Incisive market commentary from David Morrison

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GDP data in focus - AM Briefing
28 Apr 2017
ECB round-up and US GDP look-ahead - Video Update
27 Apr 2017
ECB meeting in focus - AM Briefing
27 Apr 2017
ECB's Rate Meeting, a look ahead - Video Update
26 Apr 2017
High hopes for Trump tax cuts - AM Briefing
26 Apr 2017
Global stock indices storm higher - PM Bulletin
25 Apr 2017
Indices mixed after firmer open - AM Briefing
25 Apr 2017
How to use Stop Losses in FX - Trading Guide
24 Apr 2017
French vote sees risk assets soar - AM Briefing
24 Apr 2017
Mixed European open despite Wall Street rally
21 Apr 2017
French Election in focus - Video Update
20 Apr 2017
French election and oil keep investors cautious - AM Briefing
20 Apr 2017
Equities off highs but still show resilience - Video Update
19 Apr 2017
Equities continue to drift lower - AM Bulletin
19 Apr 2017
Sterling soars on early UK election, but France the biggest concern
18 Apr 2017
Europe shrugs off US rally - AM Bulletin
18 Apr 2017
Trump's mouth sends dollar skidding lower - Video Update
13 Apr 2017
Dollar slumps on Trump comments - AM Bulletin
13 Apr 2017
Uncertain outlook ahead of holiday weekend - Video Update
12 Apr 2017
Equities recover after yesterday’s wobble - AM Briefing
12 Apr 2017
USDJPY approaching support - PM Bulletin
11 Apr 2017
Equities drifting in holiday-shortened week - AM Briefing
11 Apr 2017
Look-ahead to Janet Yellen’s speech this evening - PM Bulletin
10 Apr 2017
All eyes on G7 and Yellen - AM Bulletin
10 Apr 2017
US missile attack sends investors into “risk-off” mode - AM Briefing
07 Apr 2017
FOMC minutes rattle investors - Video Update
06 Apr 2017
Stunning reversal greets Fed minutes - AM Briefing
06 Apr 2017
ADP number points to big payroll beat on Friday - Video Update
05 Apr 2017
FOMC minutes in focus - AM Briefing
05 Apr 2017
US indices flag as first quarter ends - PM Bulletin
04 Apr 2017
Disappointing start to the new quarter - AM Briefing
04 Apr 2017
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Early moves

·         Little signs of recovery in FTSE100

·         Sunday’s French election remains big risk

European stock indices were mixed in early trade, but with a weaker tone overall. The FTSE100 continues to trade near yesterday’s lows which were levels not seen since early February. There is some mild support around 7,100 but the index will struggle to hold here should sterling continue to rally, or if there is another bout of weakness in global equities which is looking increasingly likely.

Yesterday’s announcement from Theresa May that she intends to hold a snap general election on 8th June led to the big moves in UK equities and sterling. However, the biggest political risk for investors is the French Presidential Election. The first round is held this Sunday and current polling suggests that the vote is wide open. This means there is a chance that Marine Le Pen and Jean-Luc Melenchon go through to face each other in the final vote in May. This would be a disaster for the EU as it would threaten the stability of the Euro zone itself. Both candidates are anti-Europe in their own ways.

On top of this, we have elevated geopolitical tensions surrounding Syria and North Korea. Add in the first quarter earnings season which has been less than stellar so far, the Trump administration’s inability to drive through legislation to bring in fiscal stimulus, disappointing US economic data and Fed tightening and it’s no wonder investors are thinking long and hard about cutting their exposure to equities.

Stock Index Update

·         FTSE slumps on surprise UK election call

·         Disappointing earnings from Goldman Sachs

Yesterday saw a sharp sell-off across European and US equities. US markets soared on Monday, apparently on relief that the long holiday weekend passed off without incident. However, European investors shrugged off these gains and so far there’s been little interest in “buying the dip.”

The FTSE100 was the biggest casualty amongst the major indices. This was down over 2% at one stage as sterling surged higher following Theresa May’s surprise call for a snap UK election. The FTSE100 is heavily-weighted towards corporations that make most of their profits overseas. Sales and earnings take a battering when sterling is strong.

