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BoE expected to hike rates on Thursday - PM Bulletin
31 Oct 2017
Wall Street drifts on tax cut worries - AM Briefing
31 Oct 2017
USDJPY butting up against resistance - PM Bulletin
30 Oct 2017
Spanish IBEX rallies sharply - AM Briefing
30 Oct 2017
Risk appetite strong on earnings/ECB - AM Briefing
27 Oct 2017
ECB finally announces QE taper - PM Bulletin
26 Oct 2017
ECB expected to begin tapering - AM Briefing
26 Oct 2017
Earnings, UK GDP and US Durable Goods ahead - AM Briefing
25 Oct 2017
Earnings season in focus - AM Briefing
24 Oct 2017
Quiet start after record close on Wall Street - AM Briefing
23 Oct 2017
Wall Street reverses early losses-AM Briefing
20 Oct 2017
Equities slide as Catalan deadline approaches - AM Briefing
19 Oct 2017
Gold retesting 50-day moving average - PM Bulletin
18 Oct 2017
Dow surges above 23,000 - AM Briefing
18 Oct 2017
UK inflation data in focus - AM Briefing
17 Oct 2017
Gold and silver break out of downtrend - PM Bulletin
16 Oct 2017
Oil rallies on threat of fresh Iranian sanctions - AM Briefing
16 Oct 2017
US economic data in focus - AM Briefing
13 Oct 2017
FOMC Minutes Released Tonight - Video Update
11 Oct 2017
Spain’s IBEX jumps after Catalan speech - AM Briefing
11 Oct 2017
US dollar - correcting or recovering?
10 Oct 2017
Investors prepare for earnings season - AM Briefing
10 Oct 2017
Has gold broken its long-term downtrend? - PM Bulletin
09 Oct 2017
BoE meeting will decide what sterling does next - Video Update
01 Oct 2017
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 Wednesday 18 October 2017

Dow surges above 23,000 - AM Briefing

 

 

Early moves

·         Spanish IBEX falls on Catalan/Madrid stand-off

·         UK Average Earnings picking up

It’s proving to be another mixed start across for European stock indices this morning with a mixture of small gains and losses across the majors. The Spanish IBEX suffered a sharp fall in early trade following yesterday’s news that the Catalonian government is refusing to back down in its claim for independence, despite further pressure from Madrid. But the futures market is currently indicating a firmer open across Wall Street with the Dow powering above 23,000.

The latest update on the UK Unemployment Rate was unchanged from the previous month at 4.3%. The Claimant Count Change rose by 1,700 which was higher than the 1,300 expected but Average Earnings rose 2.2% from the same quarter a year ago – better than the +2.1% expected. This last bit of data should put more pressure on the Bank of England (BoE) to raise rates at next month’s meeting. However, investors continue to sell sterling following comments yesterday from BoE Governor Mark Carney. These were interpreted as being more dovish than expected, as he was vague about the timing of monetary tightening.

Investors are keeping an ear out for speeches from European Central Bank President Mario Draghi and his colleague and fellow Governing Council member Benoit Coeure. There’s always a chance, however slim, that either may reveal more on the ECB’s plan to taper its bond purchase programme early in the New Year. Last week there were reports that the ECB may reduce its monthly purchases to €30 billion from €60 billion while extending the duration of the programme by nine months. As currently configured, the programme is set to run until the end of this year.

Stock Index Update

·         Dow tops 23,000

·         Goldman Sachs releases quarterly results

Yesterday the Dow Jones Industrial Average briefly nudged above 23,000. It subsequently retreated but still managed to post a fresh record close. Banking stocks helped to halt the Dow’s rally following the release of results from Goldman Sachs. The bank posted earnings per share of $5.02 on revenues of $8.33 billion. These easily beat the consensus expectations of $4.17 and $7.54 billion respectively. Not only that, but the company said it was planning an $8.7 billion share buy-back. The share price rose initially but pulled back later in the session. Despite the stellar results, investors were concerned that revenues from trading in fixed income, currencies and commodities fell 40% over the quarter. Earlier in the day, banking rival Morgan Stanley reported third quarter revenues of $9.2 billion and earnings per share of $0.93. These both beat consensus estimates of $9.0 billion and $0.81 respectively and the share price went on to hit its highest level since the summer of 2008.

Commodities Update

·         API shows large crude draw

·         Gold closes in on $1,280

The American Petroleum Institute (API) released its latest update on crude inventories for the week ending 13th October. This showed a fall of 7.1 million barrels against an expectation of a 3.2 million barrel drawdown. This has to push WTI and Brent higher overnight.

Crude prices were a touch firmer in early trade yesterday as investors continued to react to news that Iraqi forces were taking on Kurdish fighters and had entered the city of Kirkuk. The concern is that ongoing hostilities will interrupt production in the oil-rich region of northern Iraq. Investors were also concerned over the heightened tensions between the US and Iran after President Trump announced on Friday that he was not prepared to formally certify that Iran is complying with the nuclear agreement. There is now the danger that the US will resume sanctions against Tehran although this will have to be debated and agreed by Congress over the next couple of months. But crude prices drifted lower later in Tuesday’s session in what appeared to be mild profit-taking following oil’s recent rally.

Yesterday gold and silver fell sharply for the second successive day and have now undone all the hard work by bullish investors undertaken last week. Gold closed in on support around the $1,280 level while silver briefly broke below $17 per ounce as investors rushed to dump the two precious metals as the dollar soared. The greenback is once again in favour, and this time it’s due to speculation that President Trump is preparing to replace Janet Yellen as Fed Chair with Professor John Taylor of Stanford. It is understood that Professor Taylor is considerably more hawkish in his outlook than Dr Yellen is considered to be. Of course, just because he’s hawkish now doesn’t mean he will still be once he’s ensconced at the Federal Reserve. And that’s assuming that he’s offered the position, let alone accepts it. Nevertheless, gold and silver will continue to struggle for as long as the dollar rally proceeds. However, if the US economic data shows signs of weakening with inflation still low, then the probability of a December rate hike will diminish and the dollar will come under selling pressure once more.

Forex Update

·         Dollar continues to make gains

·         Sterling gives back early gains

The dollar rallied sharply yesterday while the euro struggled to find much of a foot-hold. The greenback was in favour once again following a Bloomberg report that President Trump was looking to replace Janet Yellen as Fed Chair with the Stanford economics professor John Taylor. There’s a feeling that Professor Taylor will be far more hawkish in this role than Dr Yellen and this is underpinning the dollar to some extent as short maturity US bond yields rose. 

But it was the British pound which showed the greatest volatility yesterday. Sterling shot higher following the release of UK inflation data which picked up from the previous month. Headline CPI (which includes food and energy) rose by 3% when compared with this time last year. This means that inflation is now a full percentage point above the Bank of England’s 2% target, and bow stands at its highest level in over five years. Traders felt that this increased the probability of the Bank of England (BoE) raising rates at next month’s meeting. However, BoE Governor Mark Carney managed to dampen this expectation as he addressed the Treasury Select Committee. Mr Carney suggested that a rate rise could be justified over “the coming months.” While this doesn’t take November off the timetable, his comments were slightly more dovish than anticipated. This triggered a bout of profit-taking by holders of sterling.

Upcoming events

Today’s significant events and economic data releases include a speech from ECB President Mario Draghi. From the UK we have the Claimant Count Change, Unemployment Rate and Average Earnings Index. From the US we have Building Permits, Housing Starts, Crude Oil Inventories and the Fed’s Beige Book. We also have speeches from FOMC-voting members William Dudley and Robert Kaplan.

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Posted by David Morrison

Category: AM Bulletin


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