Incisive market commentary from David Morrison

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EURUSD hovers around 1.1800 - AM Briefing
29 Sep 2017
Trump tax reform lifts Wall Street - AM Briefing
28 Sep 2017
What is the Fed trying to tell us? - PM Bulletin
27 Sep 2017
Yellen struggles with inflation - AM Briefing
27 Sep 2017
Can cable’s rally continue? - PM Bulletin
26 Sep 2017
Investors jittery after North Korean threat - AM Briefing
26 Sep 2017
EURUSD slips again - PM bulletin
25 Sep 2017
Merkel scrambles to form coalition - AM Briefing
25 Sep 2017
Caution ahead of weekend - AM Briefing
22 Sep 2017
Fed Meeting Post-Mortem - Video Update
21 Sep 2017
Fed signals another rate hike - AM Briefing
21 Sep 2017
Trading subdued ahead of Fed meeting - Video Update
20 Sep 2017
Fed expected to reduce balance sheet - AM Briefing
20 Sep 2017
FOMC and balance sheet reduction - PM Bulletin
19 Sep 2017
Dow hits fresh record high - AM Briefing
19 Sep 2017
EURUSD continues to trend higher - PM Bulletin
18 Sep 2017
Global indices storm higher - AM Briefing
18 Sep 2017
Investors shrug off NK missile test - AM Briefing
15 Sep 2017
Sterling soars after BoE meeting - Video Update
14 Sep 2017
Bank of England meeting in focus - AM Briefing
14 Sep 2017
Look-ahead to the BoE monetary policy meeting - Video Update
13 Sep 2017
Sterling bounces as inflation picks up - PM Bulletin
12 Sep 2017
Wall Street rally lifts sentiment - AM Briefing
12 Sep 2017
Euro storms higher - AM Briefing
08 Sep 2017
ECB meeting in focus - AM Briefing
07 Sep 2017
EURUSD soars during Draghi’s press conference - Video Update
07 Sep 2017
ECB meeting, a look-ahead to Thursday - Video Update
06 Sep 2017
Wall Street wobbles, but closes off lows - AM Briefing
06 Sep 2017
WTI recovering as clean-up continues - PM bulletin
05 Sep 2017
Investors shrug off North Korean threat - AM Briefing
05 Sep 2017
North Korean nuclear test boosts gold - PM Bulletin
04 Sep 2017
North Korea rattles markets - AM Briefing
04 Sep 2017
High hopes for the latest US jobs release - AM Briefing
01 Sep 2017
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 Thursday 07 September 2017

ECB meeting in focus - AM Briefing



Early moves

·         ECB: not ready to reveal stimulus reduction plans

·         Draghi may try to “talk down” euro

The ECB concludes its rate setting meeting later today. There had been hopes that this would provide the platform for ECB’s Governing Council to unveil plans to reduce its €60 billion per month bond purchase programme. However, last Friday we heard that ECB policymakers may not be ready to provide details of their strategy until December. No doubt Mario Draghi will have to field questions about this during today’s press conference. But even if he manages to bat these aside he may want to say something about the strength of the euro. The EURUSD has risen around 15% from the beginning of the year with around half of that coming since the end of June. This is a worry for the Governing Council as a stronger euro weighs on exports, encourages imports and dampens inflation. As with the US Federal Reserve, low inflation is holding back the normalisation of monetary policy. The last thing the ECB wants to see is the EURUSD break and consolidate above 1.2000. Yet any talk of reducing stimulus would put further upside pressure on the single currency. So there’s an expectation that Mr Draghi will try to keep a lid on the euro. If he doesn’t then the EURUSD could quickly spike back up above 1.2000 again.

Stock Index Update

·         Wall Street rallies on debt ceiling deal

·         Investors put North Korea to one side

Yesterday afternoon investors were taken by surprise after Stanley Fischer, Vice Chair at the Federal Reserve unexpectedly resigned. Dr Fischer is, along with Janet Yellen and Bill Dudley, one of the big three at the Fed. He cited “personal reasons” and will finish his stint on October 13th rather than June 2018 as scheduled. Despite this there was little market reaction. But US indices ended the session solidly in positive territory. This followed news that President Trump appears to have struck a deal over extending the debt ceiling with the Democrats in both the Senate and House.

