Incisive market commentary from David Morrison

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Market awaits Trump, and Fed reaction
28 Feb 2017
Markets on hold ahead of Trump speech to Congress - AM Briefing
28 Feb 2017
Fibonacci Retracement - an introduction - Trading Guides
27 Feb 2017
Investors shrug off concerns ahead of Trump speech - AM Briefing
27 Feb 2017
Equities drifting lower ahead of weekend - AM Briefing
24 Feb 2017
Dollar sells off after FOMC minutes - Video Update
23 Feb 2017
FOMC minutes send dollar lower - AM Briefing
23 Feb 2017
Crude oil pushes up against resistance - Video Update
22 Feb 2017
FOMC minutes in focus - AM Briefing
22 Feb 2017
Gold pulls back from resistance - PM Bulletin
21 Feb 2017
US traders return after market holiday - AM Briefing
21 Feb 2017
Identifying market tops, or the trend is your friend - until it isn’t
20 Feb 2017
Kraft Heinz pulls Unilever bid - AM Briefing
20 Feb 2017
Major indices drifting lower as weekend approaches - AM Briefing
17 Feb 2017
US Indices hit fresh record highs
16 Feb 2017
Trump tax promise continues to drive risk appetite - AM Bulletin
16 Feb 2017
Yellen testifies in Washington
15 Feb 2017
Yellen testimony helps lift sentiment - AM Bulletin
15 Feb 2017
Silver hovers around resistance at $18
14 Feb 2017
Focus turns to Yellen’s testimony in Washington
14 Feb 2017
An introduction to the Relative Strength Index - Trading Guides
13 Feb 2017
Equity rally continues - AM Briefing
13 Feb 2017
Trump tax talk boosts risk appetite - AM Briefing
10 Feb 2017
US dollar drivers - Video Update
09 Feb 2017
Recovery in crude lifts equities AM Briefing
09 Feb 2017
Crude volatility picking up - Video Update
08 Feb 2017
Crude lower as inventories soar - AM Briefing
08 Feb 2017
Politics set to drive FX - PM Bulletin
07 Feb 2017
Major indices drift in featureless trade - AM Briefing
07 Feb 2017
MACD - an overview -Trading Guide
06 Feb 2017
European equities drift in quiet trade - AM Briefing
06 Feb 2017
Non-Farm Payrolls in focus - AM Briefing
03 Feb 2017
Non-Farm Payroll look-ahead - Video Update
02 Feb 2017
BoE meeting in focus - AM Briefing
02 Feb 2017
FOMC meeting tonight - Video Update
01 Feb 2017
Markets steady ahead of Fed meeting - AM Briefing
01 Feb 2017
Expand January <span class='blogcount'>(39)</span>January (39)
Expand 2016 <span class='blogcount'>(483)</span>2016 (483)
 Thursday 09 February 2017

Recovery in crude lifts equities AM Briefing



Early moves

·         Oil helps to boost equities

·         Political risk rises

The major European stock indices and US index futures are modestly firmer in early trade this morning, following a mixed close on Wall Street last night. The positive tone has been helped along by a rebound in crude oil after a sharp sell-off earlier in the week. Both WTI and Brent are trading around the respective mid-points of trading ranges which have been in place since early December. Sentiment has also been lifted by some better-than-expected earnings from European banks including SocGen, Commerzbank and Mediobanca.

But investors are increasingly mindful of global political risk. This isn’t just about Trump’s travel ban and protectionist rhetoric, although it’s fair to say that we’re well overdue some positive news concerning his proposed tax cuts and infrastructure spending. Investors are becoming increasingly concerned about the possibility of Eurosceptic parties gaining ground across Europe. In little over a month Holland holds a general election where the far-right candidate Geert Wilders is expected to do well. Then there’s the real danger as far as the future of the Euro zone is concerned when the French Presidential election takes place in April and May. The prevailing wisdom is that Eurosceptic far-right candidate Marine Le Pen will lose in the second ballot. But the UK referendum and US presidential election should have taught us to take nothing for granted.

Stock Index Update

·         European indices end higher

·         Political risk returns

The major European indices ended modestly higher yesterday but off their best levels. Investors were struggling to get a grip on overall market sentiment amidst a flood of company results and general political uncertainty.

Investors appear to be paying greater attention to overall political risk than they have in a while. There’s been a pick-up in concern over Trump’s presidency, particularly his attempts to impose a travel ban on visitors from seven specific countries along with his protectionist rhetoric.

