• Slide in European indices accelerates – AM Bulletin

    Early moves

    - US index futures reverse early gains - Trump’s situation deteriorates overnight US stock index futures were firmer first thing this morning, bouncing off last night’s closing lows. Initially this helped to steady nerves after yesterday’s sharp sell-off which led to the biggest downside move in the Dow and S&P since last September. However, after a modestly lower open, the downside move in European indices accelerated. Trump’s woes persist, and if anything they got worse overnight. This followed the news that former FBI Director Robert Mueller has been recruited as a special counsel to oversee a federal investigation into alleged Russian interference during the presidential election. It looks as if this political uncertainty will continue to unnerve investors. After all, it now looks most unlikely that the Trump administration will be able to push through the promised programme of tax cuts, infrastructure spending and regulatory reform with this hanging over them. As US equities shot higher on hopes of Trump’s fiscal stimulus, any risk of this not coming through can only be a negative.  This may also add to concerns that the US Federal Reserve is still set to tighten monetary policy further even as the strength of the US economic recovery looks uncertain, although some analysts are now reducing the likelihood of a rate hike next month. But the bulls should take some comfort from the technical set-up on the Dow and the S&P500. Last night’s sell-off meant that both indices have now filled the trading gaps which opened up in the aftermath of the first round vote in the French presidential election. This suggests that there’s the potential for a swift bounce-back if current sentiment improves. However, many traders will now be wondering if the highs are in for the major indices.

    Stock Index Update

    - Trump woes persist - Investors nervous over political uncertainty US stock index futures fell sharply yesterday morning and this led to a broad-based sell-off across European equity markets. Investors cut back their risk exposure as yet another controversy engulfed the Trump administration. The White House was already reeling from criticism over Trump’s firing of FBI Director James Comey and accusations that the president disclosed classified information to Russian officials. On Tuesday night Comey fired back saying that Trump had asked him to drop an FBI probe into Michael Flynn, Trump’s original pick as National Security Advisor. Mr Flynn admitted to lying over his contacts with Russian officials prior to Trump’s inauguration. European indices ended Wednesday’s session sharply lower. But there were variations. The German DAX was down 1.4%, the French CAC 1.6% and the Spanish IBEX 1.8%. However, the UK’s FTSE100 ended just 18 points lower on the day, less than 0.3%, holding above the key 7,500 level.

    Commodities Update

    - Crude resumes its rally - Gold and silver shoot higher It’s an exciting time to be trading crude - but only if you’re quick and lucky enough to react to current sharp swings. Yesterday morning crude came off its best levels following the release of a bearish inventory report from the American Petroleum Institute (API) on Tuesday night. This showed a hefty build in crude stockpiles, which was something of a surprise given last week’s large drawdown. The news triggered some profit-taking following oil’s bounce-back since the beginning of May. However, prices began to recover again ahead of yesterday’s official inventory update from the Energy Information Administration (EIA). This contradicted the API’s numbers, with the EIA data showing significant drawdowns for crude and distillates. But gains were capped to some extent due to a small build at the Cushing hub, and a smaller-than-expected drawdown in gasoline stocks. Overall, the market continues to get support from chatter that Saudi Arabia and Russia are preparing the ground for an extension to the output cut which is currently set to end in June. The current speculation is that all sides will agree to limit production at next week’s OPEC meeting until the end of March next year. However, some analysts warn that even this won’t offset increases in US shale production. Gold and silver soared yesterday as investors dumped equities and other risk assets and sought out traditional safe havens. Of course, it helped that the US dollar is now trading at pre-US election levels having completely unwound the rally which saw it hit a fourteen-year high against the euro at the beginning of this year . Yesterday’s move saw gold fly back above $1,250 - a level which marks the 50% retracement of the sell-off which occurred between July and December last year. Silver’s gains were more muted, but this simply reflected the fact that the metal had already enjoyed four day winning streak. This followed a torrid sell-off which saw the metal lose just under 14% in three weeks since mid-April. It now appears that investors are happy to take advantage of recent weakness to pick up some (relatively) cheap insurance against a protracted risk-off move.

    Forex Update

    - Trump controversy rumbles on - Yen soars The US dollar took another hit yesterday against all the majors, including the Swiss franc and Canadian dollar. But it registered its biggest loss against the Japanese yen as investors rushed to cut back on their risk exposure and head back into safe havens, wherever they could find them. The yen is typically the major beneficiary on such an asset switch as investors are forced to buy back the yen they borrowed (at low interest rates) to finance their riskier deals. The yen and Swiss franc are also considered safe haven currencies, particularly when market risk emanates from the US. And that’s exactly where the risk is coming from currently. Over the past few weeks Trump has come under fire for sacking FBI Director James Comey and for allegedly disclosing classified information to Russian officials. But now Trump is coming under further pressure as Comey accuses the president of trying to stop an investigation into Michael Flynn. Flynn was Trump’s original choice for National Security Advisor but resigned after it was revealed he lied about his contact with Russia.

    Upcoming events

    Today’s significant events and economic data releases include UK Retail Sales, US Weekly Jobless Claims, US Leading Index and the Philadelphia Fed Manufacturing Index. Later on, ECB President Mario Draghi will speak at the University of Tel Aviv. Disclaimer: Spread Co is an execution only service provider. The material on this page is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by Spread Co Ltd or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. This material has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. As a marketing communication it is not subject to any prohibition on dealing ahead of the dissemination of investment research, although Spread Co operates a conflict of interest policy to prevent the risk of material damage to our clients.