Incisive market commentary from David Morrison

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Using the RSI in FX - Trading Guide
31 Jul 2017
HSBC share buy-back helps lift indices - AM Briefing
31 Jul 2017
Amazon triggers tech tumble - AM Briefing
28 Jul 2017
Fed reinforces dovish credentials - Video Update
27 Jul 2017
Facebook results boost NASDAQ - AM Briefing
27 Jul 2017
Crude breaks above resistance - PM Bulletin
26 Jul 2017
Equities rally on positive earnings - AM Briefing
26 Jul 2017
Look-ahead to tomorrow’s rate decision from the Fed
25 Jul 2017
Alphabet/Google falls 3% in after-hours trade
25 Jul 2017
Equities start the week on back-foot - AM Briefing
24 Jul 2017
Euro surges on “hawkish” comments from Draghi - AM Briefing
21 Jul 2017
Equities firmer ahead of ECB meeting - AM Briefing
20 Jul 2017
Europe firmer after late US rally - AM Briefing
19 Jul 2017
US Fed turns dovish - PM Bulletin
18 Jul 2017
Dollar slumps on US healthcare gridlock - AM Briefing
18 Jul 2017
Wall Street leads equity rally - AM Briefing
17 Jul 2017
US bank earnings in focus - AM Briefing
14 Jul 2017
Yellen flip-flops to reassure investors - AM Briefing
13 Jul 2017
Oil rallies, but volatility high - Video Update
12 Jul 2017
Yellen to testify in Washington - AM Briefing
12 Jul 2017
A look-ahead to Janet Yellen’s testimony - PM Bulletin
11 Jul 2017
Second quarter earnings in focus - AM Briefing
11 Jul 2017
Jobs data boost sentiment ahead of earnings - AM Briefing
10 Jul 2017
Investors nervous; Non-Farm Payrolls in focus - AM Briefing
07 Jul 2017
Non-Farm Payroll look-ahead - Video Update
06 Jul 2017
Investors shrug off FOMC minutes - AM Briefing
06 Jul 2017
Investors shrug off FOMC minutes - AM Briefing
06 Jul 2017
Look-ahead to FOMC minutes - Video Update
05 Jul 2017
Markets quiet and waiting for fresh guidance from US - AM Briefing
05 Jul 2017
Crude continues to push higher - PM Bulletin
04 Jul 2017
Dow closes at fresh record high - AM Briefing
04 Jul 2017
Positive start to second half of 2017 - AM Briefing
03 Jul 2017
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Early moves

·         NASDAQ turns south after hitting fresh record

·         US Advance GDP in focus

The NASDAQ surged higher yesterday, boosted by Facebook earnings after Wednesday’s close. Other tech stocks also got a lift although Twitter was out of favour following news of a drop-off in US subscribers. The NASDAQ hit a fresh record high yesterday afternoon, and a rally in Amazon briefly made Jeff Bezos the richest man in the world. However, Amazon subsequently slumped after the company posted a 77% drop in earnings from this time last year.

Today we get the first look at second quarter US GDP. The consensus forecast was coalescing around an annualised increase of 2.5%, although yesterday’s 6.5% surge in headline Durable Goods has led some analysts to hope for an upside surprise. Certainly, that’s what the Atlanta Fed’s GDPNow forecasting model is predicting. Yesterday it published its latest update which suggests today’s Advance GDP could be as strong as 2.8%, up from its forecast of a 2.5% gain last week. If so, this will provide further ammunition for those stock market bulls who, until last night’s Amazon-led tech tumble, were enjoying a strong earnings season.

If the current pull-back in the US tech sector proves to be nothing more than a short-lived bout of profit-taking then it won’t take long for dip-buyers to pile back in. Certainly, that’s a strategy that has worked well over the past nine years. Bullish investors can cite evidence of a solid US economic recovery, together with a Fed unwilling to tighten monetary policy due to low inflation as the perfect environment for a strong market performance over this summer. But we’re well overdue a decent downside correction which could occur if today’s sell-off gathers momentum.

Stock Index Update

·         Twitter falls sharply on US user decline

·         DAX down on Deutsche Bank

Twitter reported ahead of yesterday’s US open. The social media site posted better-than-expected earnings and revenues of $0.08 per share and $573.9 million respectively against forecasts of $0.05 and $537.2 million. However, in contrast to Netflix which posted a large jump in subscribers, Twitter’s monthly active users were unchanged in Q2 from Q1 at 328 million - below the 332 million expected. On top of that, users in the US fell to 68 million from 70 million. The stock fell over 9% in pre-market trade and ended the day 14% lower.