European stock indices were softer in early trade yesterday morning, with investors unnerved by Tuesday night’s wobble on Wall Street. US traders returned from their Labor Day break and took the opportunity to cut their exposure to equities. This followed news of a North Korean nuclear test over the weekend which is being viewed as another provocation to the international community, if you can call it that. But the major US indices all managed to rally off their lows and so it didn’t take long for buyers to come in and take advantage of cheaper European stock prices.

Commodities Update

·         Oil recovers as US refiners reopen

·         Precious metals consolidate

Later today the Energy Information Administration (EIA) will release its latest update on US crude inventories. These were largely ignored last week as the data was compiled before Hurricane Harvey led to widespread disruption for producers and refiners. It will be difficult to make immediate sense of this afternoon’s data although we may have had some kind of “heads up” from last night’s American Petroleum Institute (API) release. Crude prices sold off despite a smaller-than-expected build in crude, suggesting that traders are still unsure how much faith to put in the data.

Both WTI and Brent spent most of yesterday’s session in positive territory. The two contracts were able to build on the sharp gains made on Tuesday which came on evidence of a gradual pick-up in US refining activity and subsequent short-covering. This should see demand for WTI recover although some analysts have suggested that the back-up in crude stockpiles due to refineries being out of action thanks to Hurricane Harvey will take time to unwind.

Gold and silver were relatively quiet yesterday. Both were firmer in early trade but then drifted lower as risk appetite picked up during the US session. Nevertheless, both metals continue to consolidate at higher levels as investors seem keen to hold exposure to both given current geopolitical uncertainty. The two precious metals have benefited from recent provocations from North Korea. Gold surged through resistance and the psychologically important $1,300 level after the rogue state lobbed a missile over Japanese territory at the end of August. It got another lift at the beginning of this week when North Korea undertook a sizeable nuclear test over the weekend. The test brought widespread international condemnation but no consensus over how to deal with North Korea and its problematic leader Kim Jong-un.

Forex Update

·         Traders focus on ECB meeting

·         Canadian dollar up on rate hike

Yesterday saw modest gains for the euro and a slight dip in the US dollar. Investors were mindful of some dovish comments from Fed members on Tuesday along with today’s ECB monetary policy meeting. Earlier in the week Federal Reserve Governor Lael Brainard said that the central bank should be cautious about tightening monetary policy until there was evidence that inflation was heading back towards the Fed’s 2% target. Her colleague Neel Kashkari said that rate hikes from the US central bank over the last eighteen months may be “doing real harm” to the US economy. But for the most part traders appeared unwilling to add to their exposure ahead of the ECB statement and Mario Draghi’s subsequent press conference. The central bank won’t be making any changes to monetary policy and has also made it clear that it’s not yet ready to release its strategy for tapering its bond purchase programme. However, it’s possible that Mr Draghi may comment on the euro which is up around 15% against the dollar so far this year.

The Canadian dollar soared yesterday afternoon following the Bank of Canada’s decision to hike rates by 25 basis points to 1.00%. Most traders were caught on the hop by this as the consensus expectation was that the Overnight Rate would be kept unchanged at 0.75%. Officials at the bank had to weigh up some unexpectedly strong economic growth numbers together with tightening from the US Federal Reserve against low inflation and a strong currency. Ultimately officials decided that Canadian growth was robust, broadly-based and self-sustaining enough to deal with a modest hike.

Upcoming events

Today’s significant events and economic data releases include German Industrial Production and Euro zone revised GDP. We also have an ECB monetary policy meeting followed by a press conference chaired by ECB President Mario Draghi. From the US we have Crude Oil Inventories.


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Posted by David Morrison

Category: AM Bulletin

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