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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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 Tuesday 24 October 2017

Earnings season in focus - AM Briefing

 

 

Early moves

·         Europe steady after Wall Street wobble

·         Caterpillar and GM report today

We’ve seen another mixed start across Europe this morning although all the majors have rallied off earlier lows. Investors were rattled by a late sell-off on Wall Street last night after there was speculation that General Electric (GE) may have to cut its dividend. Toy maker Hasbro also took a tumble as it warned that holiday season sales were likely to be depressed. This is due to its largest customer, Toys “R” Us going into bankruptcy.

The third quarter earnings season really steps up a gear this week with around a third of corporations in the S&P 500 due to report. These include some monsters including Alphabet (Google), Amazon, Boeing, Caterpillar, 3M and Twitter.  Caterpillar, 3M, Chipotle and GM are amongst today’s big hitters.

The general consensus is that earnings have been broadly positive and that has been reflected in the strength of the major indices. According to Thomson Reuters, of the 17% of S&P500 companies that have reported so far, 73% have beaten on both the top and bottom lines.

Stock Index Update

·         US indices pull back from record highs

·         GE slumps on dividend concerns

The Dow, NASDAQ and S&P500 all hit fresh record intra-day highs yesterday but suddenly reversed direction an hour before the close. All the majors ended Monday’s session lower as investors rushed to trim their exposure to US equities. The sell-off was triggered by a fall in GE’s (General Electric) share price which went on to post its biggest one-day decline in over six years. On Friday GE released a disappointing set of third quarter results. This led to a sharp 6% pull-back in pre-market trade. However, this had been completely reversed by the close of business as analysts predicted that the worst was now over for the company. However, there’s now speculation that the blue chip conglomerate may have to cut its dividend.

Most European stock indices ended yesterday’s session in positive territory, although gains were modest. The only exception was the Spanish IBEX which ended the session down around 0.5%. Investors remain cautious given the uncertain political situation across the Iberian Peninsula. 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.

Commodities Update

·         Oil consolidates

·         Gold stuck below $1,280

WTI and Brent prices were mixed yesterday with both contracts trading in narrow ranges. Brent managed to hold above $57 per barrel and so continues to trade above an area of resistance established between December and February. This may now become support although there’s no confirmation from WTI which is hovering around $52 per barrel - some way below its own resistance level from earlier this year which comes in around $54/54.50. The premium for Brent over WTI continues to hold around $5.50 where it has been since hurricanes hit Texas, Louisiana and the Gulf of Mexico back in the summer. This has confused the technical picture as the premium has rarely traded above $2.00 since late 2015. 

Fundamentally, crude continues to get support from a slowdown in US production and from supply disruptions thanks to hostilities in northern Iraq. Recent reports from major agencies also suggest that global demand is set to pick up next year. This should help to rebalance a market which has been chronically oversupplied for many years.

There was no let-up for gold and silver prices yesterday which once again came under selling pressure. Investors continue to shun the two precious metals as the dollar counter rally appears to have legs and as risk appetite remains elevated. A stronger dollar puts downside pressure on all dollar-denominated commodities as it makes them more expensive to buy for non-dollar holders. On top of this, there’s little demand for so-called “safe havens” when there appears to be little downside risk for equities and geopolitical tensions are lower than they have been for months. Yesterday gold appeared trapped underneath $1,280 while silver continues to hover around the $17 level.

Speculation continues to swirl around who Trump will choose as the next Chair of the Federal Reserve. It’s widely agreed that Janet Yellen will be replaced. At the beginning of last week Stanford professor and renowned hawk John Taylor was in the frame. However, by Friday the odds had shortened on current Federal Reserve Governor Jerome Powell. Mr Powell is understood to be the top choice of Treasury Secretary Steven Mnuchin.

Forex Update

·         Dollar closes in on resistance

·         USDJPY tops 114.00

The dollar rally continued for most of yesterday. Investors continue to cheer on the prospect of Trump pushing through his proposed tax reforms before the year-end and this is helping to lift confidence in the US economy. However, the greenback suffered an unexpected lurch lower last night as US equities suddenly sold off. Traders rushed to trim their exposure to the dollar until they could decide what caused the move. But there’s less concern this morning as the stock sell-off appeared to be sparked by concerns about GE, rather than something more general.

 It’s interesting that traders ignored a speech that Fed Chair Janet Yellen gave on Saturday. Dr Yellen said the Fed would have to return to bond purchases when the next downturn came. This was because “economic forces” had driven short-term interest rates to unnaturally low levels so there was little room to cut rates. At the time, most commentators felt that the dollar would sell off on her comments. However, it’s worth remembering that Dr Yellen is unlikely to still be Fed Chair after her term expires in February.

Nevertheless, the question remains whether the current dollar rally is a simple correction following a nine-month sell-off, or if we’ve now seen a turning point and the beginnings of a reversal? We may know more this week as the dollar approaches some important levels. The Dollar Index is closing in on 94.00 which marked a turning point for the basket around two weeks ago. If it can break above here and hold then the dollar could well have more upside. The corresponding level for the EURUSD comes in around 1.1670. This should act as support although technically this level doesn’t look as significant as the Dollar Index’s 94.00. The USDJPY broke above 114.00 yesterday posting its highest level since July. The biggest potential market-moving event is the ECB meeting on Thursday.

Upcoming events

Today’s significant events and economic data releases include French, German, Euro zone and US Flash Manufacturing and Services PMIs.  Also from the US we have the Richmond Manufacturing Index.

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Posted by David Morrison

Tagged: GOLD EURUSD equities CFD DJIA

Category: AM Bulletin


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