Earlier in the week Eurosceptic far-right candidate Marine Le Pen seemed to be pulling ahead of her two likely challengers in the Presidential Election. This had little to do with anything she had achieved herself. Instead, her conservative opponent Francois Fillon has failed to put a lid on an embarrassing expenses scandal, despite making a public apology.  Meanwhile the left-leaning candidate Emmanuel Macron has felt it necessary to counter rumours that he’s had an affair with another man. Marine Le Pen has been engaged in a spat over an alleged €300,000 of misspent EU funds but has managed to emerge fairly unscathed. Pundits predict that she will win the first ballot in April, when there are three candidates, but lose the head-to-head in May.

Commodities Update

·         WTI and Brent react to inventory data

·         Precious metals make further gains

Yesterday afternoon the Energy Information Administration (EIA) released its US crude oil inventory update for the week ending 3rd February. This showed a build of 13.83 million barrels – well above the 2.7 million expected. There was little immediate market reaction to the EIA update as it also reported a drawdown in gasoline stocks which helped offset the crude build. Also, it simply confirmed data from the American Petroleum Institute (API) reported after Tuesday’s close. This showed unexpectedly large builds in crude and refined product stockpiles. Crude inventories rose by 14.27 million barrels - way above the 2.5 million build expected and the second largest weekly build in US history. On top of this, gasoline stocks rose 2.9 million against a forecasted increase of 1.5 million. This was the sixth week of successive builds. Crude fell sharply yesterday morning on the news. But prices were already under pressure following a report on Tuesday from the EIA when the agency cut its global oil demand growth forecasts for both 2017 and 2018 by 10,000 and 50,000 barrels per day (bpd) respectively. It also estimates that US output will rise to 9.53 million bpd, up from 9.3 million bpd previously, and potentially the highest US output since 1970. Crude has pulled back sharply from resistance and support comes in around $51 and $54 for WTI and Brent respectively.

Precious metals flew higher yesterday, adding to recent upside momentum and boosted by a pull-back in the US dollar. Gold pushed above $1,240 to trade at its highest level since early November. Back then gold was selling off sharply as the dollar soared in the wake of Donald Trump’s surprise election victory. Gold went on to break below $1,130 before the sell-off exhausted itself and investors began to cover short positions and cautiously re-establish longs. It has been a similar story for silver which briefly broke above $17.80 on a number of occasions. There’s no doubt that sentiment has improved for both precious metals as political risk has increased. This has been as a consequence of the concerns over Trump’s presidency and uncertainty over the outcomes of upcoming elections in Holland and France where there is a growing probability that Eurosceptic parties are set to make large gains. It is also helping that the Fed is unlikely to hike rates next month.

Forex Update

·         USD slips back on Trump concerns

·         Euro makes modest gains

The US dollar weakened a touch yesterday following its sharp rally on Tuesday. Once again, the move came as investors reacted to political risk. But yesterday it was more about Trump than concerns over upcoming elections in Holland and France. Investors are becoming increasingly unnerved by President Trump’s recent policy “misfires” such as his attempt to impose a travel ban on seven specific countries and his protectionist rhetoric. In addition, investors remain mindful of the Trump administration’s recent attempts to “talk down” the US dollar.

The dollar fell sharply last Friday following the release of US payroll data for January. The headline Non-Farm Payrolls were much stronger than expected, and in normal circumstances this should have helped to boost the greenback. However, Average Hourly Earnings came in below expectations suggesting that there is no immediate threat of wage increases boosting inflation. This meant that investors dialled back their expectations of a Fed rate hike next month and sold dollars. But it wasn’t long before the dollar recovered, driven higher by euro weakness as Eurosceptic Marine Le Pen appeared to make up ground against her two probable challengers for the Presidential Election. This had little to do with anything she had done. Instead, her conservative opponent Francois Fillon is embroiled in an expenses scandal while the left-leaning candidate Emmanuel Macron has had to counter rumours that he’s had an affair with another man.

Upcoming events

Today’s significant economic data releases and events are all from the US and include Weekly Jobless Claims, Mortgage Delinquencies and Wholesale Inventories. Federal Reserve Bank of Chicago President and FOMC-voting member Charles Evans will be speaking as will Bank of England Governor Mark Carney.


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Posted by David Morrison

Category: AM Bulletin

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