn), driven by loan growth and higher interest rates, alongside a 17% jump in profits after tax to $6.448bn.

Heightened trading activity as the interest rate cycle in the US turns boosted Citi's revenues and profits well past analysts' forecasts during the first quarter of 2017. Citi posted top-line growth of 3% in comparison to the year ago period to reach $18.12bn, versus the $17.76bn seen by the analyst consensus.

Wells Fargo's top line growth fell short of Wall Street analysts' expectations in the first quarter, with the bank blaming it on the impact of fewer trading days. America's third largest lender said revenues for the three months to the end of March stood at $22.0bn (consensus: $22.3bn), which was a shade lower than the equivalent year-ago figure of $22.2bn.