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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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Early moves

·         Dow outpaces other US indices

·         UK GDP and US Durable Goods in focus

There was another dull start to the trading day this morning as investors struggled to find anything that fired their imaginations. European indices and US stock index futures were mixed as the markets digest yet another fresh record close for the Dow. However, yesterday’s performance which saw sharp gains for the Dow but relatively little movement on the other US majors simply highlighted the difference in the ways the indices are calculated. Close to 90% of the Dow’s gains were attributed to Caterpillar and 3M. This comes about as the Dow is price weighted while other major indices are weighted by market capitalisation. In a price weighted index a $1 move on a $200 stock has a similar effect on the index as a $1 move on a $10 stock. In this way, moves in a single stock can have a dramatic effect on the overall price-weighted index.

There are more earnings reports due out today with Lloyds Banking Group, GlaxoSmithKline, Boeing, Coca-Cola and Visa amongst the most high profile. We also have the first look at third quarter UK GDP which could have some bearing on next month’s Bank of England meeting. There is growing speculation that the Monetary Policy Committee is getting ready to raise rates by 25 basis points. We also have US Durable Goods later today.

Stock Index Update

·         Dow soars to fresh record close

·         Gains driven by Caterpillar and 3M

European equities were mixed in early trade yesterday while US stock index futures had a slight positive bias following Monday night’s sell-off. However, we saw a pick-up as the US open approached thanks to yet another triple point rally in the Dow Jones. The index ended the day up around 0.7% or 170 points closing out at yet another fresh record after Caterpillar and 3M released their latest results. Gains in these two stocks alone accounted for around 150 points or 88% of the Dow’s rise. In contrast, both the S&P500 and NASDAQ100 were little-changed in early trade and ended the session only modestly higher.

Caterpillar reported earnings per share of $1.95 on revenue of $11.41 billion. This was against expectations of $1.27 per share and $10.65 billion respectively. The stock rose around 6% ahead of the open. 3M posted similar gains after it reported earnings per share of $2.33 on revenue of $8.17 billion. Again, this was comfortably above the $2.21 and $7.93 billion expected.

The news overshadowed concerns expressed on Monday that General Electric (GE) may have to slash its dividend following the release of a dismal set of results last Friday.

The Spanish IBEX bounced back unexpectedly yesterday. This came despite a threat from the Spanish government to “discipline” Catalonian citizens (starting with separatist leaders) who engage in civil disobedience following the vote in favour of independence from Spain at the beginning of the month. Over the weekend Spanish Prime Minister Mariano Rajoy said he planned to impose direct rule over Catalonia as the region appears intent on pushing ahead with independence. This follows the referendum on 1st October which Madrid insists was illegal. Senor Rajoy is looking to remove the current Catalonian government and call an election within the next six months. Quite what this will achieve is another matter, given Catalonia’s growing antipathy towards Madrid following the aggression shown by police under the Spanish government’s instruction.

Commodities Update

·         Crude continues to consolidate

·         Precious metals decline again

Crude oil struggled for direction yesterday. Both WTI and Brent were in consolidation mode for most of the session but spiked higher after the European close. Brent continues to trade above $57 and its 21-day Exponential Moving Average (EMA) appears to be acting as support. It has been a similar story for WTI which is also holding above its own 21-day EMA while consolidating around $52 per barrel. Both contracts have rallied sharply since late June after hitting multi-month lows. WTI is up around 24% since the summer while Brent has tacked on over 28% in the same period. Prices recovered as it became apparent that global demand growth for crude was accelerating faster than previously expected and as US shale production declined. It now looks as if global stockpiles are set to decline after years of oversupply. However, some traders feel that the crude market has relatively little more upside from here, unless it gets another fundamental boost. That could come from next month’s OPEC meeting if there’s an agreement between OPEC and non-OPEC producers not only to extend the duration of their output cut beyond next March, but also increase it above 1.8 million barrels per day.

Gold and silver sold off sharply again in early trade on Monday. However, both subsequently bounced later in the US session after the dollar took a tumble. This came as there was an unexpected sell-off across US equity markets which began an hour before Monday’s close. This followed speculation that General Electric may be forced to cut its dividend following the release of a set of dismal third quarter results on Friday. But yesterday saw the price of both metals decline once again. Gold continues to struggle to find a foothold back above $1,280 while silver now appears stuck below $17. As before, the ongoing rally in the dollar is putting downside pressure on the two precious metals while the strength of equity markets (particularly in the US) is dampening the demand for “safe havens” as risk appetite is strong.

Forex Update

·         AUD slips on weak inflation data

·         EURUSD consolidating

The Australian dollar fell sharply overnight following the release of inflation data. Headline CPI rose 0.6% over the third quarter - well above the +0.2% print from the prior period, but below the +0.8% expected. The Trimmed Mean CPI also came in below forecast. The data makes it less likely that the Reserve Bank of Australia will look to tighten monetary policy further before the year-end. But perhaps more germane, it is further evidence that inflation (as measured by accepted methods) appears to be slipping in many economic areas around the globe. This suggests there are particular dangers as a number of major central banks look to tighten monetary policy.

Yesterday saw both the dollar and the euro make gains versus the other majors. This left the EURUSD itself little-changed for most of the session, although with a slight upside bias. However, other currencies had a tough time of it with sterling, the yen and Swiss franc all posting significant losses over the session.

Investors are on tenterhooks as President Trump could announce his choice for Federal Reserve Chairman anytime now. It remains possible that the current Chair Janet Yellen could be reappointed. However, the consensus expectation is that the position will go to Fed member Jerome Powell. Other candidates include Kevin Warsh, John Taylor and Gary Cohn. There’s also been some suggestion that John Taylor, Stanford economics professor and devisor of the eponymous “Taylor Rule” would make a solid Vice-Chair. This would replace Stanley Fisher who left the post last week. Whether Professor Taylor would accept the role if offered is another matter.

Earlier in the day we saw Flash Manufacturing and Services PMIs from the Euro zone, Germany and France. These were generally better-than-expected, with the exception of German and Euro zone Services which were disappointing. Nevertheless, all remain well over the 50 threshold, indicating ongoing expansion across the sector.

Upcoming events

Today’s significant events and economic data releases include the German Ifo Business Climate survey and UK Preliminary GDP. From the US we have Durable Goods, New Home Sales and Crude Oil Inventories.  

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Posted by David Morrison

Tagged: Dollar Trump EURUSD Bullmarket DJIA

Category: AM Bulletin


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