Incisive market commentary from David Morrison

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Collapse 2017 <span class='blogcount'>(348)</span>2017 (348)
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Tory Poll Lead Narrows Sharply - Video Update
31 May 2017
S&P 500 and NASDAQ break winning streak
31 May 2017
Sterling swings on polls - PM Bulletin
30 May 2017
Equities drift after long holiday weekend - AM Briefing
30 May 2017
Crude oil slumps on OPEC disappointment - AM Briefing
26 May 2017
OPEC disappoints while FOMC minutes provide cheer - Video Update
25 May 2017
OPEC expected to agree 9-month extension - AM Briefing
25 May 2017
Look-ahead to OPEC - Video Update
24 May 2017
Markets quiet ahead of FOMC minutes and OPEC - AM Briefing
24 May 2017
Crude oil update - OPEC meeting in focus - PM Bulletin
23 May 2017
Markets shrug off atrocity in Manchester - AM Briefing
23 May 2017
Equities mixed, but supported by oil
22 May 2017
Nerves steady after firmer close on Wall Street - AM Briefing
19 May 2017
Political fall-out continues to weigh on markets - Video Update
18 May 2017
Slide in European indices accelerates - AM Bulletin
18 May 2017
Trump’s woes hit markets - Video Update
17 May 2017
Trump’s woes lead to market wobble - AM Briefing
17 May 2017
EURUSD hits six-month high - PM Bulletin
16 May 2017
Crude oil extends rally - AM Briefing
16 May 2017
US inflation data and retail sales in focus - AM Briefing
12 May 2017
Crude oil recovers after “flash crash”- Video Update
11 May 2017
Crude oil soars while equities drift - AM Briefing
11 May 2017
Are investors too complacent? - Video Update
10 May 2017
Investors rattled after Trump fires FBI head - AM bulletin
10 May 2017
Crude oil’s “flash crash” leads to OPEC desperation - PM Bulletin
09 May 2017
Equities rally as oil steadies - AM Briefing
09 May 2017
Forex: Top Ten Tips for beginners - Trading Guides
08 May 2017
Markets little moved after Macron win - AM Briefing
08 May 2017
Payrolls in focus - AM Briefing
05 May 2017
NFP look-ahead - Video Update
04 May 2017
FOMC hints at rate hike in June - AM Briefing
04 May 2017
FOMC look-ahead - Video Update
03 May 2017
Apple disappoints on sales numbers - AM Briefing
03 May 2017
CFD Trading Tips - Trading Guides
02 May 2017
European traders return after May Day - AM Briefing
02 May 2017
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Early moves

·         OPEC agrees to 9-month extension

·         Crude oil steadies after slump

Most European stock indices were weaker first thing this morning, despite the S&P500 and NASDAQ closing at fresh record highs last night. This is not a complete surprise as the major US indices pulled back from their best levels around the European close. But it’s interesting to note that yesterday’s slump in crude oil had relatively little impact on Wall Street overnight, yet continues to weigh on Europe. This is proving to be particularly frustrating for investors who are being repeatedly told by commentators that the real value lies in European stocks as the US market is overvalued by many measures.

The issue seems to be that the upside momentum on Wall Street resides in a handful of US stocks. These include the old FANGs (Facebook, Amazon, Netflix and Google/Alphabet) together with Apple and Microsoft. These are widely held, and investors keep on piling in on a fear of missing out. As we have seen, this accounts for the fresh records being posted by the tech-heavy NASDAQ.

The general feeling is that the rally will continue for as long as the world’s major central banks remain accommodative. While the US Federal Reserve is tightening monetary policy, it’s clear that it will do so at a glacial pace. This view was reinforced by Wednesday’s FOMC minutes. At the same time, there’s still plenty of stimulus coming from the European Central Bank, Bank of Japan and People’s Bank of China. Investors look set to carry on “buying the dips” for as long as this situation continues.

Stock Index Update

·         European majors subject to profit-taking

·         OPEC disappoints - crude weaker

It was another mixed session for European stock indices yesterday. All the majors began in positive territory, responding to Wednesday’s gains on Wall Street and a strong Asian Pacific session. But it wasn’t long before traders sold and booked profits. The US majors held on to their gains throughout the European session with the NASDAQ and S&P500 both posting fresh record intraday highs. However, this wasn’t enough on its own to keep all of Europe in positive territory. Investors cut their exposure to energy stocks as crude oil began to slip. This followed reports that OPEC and non-OPEC producers were set to agree to a nine month extension to their output cut deal. While this was in line with the consensus expectation, it was still viewed as a disappointment. Some analysts expected oil producers to agree to cut output by more than the 1.8 million barrels per day agreed last November. The sell-off in crude accelerated after the news from OPEC was confirmed and this has continued to weigh on European equities this morning.

Commodities Update

·         OPEC extends output cuts as expected

·         Gold and silver drift as dollar rallies

Crude oil sold off sharply yesterday ahead of OPEC’s final communique at the end of its biannual meeting in Vienna. This followed news reports that the cartel together with a number of non-OPEC producers had agreed to extend their 1.8 million barrel per day output cut agreement by nine months. The cuts will now continue until the end of March 2018, much as expected. However, there was some disappointment that producers were unable to agree to make deeper cuts. There had been a suggestion that oil producers could cut further, or that previously exempted countries such as Libya and Nigeria may also be included in a fresh deal. Nevertheless, Saudi Arabia’s oil minister, Khalid Al-Falih, believes that the new deal will help rebalance the oil market by the year-end. He also said that the cartel wasn’t worried about an increase in US shale oil production taking market share. The trouble is that OPEC isn’t scheduled to meet again for another six months. Consequently, there are unlikely to be any fresh measures announced to support the oil prices, unless we see another melt-down.

Gold and silver struggled yesterday. Both metals were little-changed in early trade and then lost ground towards the European close. The two precious metals rallied a touch on Wednesday night following the release of minutes from the Federal Reserve’s last FOMC meeting. The minutes were initially viewed as quite dovish as they suggested that the Fed was wary of tightening monetary policy further until it was sure that the recent downturn in US economic data was transitory. The dollar sold off as a result. However, according to the CME’s FedWatch Tool, investors now believe there’s close to a 90% probability of a 25 basis point rate hike next month. On top of this, the minutes revealed that the reduction in the Fed’s balance sheet would be cautious and measured with a cap on how much would be rolled off each month. This helped to boost equity markets and to lessen the appeal of safe haven assets.

Forex Update

·         Dollar continues to struggle

·         Close to 90% likelihood of Fed rate hike in June

The dollar continues to struggle - at least as far as the euro is concerned. The EURUSD is trading close to multi-month highs, while the Dollar Index has found some support just below 97.00 but looks vulnerable to further losses. It’s currently trading around levels last seen at the beginning of November, just after the US presidential election. The greenback sold off on Wednesday evening following the release of minutes from the Fed’s last meeting earlier this month. These were initially viewed as being more dovish then expected. It appeared that FOMC members wanted to be sure that recent weakness in US economic data was transitory before committing to further monetary tightening. Despite this, the market now assigns a near-90% probability to a 25 basis point rate hike next month. The doubts come in concerning another move in September. But investors were cheered by Fed members’ comments concerning balance sheet reduction. The Fed is expected to announce limits on how much it will roll off each month without reinvesting. The plan is to reinvest any amount it receives in repayments that exceeds its cap limit.

Upcoming events

Today’s significant events and economic data releases include G7 meetings. From the US we have preliminary GDP, Durable Goods, Consumer Sentiment and Inflation Expectations.


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Posted by David Morrison

Category: AM Bulletin

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