Incisive market commentary from David Morrison

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Collapse 2017 <span class='blogcount'>(348)</span>2017 (348)
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GDP data in focus - AM Briefing
28 Apr 2017
ECB round-up and US GDP look-ahead - Video Update
27 Apr 2017
ECB meeting in focus - AM Briefing
27 Apr 2017
ECB's Rate Meeting, a look ahead - Video Update
26 Apr 2017
High hopes for Trump tax cuts - AM Briefing
26 Apr 2017
Global stock indices storm higher - PM Bulletin
25 Apr 2017
Indices mixed after firmer open - AM Briefing
25 Apr 2017
How to use Stop Losses in FX - Trading Guide
24 Apr 2017
French vote sees risk assets soar - AM Briefing
24 Apr 2017
Mixed European open despite Wall Street rally
21 Apr 2017
French Election in focus - Video Update
20 Apr 2017
French election and oil keep investors cautious - AM Briefing
20 Apr 2017
Equities off highs but still show resilience - Video Update
19 Apr 2017
Equities continue to drift lower - AM Bulletin
19 Apr 2017
Sterling soars on early UK election, but France the biggest concern
18 Apr 2017
Europe shrugs off US rally - AM Bulletin
18 Apr 2017
Trump's mouth sends dollar skidding lower - Video Update
13 Apr 2017
Dollar slumps on Trump comments - AM Bulletin
13 Apr 2017
Uncertain outlook ahead of holiday weekend - Video Update
12 Apr 2017
Equities recover after yesterday’s wobble - AM Briefing
12 Apr 2017
USDJPY approaching support - PM Bulletin
11 Apr 2017
Equities drifting in holiday-shortened week - AM Briefing
11 Apr 2017
Look-ahead to Janet Yellen’s speech this evening - PM Bulletin
10 Apr 2017
All eyes on G7 and Yellen - AM Bulletin
10 Apr 2017
US missile attack sends investors into “risk-off” mode - AM Briefing
07 Apr 2017
FOMC minutes rattle investors - Video Update
06 Apr 2017
Stunning reversal greets Fed minutes - AM Briefing
06 Apr 2017
ADP number points to big payroll beat on Friday - Video Update
05 Apr 2017
FOMC minutes in focus - AM Briefing
05 Apr 2017
US indices flag as first quarter ends - PM Bulletin
04 Apr 2017
Disappointing start to the new quarter - AM Briefing
04 Apr 2017
Expand March <span class='blogcount'>(38)</span>March (38)
Expand February <span class='blogcount'>(36)</span>February (36)
Expand January <span class='blogcount'>(39)</span>January (39)
Expand 2016 <span class='blogcount'>(483)</span>2016 (483)


Early moves

·         Equities drift lower on geopolitical concerns

·         G7 and Yellen in focus

The major European stock indices turned lower in early trade this morning after a modestly firmer open. Traders were initially relaxed going into the open as US equities ended Friday little-moved. This was despite the US launching a missile attack on a Syrian airbase and after a surprisingly weak Non-Farm Payroll release. Over the weekend comments from Russia and Iran appeared to ratchet up tensions rather than calm them. Yet so far investors seem convinced that rising geopolitical tensions should have little negative effect on the global investment situation. In fact, the Japanese yen (which typically rallies on safe-haven demand when investor sentiment is unsettled) has fallen this morning. Not only that but precious metals, particularly silver, fell sharply on Friday evening and show no signs of recovering so far this morning.

As far as investors are concerned, nothing has changed to upset the ongoing bullish narrative. However, sentiment has a habit of changing rapidly and investors will be listening out for any unhelpful comments from today’s G7 meeting of foreign ministers. Then later, US Federal Reserve Chair Janet Yellen is due to speak at the University of Michigan at 21:00 BST. Audience questions are expected.

Stock Index Update

·         Indices see-saw on data and geopolitics

·         Non-Farm Payrolls disappoint

Global stock indices swung about last week on the back of a number of major events and data releases. Friday’s US Non-Farm Payrolls showed an increase of just 98,000 jobs in March. Not only was this well below the 175,000 consensus forecast, but there had been whispers that jobs growth could be well above expectations given the strong ADP payroll release on Wednesday. This had led to a sharp rally in US equity markets which suddenly reversed after the US Federal Reserve released the minutes of its last meeting. Investors took fright after a number of Fed members expressed the view that equities looked expensive by some valuation metrics. There were also suggestions that the US central bank could look to wind down its $4.5 trillion balance sheet later this year. Previously, most market participants felt that this wouldn’t happen until later in 2018.

