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Collapse 2017 <span class='blogcount'>(348)</span>2017 (348)
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Markets drift ahead of weekend - AM Briefing
24 Nov 2017
US closed for Thanksgiving - AM Briefing
23 Nov 2017
Wall Street hits fresh record highs - AM Briefing
22 Nov 2017
The UK100 and sterling - PM Bulletin
21 Nov 2017
Equities drift in featureless trade - AM Briefing
21 Nov 2017
German coalition talks collapse - AM Briefing
20 Nov 2017
Quiet start after Wall Street surge - AM Briefing
17 Nov 2017
Global stock indices steady - AM Briefing
16 Nov 2017
Is this the start of a stock market correction? - Video Update
15 Nov 2017
Crude sell-off rattles investors - AM Briefing
15 Nov 2017
GBPUSD testing support - PM Bulletin
14 Nov 2017
Central bankers meet in Frankfurt - AM Briefing
14 Nov 2017
Sterling under pressure - AM Briefing
13 Nov 2017
Indices in retreat ahead of weekend - AM Briefing
10 Nov 2017
Could low volatility trigger a market correction? - Video Update
09 Nov 2017
All quiet on the Western Front - AM Briefing
09 Nov 2017
WTI crude surges through resistance - Video Update
08 Nov 2017
Investor inertia sees equities drift - AM Briefing
08 Nov 2017
Crude in demand - PM Bulletin
07 Nov 2017
Fresh record close for Wall Street - AM Briefing
07 Nov 2017
EURUSD shows clear “head and shoulders” - PM Bulletin
06 Nov 2017
Cautious start to trading week - AM Briefing
06 Nov 2017
Traders look ahead to Non-Farm Payrolls - AM Bulletin
03 Nov 2017
Traders look ahead Friday’s US Non-Farm Payrolls - Video Update
02 Nov 2017
BoE expected to raise rates - AM Briefing
02 Nov 2017
Equities soar on US corporate tax cut hopes - AM Briefing
01 Nov 2017
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Early moves

·         Investors cautious as Trump tours Asia

·         Saudi Crown Prince initiates purge

European stock indices and US stock index futures were a touch weaker first thing this morning. Investors trimmed their exposure to equities despite another set of record closes across Wall Street on Friday night. There’s just a touch of wariness in the air following news of an anti-corruption purge in Saudi Arabia which is being led by Crown Prince Mohammad Bin Salman. Security forces rounded up a number of princes and ministers in what is seen as a warning to the old establishment from the future king. The news helped lift oil prices again, taking Brent to a fresh 27-month high.

Investors were also a touch nervy as President Trump began his tour of Asia. He kicked off by accusing Japan of engaging in unfair trade practices, stating that trade with Japan was “not free or reciprocal.” Gold and silver have steadied following Friday’s sell-off. This came as the dollar bounced after traders decided that the Non-Farm Payroll release wasn’t quite as bad as first thought.

Stock Index Update

·         Investors shrug off weak payroll data

·         US Unemployment Rate at 16-year low

Trading was quiet on Friday as market participants sat on their hands ahead of the latest US Non-Farm Payroll update. European stock indices were mixed ahead of the data and US stock index futures were flat. The consensus expectation was for payrolls to increase by 312,000 in October. This would have been well above the six-month rolling average which is currently just shy of 180,000 but would go a long way to making up for September’s dismal reading. This registered a monthly decline of 33,000 - the first negative reading in over seven years. But there was little market reaction at the time as the data was complicated by the effects of hurricanes hitting the US.

Unfortunately, October payrolls disappointed, showing an increase of 261,000. There were upward revisions to prior data releases but this was offset by Average Hourly Earnings which were unchanged for the month having risen 0.5% in September. This led to sharp pull-back in the US dollar and a modest pick-up in US stock index futures. The thinking behind these moves was that the Fed may be less keen to raise interest rates again next month when there is no indication of upside pressure on wages to help lift inflation towards target. There was a decline in the Unemployment Rate to 4.1% - the lowest since January 2001. However, this came as a record number of Americans (95.4 million) are now no longer in the labour force. They are not looking for work and consequently aren’t counted as unemployed.