European indices were mostly lower by yesterday’s close of business. The German DAX had the worst of it losing around 0.9%. The index was weighed down by Deutsche Bank which delivered a mixed set of results. The bank doubled its pre-tax profit from this time last year but warned that overall revenues were disappointing. Shares in Deutsche Bank ended over 6% lower on the day. UK pharmaceuticals giant AstraZeneca slumped around 15% after its lung cancer treatment proved ineffective in clinical trials.

On Wednesday the Federal Reserve kept its key interest rate unchanged as expected. However, the Fed stated that balance sheet reduction would be implemented “relatively soon” rather than “this year” as noted in the June statement. The Fed also noted the recent downward trend in inflation but that it expected the economy to continue strengthening. Overall the statement was considered more dovish than expected and reinforces Janet Yellen’s hawkish-to-dovish pivot in Washington a fortnight ago.

Commodities Update

·         Crude breaks above resistance

·         Precious metals give back early gains

Crude oil is on course for a week of back-to-back daily gains. Yesterday WTI popped above $49 while Brent held above $51 with both contracts hitting their highest levels since the beginning of June. This latest move means that both contracts are in the process of breaking out of a downtrend that began forming back in March. If WTI and Brent can consolidate or even build on these gains going into the weekend then technically, the outlook for crude remains bullish. From a fundamental standpoint, there’s been a sharp drawdown in US inventories over the last few weeks and this is helping to support prices. In addition, on Monday Saudi Arabia promised to cuts its exports by 1 million barrels per day (bpd) to 6.6 million bpd from August onwards. Also, a number of OPEC and non-OPEC oil ministers pledged to extend the current 1.8 million bpd production cut for a second time, taking it out beyond March 2018 if necessary. Nigeria also agreed to cap output at 1.8 million bpd. It currently produces around 1.7 million bpd. Also, there are doubts forming over the outlook for US shale oil production after three key players, Anadarko, Hess and Whiting Petroleum, said they were slashing their capital expenditures. These moves suggest that the break-even price for producing shale oil may be higher than many commentators previously believed. On the flip side, crude is beginning to look overbought and due a pull-back.

Yesterday morning gold hit its highest intra-day level since mid-June, while silver traded at its best level in a month. The two precious metals rallied sharply following the release of the US Federal Reserve’s latest monetary policy statement. This was more dovish than expected. The Fed said that balance sheet reduction could take place “relatively soon” which seems vaguer than last month’s forecast that it could happen “this year.” But perhaps most importantly the Fed acknowledged the continued down-side pressure on inflation. In this regard the Fed’s statement was consistent with Janet Yellen’s hawkish-to-dovish pivot a fortnight ago during her testimony in Washington. This was when she said that the Fed was close to its neutral policy stance. This took investors by surprise as it suggested the Fed may look to tighten rates towards 2% rather than the 3% target expected by analysts. Later in the day both precious metals pulled back from their best levels and drifted into negative territory as profit-taking crept in.

Forex Update

·         US dollar has short-covering bounce

·         ECB member turns hawkish

The dollar staged a modest recovery yesterday, making back some of its losses from Wednesday night. The greenback came under intense selling pressure following the release of the Fed’s latest statement on monetary policy. As expected, the US central bank kept its key interest rate unchanged and also made no immediate move to reduce its $4.5 trillion balance sheet. However, the Fed stated that balance sheet reduction would be implemented “relatively soon” rather than “this year” as noted in the June statement. The Fed also noted the recent downward trend in inflation, although it expects the economy to continue strengthening. This was considered more dovish than expected and helps to keep the Fed’s options open. The dollar fell sharply on the news and the EURUSD hit its highest level since January 2015. Later today we get the first update on second quarter US GDP.

Also helping the euro were comments from ECB member Ewald Nowotny. Just ahead of the Fed’s statement Mr Nowotny said that he agreed with Bundesbank President and fellow governing council member Jens Weidmann. The ECB should consider tapering its bond purchase programme as there was no longer a deflation risk in the Euro zone. This was a turnaround from Monday when Mr Nowotny said that despite growing market concerns, the ECB "sees no need to set a timetable to end bond buying”. However, a number of analysts have crunched the numbers and are concerned that it won’t take long for the ECB to run out of eligible bonds to buy, unless of course, there’s a change in the rules. We’ve seen the rules change on numerous occasions since the start of the financial crisis. However, we’re now eight years past the nadir of the crash and many influential voices are insisting that we’re well past the time for interest rate normalisation.

Upcoming events

Today’s significant events and economic data releases include the Swiss KOF Economic Barometer, Spanish CPI, Spanish GDP and Canadian GDP. From the US we have Advance GDP, the Employment Cost Index, Consumer Sentiment, Inflation Expectations and a speech from FOMC-voting member Neel Kashkari.


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Posted by David Morrison

Category: AM Bulletin

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