There were also reports from the Pentagon that the US military is prepared to shoot down North Korean missile tests. This saw the dollar Index fall back below 100 as the 10-year US Treasury yield fell back below 2.20% for a second consecutive day.

On top of this US Treasury Secretary Steven Mnuchin told the FT that he agreed with President Trump’s view that dollar strength over the short-term would hurt US exports. However, he said that long-term dollar strength was a positive.

There was also a clutch of disappointing earnings reports out yesterday. Chief amongst these was Goldman Sachs earnings miss. Revenues came in at $8.03 billion on an expectation of $8.45 billion. Earnings per share came in at $5.15 against an expected $5.31 and revenue from equities trading fell 6% year-on-year.  The stock fell to its lowest level in five months and ended the day at $215.59down 4.7%.

Meanwhile Johnson & Johnson said revenues were $17.77 billion in the first quarter, well below estimates of $18.04 billion. Earnings per share came in at $1.83 against estimates of $1.77. Shares ended down 3.1% on the day.

Bank of America was one bright spot when it reported a strong first quarter, beating expectations for revenues and earnings. However, this wasn’t enough to lift the stock which ended 0.3% lower on the day.

Commodities Update

·         Crude prices edge higher

·         Large sell order sends precious metals reeling

The American Petroleum Institute (API) released its latest US inventory update after yesterday’s close. This showed an unexpectedly-large build in gasoline stockpiles which led to a sharp sell-off in both WTI and Brent although prices have subsequently recovered this morning. We get an official update on US inventories later today.

Last Thursday the International Energy Agency (IEA) released its latest monthly report. According to the IEA the global oil market is now close to balance after three years of excess supply. Output cuts by OPEC members and a number of other major oil producers have helped to offset a fall in demand growth from amongst the richest nations. At the same time, there’s some robust demand from developing nations such as India and China. But offsetting this to some extent is US production which continues to rise.

There was a fair amount of volatility in gold and silver yesterday although both metals began little-changed. This followed on from Monday’s session which saw both metals hit fresh multi-month highs before prices reversed sharply. Yesterday silver hovered around $18.40 for most of the morning, a level which has acted as resistance on a number of occasions since the end of February. Silver broke above here at the end of last week following President Trump’s dollar-negative comments. Meanwhile, gold was holding quite comfortably above $1,280. Then suddenly both metals slumped in mid-afternoon trade as a sell trade worth $3 billion hit the gold futures market. Gold recovered quickly, but silver struggled to climb back topwards$18.40.

Forex Update

·         Sterling soars on early election

·         Yen up on safe haven demand

The headline currency move yesterday was in sterling. The pound was weaker in early trade following the announcement that UK Prime Minister Theresa May planned to address the media outside Downing Street mid-morning. However, it shot higher after Mrs May called for a snap election on June 8th. The GBPUSD rose over 1.5% to hit its highest level since 6th December last year. The EURGBP lost a bit over 1% and on course to test support around the 0.8330 area. The news is seen as positive for sterling as the Conservative Party holds a substantial poll lead over Labour. The latest polls suggest that the Tories could extend their majority to around 100 seats from the current 17 if the election was held today. This would strengthen Theresa May’s position when it comes to negotiating the UK’s withdrawal from the EU. A victory for Mrs May would also give her a clear mandate to continue as Prime minister and with her own mandate, rather than the one inherited from David Cameron’s government.

The US dollar was weaker against all the majors, not just sterling. The sell-off followed reports from the Pentagon that the US military is prepared to shoot down North Korean missile tests. This saw the dollar Index fall back below 100 and the USDJPY slip further below 110.00. The yen continues to benefit from safe-haven demand as geopolitical tensions remain elevated. On top of this US Treasury Secretary Steven Mnuchin told the FT that he agreed with President Trump’s view that dollar strength over the short-term would hurt US exports. However, he said that long-term dollar strength was a positive.

Upcoming events

Today’s significant economic data releases and events include the Italian Trade Balance and Euro zone CPI. From the US we have Crude Oil Inventories and the Fed’s Beige Book.


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Posted by David Morrison

Category: AM Bulletin

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