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BoE expected to hike rates on Thursday - PM Bulletin
31 Oct 2017
Wall Street drifts on tax cut worries - AM Briefing
31 Oct 2017
USDJPY butting up against resistance - PM Bulletin
30 Oct 2017
Spanish IBEX rallies sharply - AM Briefing
30 Oct 2017
Risk appetite strong on earnings/ECB - AM Briefing
27 Oct 2017
ECB finally announces QE taper - PM Bulletin
26 Oct 2017
ECB expected to begin tapering - AM Briefing
26 Oct 2017
Earnings, UK GDP and US Durable Goods ahead - AM Briefing
25 Oct 2017
Earnings season in focus - AM Briefing
24 Oct 2017
Quiet start after record close on Wall Street - AM Briefing
23 Oct 2017
Wall Street reverses early losses-AM Briefing
20 Oct 2017
Equities slide as Catalan deadline approaches - AM Briefing
19 Oct 2017
Gold retesting 50-day moving average - PM Bulletin
18 Oct 2017
Dow surges above 23,000 - AM Briefing
18 Oct 2017
UK inflation data in focus - AM Briefing
17 Oct 2017
Gold and silver break out of downtrend - PM Bulletin
16 Oct 2017
Oil rallies on threat of fresh Iranian sanctions - AM Briefing
16 Oct 2017
US economic data in focus - AM Briefing
13 Oct 2017
FOMC Minutes Released Tonight - Video Update
11 Oct 2017
Spain’s IBEX jumps after Catalan speech - AM Briefing
11 Oct 2017
US dollar - correcting or recovering?
10 Oct 2017
Investors prepare for earnings season - AM Briefing
10 Oct 2017
Has gold broken its long-term downtrend? - PM Bulletin
09 Oct 2017
BoE meeting will decide what sterling does next - Video Update
01 Oct 2017
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Early moves

·         Dow closes at fresh record high

·         US tax reform a step closer to being realised

There’s a firmer tone across European equity markets with US futures indicating to a positive open later today. This recovery in risk appetite follows yesterday’s bounce-back on Wall Street which saw the Dow recover from an early triple-digit loss to close out at a fresh record high. Investors rushed in to “buy the dip” once again, pushing aside any concerns they may have about the future of the European Union and a warning from the outgoing governor of the People’s Bank of China that growth has been built on the shaky foundations of debt and excessive speculation. Instead, investors were emboldened by a generally positive earnings season and a vote in the US Senate which brings Trump’s proposed tax reforms a step nearer to fruition.

European stock indices closed sharply lower yesterday, but off their worst levels. Investors rushed to dump equities after the Spanish government threatened to suspend Catalonia’s autonomy. This came as the Catalan leader Carles Puigdemont declined to drop the region’s bid for independence. On one hand this can be viewed as nothing more than a local issue for Madrid to deal with. However, there are concerns that political unrest (and the Spanish government’s hostile response) could spread to other Euro zone countries such as Italy which has a General Election in March next year. This comes as the EU Summit enters its second day with Brexit likely to be the main topic of debate. It looks as if negotiations have reached an impasse with both sides still at loggerheads over the Brexit bill.

Stock Index Update

·         US indices post stunning reversal

·         Dow hits fresh all-time high

Yesterday saw a bizarre trading session. US stock index futures tumbled in early trading taking European indices down with them. The sell-off came as investors fretted about political uncertainty across Europe. Spain has threatened to suspend Catalonian autonomy this weekend if the region pushes ahead with its bid for independence. On top of this there were concerns of an apparent impasse in Brexit negotiations. However, once Europe closed US indices rallied back sharply. The Dow made back a triple point decline to close at a fresh all-time high. The turnaround came on the back of decent corporate earnings and as Trump’s tax reform plans came a step closer to being realised after the US senate passed a budget proposal by 51 votes to 49.

Yesterday’s sell-off came on the 30th anniversary of “Black Monday” when the US indices posted their largest one day of losses in stock market history. The decline also came just one day after the Dow rose 160 points to close at a fresh all-time record close. It looks as if investors used the occasion to book profits after a stunning run in US equities. However, the lure of lower prices was too tempting to pass up in the current bull market. But it is worth noting that this was a low volume, low volatility melt-up which looks somewhat fragile.

Commodities Update

·         Crude falls on profit-taking

·         Gold gives back early gains

Crude fell sharply yesterday. Both WTI and Brent got caught up in the general “risk off” environment as equity markets succumbed to an early bout of selling. However, unlike the major US indices, the sell-off in crude wasn’t reversed later in the session. Instead, Brent briefly dropped below $57 while WTI closed in on $51 to approach its 21-day exponential moving average. Yesterday’s sell-off was blamed on profit-taking following crude’s sharp rally over the past fortnight. But it also appears that oil traders got caught up in the general “risk-off” move which saw US and European equities fall sharply early on Thursday. The sell-off was given extra impetus after the outgoing governor of the People’s Bank of China warned that there was excessive optimism over economic growth which had come on the back of excessive debt and speculation. Crude prices were steadier this morning although there was still an easier bias. Traders are talking about backwardation (where future oil prices trade below spot prices) being evidence that the market is coming back into balance after years of supply. This should help to support WTI and Brent going forward.

Gold and silver finally found a foothold yesterday after a dismal few days. Investors rushed to get exposure to the two metals as stock markets sold off sharply on increased political uncertainty across the European Union. However, prices have dropped back in early trade this morning as equities recover, the dollar bounces and risk appetite returns.

Gold was trading at over $1,300 on Monday but fell sharply to break below $1,280 on Wednesday. It has been a similar story for silver which fell around 3% over the same period. Investors dumped the two precious metals in response to a pick-up in US bond yields and a corresponding rally in the dollar. This came as analysts increasingly expect the Federal Reserve to raise rates by 25 basis points in December. The fed funds futures market is suggesting that the probability of a 25 basis point rate hike in December is over 90%. There has also been a flurry of speculation suggesting that President Trump is preparing to replace Janet Yellen as Fed Chair with Professor John Taylor of Stanford. It is understood that Professor Taylor is considerably more hawkish in his outlook than Dr Yellen is considered to be.

Forex Update

·         Dollar reverses initial sell-off

·         Senate votes in favour of budget proposals

The dollar sold off sharply yesterday morning in a move which saw the Dollar Index pull back below 93.00 and the EURUSD top 1.1850 for the first time since last week. But the biggest dollar drop came against the Japanese yen which gave the strongest signal that investors were suddenly back in “risk-off” mode. This was triggered by concerns over the fractures taking place across the European Union. The Spanish government said it would suspend Catalonia’s autonomy this weekend if the region continued to press ahead with its bid for independence. There were also worries about the ongoing EU Summit, particularly where Brexit negotiations are concerned. The fear is that both sides have hit an impasse. However, the dollar bounced back sharply last night and the rally has continued this morning. This follows news that the US Senate voted in favour of budget proposals bringing the Trump administration a significant step forward towards successfully implementing their tax reform plans.

Yesterday the latest UK Retail Sales release showed a fall of 0.8% in September - well below the minus 0.1% expected. This also represented a sharp fall from August’s 0.9% month-on-month increase. The news led to an initial pull-back in sterling. It recovered later in the session but then gave back gains to close lower on the day.

Upcoming events

Today’s significant events and economic data releases include German PPI and Euro zone Current Account. From the UK we have the Public Sector Borrowing Requirement and then US Existing Home Sales.   

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Posted by David Morrison

Tagged: Oil Dollar Trump Gold ECB

Category: AM Bulletin


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