Ahead of Friday’s payroll release investors were busy dumping risk assets following news of a US missile strike on a Syrian airbase. This led to fears of an escalation in violence which could see the US and Russia going head-to-head. The US move also came at a particularly delicate time seeing as President Trump gave the order for the attack during a two-day visit by his Chinese counterpart Xi Jinping. But stock indices bounced off their lows only to turn lower again after the US jobs number. Not only was the headline payroll number weak but there were downward revisions for January and February of 38,000. Meanwhile, the Unemployment Rate fell to 4.5% (its lowest level since May 2007) and has now held at or below 5% for 18 months, representing “full employment” for the longest period since the Financial Crisis. Average Earnings which are key in flagging up inflationary pressures were steady at +0.2% month-on-month. But the stock market reaction was fairly muted and it wasn’t long before market cheerleaders were saying the jobs miss was weather related and the number was bound to be revised up next month.

Commodities Update

·         Crude pulls back from highs following US missile strike

·         Precious metals up on safe haven demand - then silver slumps

Oil prices had a volatile session on Friday, rounding off a week which saw gains for both Brent and WTI. Crude spiked higher on news that the US had launched a missile attack on a Syrian airbase. The US has said that this airfield was used in the chemical attack which took place earlier in the week. Investors feared that the US move could escalate tensions in the region, particularly as Russia is actively supporting the Assad regime. Later on Friday it was reported that Russian President Vladimir Putin considered that the US strike violated “the norms of international law, and on a trumped-up pretext at that.” But oil prices pulled back from their highest levels later in the session as it appeared the US move was likely to be an isolated act rather than a signal of greater involvement in the Syrian situation.

Towards the end of last week gold and silver shot higher following news of a US missile strike on a Syrian airbase. Gold hit a five month high while silver poked back above resistance around $18.40 - a level last tested just over a month ago. Investors had been piling into both precious metals earlier in the week following the release of minutes from the Fed’s meeting last month. The Fed warned about stocks being overvalued and indicated it could look to reduce its $4.5 trillion balance sheet later this year - somewhat earlier than previously considered.

Precious metals got further support following Friday’s dismal Non-Farm Payroll report. This showed jobs growth of just 98,000 in March, way below the consensus estimate of 175,000. Not only that, but many traders were hoping for an even higher number following Wednesday’s stunning ADP report which helped send US stock indices up around 0.7% on the day. Gold broke above $1,260 following news of the US missile strike and then built on these gains after the dismal payroll numbers were released. But silver continued to struggle to break above $18.40 - a level it last closed above just after Trump’s election victory last November. But there was a sudden sell-off late on Friday afternoon which saw both metals pull back sharply from their best levels. The move was most pronounced in silver which saw the metal drop back below $18 for the first time in two weeks. The sharp losses appeared to be caused by indiscriminate selling in the futures market for reasons unknown.

Forex Update

·         Dollar mixed on geopolitics and economy

·         Sterling weaker after poor data

On Friday morning there was a continuation of the general “risk-off” move which saw traders dump the dollar and head for the relative safety of the Japanese yen. This followed on from the news that the US had launched a missile attack on a Syrian airfield said to be the base for aircraft which used illegal chemical weapons in an attack earlier last week.

Then we had the latest US non-Farm Payroll release. This showed jobs growth of just 98,000 in March - well below market expectations. This compares with a six-month average ahead of Friday’s number of 185,500. The dollar fell initially which made sense as US Treasury yields also lost ground with the 10-year yield falling below the significant 2.3% level. However, it didn’t take long before traders rushed back in on the long side. This saw the EURUSD head back towards 1.0600 and the Dollar Index edge back up towards 101.00

Sterling was another significant mover at the end of last week. It dropped sharply on Friday morning following the release of some disappointing economic data. UK Manufacturing Production fell 0.1% in February against an expected increase of 0.3%. This follows on from a weak - 0.9% reading in January. Construction Output and Industrial Production also came in weaker than expected. Cable lost around a third of a cent straight after the releases, but fell further later in the session, breaking below 1.2400.

Upcoming events

Today’s significant economic data releases and events include Italian Industrial Production, Euro zone Sentix Investor confidence, Canadian Housing Starts and US Labour Market Conditions. Federal Reserve Chair Janet Yellen is due to speak at the University of Michigan at 21:00 BST. Audience questions are expected.


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Posted by David Morrison

Category: AM Bulletin

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