Incisive market commentary from David Morrison

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Non-Farm Payroll look-ahead - Video Update
31 Aug 2017
Tech stocks lead market recovery - AM Briefing
31 Aug 2017
Fall-out from Jackson Hole - Video Update
30 Aug 2017
Investors shrug off North Korean missile launch - AM Briefing
30 Aug 2017
Gold breaks through $1,300 - PM Bulletin
29 Aug 2017
Equities slide after North Korean missile launch - AM Briefing
29 Aug 2017
Yellen and Draghi in focus - AM Briefing
25 Aug 2017
Jackson Hole look-ahead to key speeches - Video Update
23 Aug 2017
Wall Street surges on tax reform hopes - AM Briefing
23 Aug 2017
Euro slips, but range-bound ahead of Jackson Hole - PM Bulletin
22 Aug 2017
Equities recover in early trade - AM Briefing
22 Aug 2017
Equities under pressure as Trump struggles - AM Briefing
21 Aug 2017
Equities fall as investors find reasons to sell - AM Briefing
18 Aug 2017
ECB and FOMC minutes lead to FX volatility
17 Aug 2017
FOMC minutes viewed as dovish - AM Briefing
17 Aug 2017
FOMC minutes in focus - Video Update
16 Aug 2017
Fed minutes in focus - AM Briefing
16 Aug 2017
Sterling slips as inflation steadies - PM Bulletin
15 Aug 2017
Equities continue to recover - AM Briefing
15 Aug 2017
Gold: triple top or third time lucky? - PM Bulletin
14 Aug 2017
Stocks bounce as geopolitical risk eases - AM Briefing
14 Aug 2017
Bank of England rate decision in focus - AM Briefing
03 Aug 2017
Crude breaks above resistance - PM Bulletin
02 Aug 2017
Apple rallies 6% on strong report - AM Briefing
02 Aug 2017
Cable breaks above 1.32000 - PM Bulletin
01 Aug 2017
Apple to report after the close - AM Briefing
01 Aug 2017
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Early moves

·         Apple beats on earnings/revenues

·         Crude oil falls sharply

European stock indices and US futures were all significantly higher in early trade this morning. The latest round of buying was driven by results coming from the second quarter earnings season, in particular Apple, which reported after the close last night. Analysts were looking for earnings to come in around $1.57 per share on revenues of $44.98 billion. The company easily surpassed these expectations when it posted earnings per share of $1.67 on revenues of $45.4 billion. The stock price soared over 6% in the immediate aftermath of the report and this helped to lift US and European stock indices in early trade. Investors were doubly impressed by the results as most analysts had predicted a flat quarter ahead of the iPhone 8 launch expected in September.

But all the major European and US indices soon pulled back from their best levels. Traders are keeping a close eye on the oil price which suddenly plummeted yesterday afternoon on reports of an increase in OPEC production in July. The latest inventory data from the American Petroleum Institute (API) showed an unexpected build in crude and this is also helping to keep a lid on prices.

Stock Index Update

·         Dow closes at fresh record high

·         Earnings drive Wall Street’s gains

Last night brought another strong close on Wall Street with solid gains for all the major US indices. The Dow Jones Industrial Average made a fresh record high and came close to breaking above 22,000. Investors continue to ignore problems in Washington and instead respond to a positive second quarter earnings season.

European stock indices were marked sharply higher ahead of yesterday’s open helped along by some strong earnings reports and big upward moves in US stock index futures. Investors continue to buy into the slightest of pull-backs, bulled up by an earnings season which has been broadly positive. Yesterday the FTSE100 made strong gains driven by solid results from Rolls Royce, Man Group and BP.

Yesterday brought a raft of economic data releases. Manufacturing PMIs from Spain, Italy, France, Germany and the Euro zone all came in below both their relative consensus expectations and last month’s readings. While this saw the euro dip, European equities went largely unscathed. The UK’s Manufacturing PMI beat both the consensus expectation and the prior reading. This helped to underpin the FTSE100 and lift it back above 7,400.

