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

·         UK Bank Rate expected to be unchanged

·         Dow closes above 22,000

It’s been a mixed start for the major European stock indices this morning with most moving from positive to negative in the first half-hour of trade. Last night the Dow closed out at a fresh record high and above 22,000 for the first time. But the broader-based market cap weighted indices (the Dow is anachronistically price-weighted which leads to certain distortions) ended the session little-changed. Consequently, there’s been no real follow-through across either Asian Pacific or European markets this morning. Meanwhile, the dollar continues to trade around 30-month lows against the euro as traders reassess the likely paths of monetary tightening taken by the US Federal Reserve and the European Central Bank.

The Bank of England’s Monetary Policy Committee (MPC) will announce its rate decision at 12:00 BST. It will also release its quarterly inflation report and Governor Carney will hold a press conference. There’s a low probability assigned to a rate hike today, despite a narrowing of the vote at the Bank’s last meeting in June. Granted, inflation as measured by Core CPI remains above the Bank’s 2% target. But it dropped back to 2.6% in June from 2.9% the month before. In addition, the Bank remains concerned about tepid growth in wages and across the UK economy as a whole. First quarter GDP rose just 0.2% and second quarter was up 0.3%. In the absence of a sharp pick-up in the second half, there’s little chance of annual GDP hitting the 1.9% forecast by the Bank.

Stock Index Update

·         Dow tops 22,000

·         Apple gives the major indices a boost

Yesterday’s main headline as far as stock indices were concerned was that the Dow topped 22,000 for the first time ever. The price-weighted index has had an incredible run this year, breaking above 20,000 at the end of January and 21,000 just five weeks later. The biggest Dow contributors, Boeing, McDonald’s and UnitedHealth Group have donated 380, 171 and 166 points respectively to the 1,000 point gain since the beginning of March. But Apple was the catalyst for yesterday’s move after the company reported a strong set of third quarter results after Tuesday’s close. Earnings per share came in at $1.67 on revenues of $45.4 billion. This compares to expectations of $1.57 per share on revenues of $44.98 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. On top of this the company announced sales guidance of $49-52 billion for the next quarter, pushing the mid-range figure above the $49.2 billion expected.

Commodities Update

·         WTI stuck under $50

·         Silver sees unusual price movements

Crude oil had a rollercoaster session yesterday after falling sharply on Tuesday. WTI broke above $50 at the beginning of the week to hit its highest level since the end of May. However, it pulled back sharply 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. Prices came under further downside pressure after the American Petroleum Institute (API) released its latest US inventory update after Tuesday 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. Analysts had expected drawdowns in both categories. Then yesterday afternoon the latest inventory update from the EIA proved to be another disappointment for the bulls. Crude inventories fell, but by less than expected. But total US oil product inventories rose by 1.1 million barrels last week, bringing to an end the four-week run of back-to-back inventory draws.

Precious metals had another rocky start yesterday morning but recovered as the day went on. Then again it’s worth mentioning a couple of unusual moves in silver. Firstly, silver spiked up 25 cents, or 1.5%, in the first minutes of trading on 2nd August. It quickly reversed the move but this is just another example of how erratic this market can be sometimes. This is especially the case in the low volume Asian Pacific session although it can also happen through the main session as well. Later on, as the US futures market opened, silver dropped 14 cents (0.8%) in minutes for no apparent reason. Less than a month ago silver “flash crashed” when it fell 11% in seconds during the main US session. Once again, there’s been no definitive explanation for the move, although no doubt algorithmic trading plays a major role. Unfortunately, these issues are rarely investigated to everyone’s full satisfaction.

Forex Update

·         Dollar continues to decline

·         Cable rallies ahead of MPC meeting

The dollar resumed its decline yesterday in a move which saw the Dollar Index fall to its lowest level in 15 months. Meanwhile the EURUSD continued to push away from 1.1800 and trade at its highest levels since mid-January 2015. There were gains for other majors as well. The GBPUSD climbed further above 1.3200 and is closing in on resistance around the 1.3400 area - a level last seen in September 2016. Cable’s gain came despite a disappointing reading for the July Construction PMI. This fell to 51.9, barely in expansion territory, from 54.8 in the prior month. However, Tuesday saw the release of a better-than-expected Manufacturing PMI which has helped to boost sentiment. There was also some speculation (triggered by a report from Nomura) that the Bank of England may surprise everyone later today by tightening monetary policy. This would certainly be the right forum, seeing as the Bank also delivers its quarterly inflation report and there’s a press conference from Governor Carney. It would also reverse the hike made one year ago in the wake of the Brexit vote. However, we’ve just seen a pull-back in inflation with CPI down to 2.6% annualised from 2.9%. At the same time wages and overall economic growth in the UK remain weak. This could be enough to persuade the Bank to hold back from making any changes today.

Upcoming events

Today’s significant events and economic data releases include Spanish, Italian, French, German, Euro zone and UK Services PMI’s. We also have the ECB’s Economic Bulletin and Euro zone Retail Sales. The Bank of England publishes its quarterly inflation report and will also announce its latest decision on interest rates. From the US we have Challenger Job Cuts, Weekly Jobless Claims, the ISM Non-Manufacturing PMI and Factory Orders.


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Posted by David Morrison

Category: AM Bulletin

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