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Markets drift ahead of weekend - AM Briefing
24 Nov 2017
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The UK100 and sterling - PM Bulletin
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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
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Investor inertia sees equities drift - AM Briefing
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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
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 Wednesday 15 November 2017

Crude sell-off rattles investors - AM Briefing

 

 

Early moves

·         European equities in retreat

·         Nikkei and Shanghai Composite slide

There’s a whiff of uncertainty around financial markets this morning after a softer close on Wall Street and some sharp falls across Asian Pacific markets. The Japanese Nikkei fell around 1.6% overnight while the Shanghai Composite closed around 0.8% lower after falling 0.5% in Tuesday’s session. The sell-off has been blamed on the release of weaker-than-expected Chinese data (see “Stock Index Update” below) and this has been compounded by a sharp pull-back in crude oil. Yesterday WTI fell around 2.8%. Traders were particularly concerned by a report from the International Energy Agency (IEA) which forecast weaker than expected global demand growth going forward. This report completely contradicted the predictions of an OPEC report from the beginning of the week.

Stock Index Update

·         Sharp losses across Asian Pacific indices

·         GE continues to slide

Yesterday morning European stock indices pushed higher as investors chose to ignore a clutch of disappointing Chinese economic data releases. China’s Retail Sales rose 10% year-on-year, well below both the +10.5% expected and the prior month’s reading of +10.3%. This was the weakest reading on retail sales since early 2006. Meanwhile, Industrial Production rose 6.2% annualised, just missing the +6.3% anticipated but well below September’s +6.6% reading. Fixed Asset Investment also disappointed hitting its lowest level since February 2000. The news saw the Shanghai Composite lose 0.5% and Chinese bonds also declined. The index sold off again overnight, ending this morning’s session around 0.8% lower. Meanwhile, the Japanese Nikkei suffered another sharp decline falling 1.6% overnight.

The major Wall Street indices all ended modestly lower yesterday, but well above the lows of the session. But it was notable that shares in General Electric continued their decline following the 50% dividend cut announced on Monday. Last night the stock ended down 5.9% and previously traded at their lowest level since 2011.

Commodities Update

·         Crude slumps on IEA report

·         Gold pushes back above $1,280

Last night the American Petroleum Institute (API) released its latest US inventory update. This showed a 6.5 million barrel build in crude. The consensus forecast was for a 2.4 million barrel reduction. Gasoline stockpiles were also higher than anticipated, registering their biggest build in three months. The Energy Information Administration (EIA) will release its own numbers later today and traders will be watching closely to see if these confirm last night’s API release.

Oil prices were already lower ahead of the inventory update. Investors cut their exposure following the release of the International Energy Agency’s (IEA) annual World Energy Outlook. It has forecast that the US is set to become the "undisputed" leader in global oil production. Output growth through to 2025 is predicted to be the strongest seen by any country in the history of crude oil markets. Technological advances in US shale production should lead to growth of 8 million barrels per day (bpd) during 2010-25, and this will account for 80% of the increase in global supply over the period. The IEA also updated its outlook for global oil demand growth. The agency cut its demand growth outlook by 100,000 bpd throughout 2017 and 2018. This was in stark contrast to Monday’s OPEC forecast which expects global demand growth of 74,000 bpd to 1.53 million bpd. There was some mild profit-taking which escalated into a more significant sell-off which has continued into Wednesday’s trade.

Gold and silver came under concerted selling pressure early yesterday despite a sharp pull-back in the US dollar. Investors appeared nervous about taking on additional long-side exposure which isn’t surprising given the sudden, sharp downside moves that have randomly occurred over the last few months. On Monday both metals tanked on the back of an indiscriminate sell order (10% of average daily volume in one order) in the US gold futures market which resulted in the gold price falling $10 (or just under 0.8%) in just fifteen minutes. Silver lost 2% over a similar timeframe. But yesterday both precious metals rallied off their lows ahead of the European close on a modest “safe haven” move. This came as there was a widespread sell-off across US and European indices while crude oil also fell sharply. Gold nosed back above $1,280 while silver crept back above $17 per ounce.

Forex Update

·         EURUSD surges above 1.1800

·         GBPUSD continues to show resilience

The euro shot higher yesterday in a move which took the key EURUSD currency pair back above 1.1700 for the first time in three weeks. It has built on those gains this morning and was above 1.1800 at the time of writing. The last time the euro was up here was just ahead of the ECB monetary policy meeting. Back then the euro fell sharply after the central bank raised its bond purchase programme by €270 billion. The single currency has had a lift from some positive German economic data earlier in the week. But the dollar is also coming under pressure as President Trump’s tax reforms appear to be sliding away into the distance. Meanwhile, the Japanese yen is in demand thanks to a loss of risk appetite as global equity markets come off recent highs.

Sterling fell sharply yesterday morning following the latest update on UK inflation. Headline CPI (which includes food and energy) rose 3.0% annualised in October. This was unchanged from the prior month and below the +3.1% reading anticipated. Core CPI and the old style RPI inflation measure also came in below expectations. Investors rushed to dump sterling as they calculated that inflation may now have peaked, reducing pressure on the Bank of England (BoE) to raise rates again next year. Earlier this month the BoE hiked rates by 25 basis points and indicated a further 50 basis points-worth of monetary tightening over the next three years. Investors also seemed nervous of holding sterling while a two-day parliamentary debate on the UK’s Brexit Bill takes place. The debate is scheduled to conclude later today. However, it’s worth noting that the pound is holding up pretty well against the US dollar. So far, support has been holding around an upwardly-trending support line (currently coming in around 1.3100) that has been building since October last year.

Upcoming events

Today’s significant events and economic data releases include a speech from FOMC-voting member Charles Evans. From the UK we have the latest Claimant Count Change, Unemployment Rate and Average Earnings Index. From the US we have CPI, Retail Sales, the Empire State Manufacturing Index, Mortgage Delinquencies, Business Inventories and Crude Oil Inventories.

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Posted by David Morrison

Tagged: Dollar crudeoil EURO Crude

Category: AM Bulletin


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