In the US the Core PCE Price Index came in at +1.5% annualised. This is the US Federal Reserve’s preferred inflation measure, and is still coming in somewhat short of the Fed’s 2% inflation target. It’s worth remembering that Fed Chair Janet Yellen went to great lengths last month to assert that the US central bank is paying very close attention to inflation, or the lack of it. This led to a sharp reassessment by investors of the Fed’s intentions concerning tightening monetary policy over the rest of this year. Many believe the Fed is set to be less hawkish going forward and this is helping to support US equities.

Commodities Update

·         Crude oil plunges on OPEC production increase

·         Precious metals consolidate

The American Petroleum Institute (API) released its latest US inventory update after last night’s close. There was a 1.8 million barrel build in crude stockpiles and a large increase in inventories at the Cushing, Oklahoma hub. This followed four consecutive weeks of bigger-than-expected drawdowns. Analysts had expected drawdowns in both categories. Offsetting this to some extent was a 4.8 million barrel drawdown in gasoline stockpiles. However, oil prices had already fallen sharply earlier in the day and this news led to further selling. The Energy Information Administration (EIA) reports its own inventory update later this afternoon.

The prices of both WTI and Brent suddenly collapsed yesterday afternoon, shortly after 16:00 BST. The move saw WTI slump back below $50 - a level it managed to recapture on Monday for the first time since the end of May. The sell-off was triggered after Bloomberg cited a survey which suggested that OPEC output in July rose by 210,000 barrels to 32.87 million barrels per day (bpd). The report went on to say that Libya was the problem as it added 180,000 bpd in the month to take production up to 1.02 million bpd. Libya and Nigeria are the two OPEC members currently exempt from the agreed output cuts. However, just over a week ago Nigeria promised to cap production at 1.8 million bpd - just 100,000 shy of current output. Also weighing on prices was a report from Goldman Sachs which said the effect of US sanctions against Venezuela would have a minimal impact on the oil price.

Gold and silver were weaker in early trade yesterday but not significantly. A mild bout of selling saw gold head back towards $1,260 and silver touch $16.60. But the two metals bounced sharply on the open of the US futures exchanges. Both metals have put in a solid performance since 10th July. This was when gold fell to a four month low and threatened to break below $1,200. Silver came close to breaking below $15 per ounce to hit its lowest level in 15 months. Since then the two metals have rallied around 5% and 11% respectively. Investors increased their exposure to gold and silver after members of the US Federal Reserve insisted that they were keeping a close eye on inflation. This has led investors to conclude that the Fed is set to be far more dovish than it indicated earlier this year. Inflation has been trending downwards since January, making aggressive monetary tightening unlikely. This has taken the pressure off gold and silver. At the same time, investors have loaded up on the two precious metals as the Trump administration continues to stumble from one upset to another.

Forex Update

·         EURUSD holds above 1.1800

·         Economic data confirms Euro zone recovery

The euro was uniformly weaker yesterday. Traders moved in to book profits after the recent strong run which on Monday saw the EURUSD break back above 1.1800 for the first time since early 2015. The trigger appeared to be a clutch of weaker-than-expected Manufacturing PMIs from across the Euro zone. The latest data from Spain, Italy, France, Germany and the euro zone itself all failed to meet consensus expectations and was weaker than the prior month. Despite this, all the numbers were comfortably above 50 meaning that expansion is still taking place across the Euro zone’s manufacturing sector. Meanwhile, second quarter Euro zone GDP rose 0.6% which was in line with forecasts and unchanged from the first quarter. All-in-all, there was nothing in the data to concern members of the European Central Bank’s governing council as it considers tapering its monthly bond purchases early next year. Particularly as the numbers came on top of Monday’s impressive German Retail Sales for June and a better-than-expected reading for Euro zone inflation. Core CPI (excluding food and energy) came in at +1.2% annualised, just above the +1.1% expected. Headline CPI rose 1.3% over the same period last year - unchanged from last month and also in line with the consensus forecast.

Upcoming events

Today’s significant events and economic data releases include Spanish Unemployment Change, Swiss Retail Sales, Swiss Manufacturing PMI and UK Construction PMI. From the US we have the ADP Non-Farm Employment Change and Crude Oil Inventories. 


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Posted by David Morrison

Category: AM Bulletin

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