Separately, Spain’s IBEX ended Friday’s session down over 1%. This followed on from news that the Spanish public prosecutor had ordered that a number of Catalonian government members be jailed for their part in promoting independence. Investigative magistrate Carmen Lamela called for an arrest warrant for Catalan President Carles Puigdemont and eight members of the region’s government.

Commodities Update

·         WTI and Brent consolidate

·         Precious metals slide as dollar bounces

In the middle of last week Brent spiked above $61 per barrel to hit its highest level since July 2015. WTI shot above $55 per barrel to trade at its best level since the beginning of this year. However, both contracts slipped back from these levels following the latest US inventory update from the Energy Information Administration. This showed inventory declines in crude, gasoline and distillates although these reductions were significantly less steep than those recorded by the American Petroleum Institute the day before. But by the end of the week crude prices were consolidating and there appeared to be little appetite for profit-taking from buyers, apparently confident that prices may have further upside. This confidence comes from the expectation that OPEC’s World Oil Outlook (due out tomorrow) will reiterate the cartel’s view that global demand continues to grow while inventories are coming off record highs. Traders are also hoping that the OPEC meeting at the end of this month will see last year’s production cut agreement extended in duration, and possibly size as well. Crude also got a lift as Saudi Arabia’s future king instigated an anti-corruption purge over the weekend.

Gold and silver were little-changed on Friday morning ahead of the US Non-Farm Payroll release. Traders sat on their hands as they waited to see if there was going to be a bounce-back in payrolls following last month’s dismal reading. There was a decline of 33,000 jobs in September - well below the 82,000 increase expected - thanks to disruptions caused by hurricanes over the summer. The hope was that October would show an increase of around 312,000. Payrolls rose less than expected, with an increase of 261,000 last month although there were upward revisions to prior months totalling 90,000 jobs. However, the dollar sold off, and precious metals rallied, on news that wage growth stagnated in October. Analysts had anticipated a 0.2% increase in Average Hourly Earnings which should ultimately help the Fed hit its 2% inflation target. But both metals suddenly sold off later in the session as the dollar bounced back. The prevailing view is that the Fed will press on with monetary tightening and this may continue to weigh on precious metals.

Forex Update

·         US payrolls disappoint

·         Aussie dollar slips on weak Retail Sales

Friday saw a quiet start for FX as traders sat on their hands ahead of the US Non-Farm Payroll release. The only feature of a particularly barren morning session was a sell-off in the Aussie dollar. This followed the overnight release of Australian Retail Sales which came in unchanged for September and well below the +0.4% pick-up anticipated. The news saw the AUDUSD drop back below 0.7700 and the Aussie dollar continues to struggle ever since hitting a 28-month high at the beginning of September.

The dollar pulled back sharply after the release of the October Non-Farm Payroll number. This showed an increase of 261,000 which was well below the 312,000 consensus expectation. Average Hourly Earnings were flat for the month after rising 0.5% in September. Overall, this was a disappointing report which saw some analysts speculate that the Fed could hold back from hiking rates again next month. However, it didn’t take long for buyers to pour back in and push the Dollar Index up towards 95.00 again as the overriding view was that the Fed won’t be thrown off course by a disappointing payroll release.

Meanwhile, the British pound languished around the lows hit on Thursday which followed the Bank of England’s monetary policy meeting. Sterling sold off sharply even though the Bank raised rates by 25 basis points as expected. The pound had already rallied in anticipation of the move, and traders rushed to book profits after the Bank’s MPC insisted that any further rate rises would be gradual. The current forecast is for two 25 point rate hikes over the next three years. Sterling popped higher following the disappointing jobs data.

Upcoming events

Today’s significant events and economic data releases include Spanish, Italian, French, German and euro zone Services PMIs. We also have Euro zone PPI, Sentix Investor Confidence and Eurogroup Meetings. From the US we have Mortgage Delinquencies and a speech from Federal Reserve Bank of New York President William Dudley.

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Posted by David Morrison

Tagged: Dollar Gold Brent crudeoil equities

Category: AM Bulletin


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