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Non-Farm Payroll look-ahead - Video Update
31 Aug 2017
Tech stocks lead market recovery - AM Briefing
31 Aug 2017
Fall-out from Jackson Hole - Video Update
30 Aug 2017
Investors shrug off North Korean missile launch - AM Briefing
30 Aug 2017
Gold breaks through $1,300 - PM Bulletin
29 Aug 2017
Equities slide after North Korean missile launch - AM Briefing
29 Aug 2017
Yellen and Draghi in focus - AM Briefing
25 Aug 2017
Jackson Hole look-ahead to key speeches - Video Update
23 Aug 2017
Wall Street surges on tax reform hopes - AM Briefing
23 Aug 2017
Euro slips, but range-bound ahead of Jackson Hole - PM Bulletin
22 Aug 2017
Equities recover in early trade - AM Briefing
22 Aug 2017
Equities under pressure as Trump struggles - AM Briefing
21 Aug 2017
Equities fall as investors find reasons to sell - AM Briefing
18 Aug 2017
ECB and FOMC minutes lead to FX volatility
17 Aug 2017
FOMC minutes viewed as dovish - AM Briefing
17 Aug 2017
FOMC minutes in focus - Video Update
16 Aug 2017
Fed minutes in focus - AM Briefing
16 Aug 2017
Sterling slips as inflation steadies - PM Bulletin
15 Aug 2017
Equities continue to recover - AM Briefing
15 Aug 2017
Gold: triple top or third time lucky? - PM Bulletin
14 Aug 2017
Stocks bounce as geopolitical risk eases - AM Briefing
14 Aug 2017
Bank of England rate decision in focus - AM Briefing
03 Aug 2017
Crude breaks above resistance - PM Bulletin
02 Aug 2017
Apple rallies 6% on strong report - AM Briefing
02 Aug 2017
Cable breaks above 1.32000 - PM Bulletin
01 Aug 2017
Apple to report after the close - AM Briefing
01 Aug 2017
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Early moves

·         Wall Street posts significant gains

·         Dollar up on Dudley comments

The major European stock indices were all firmer in early trade this morning, although they had all pulled back from their best levels within an hour of the open. The early mark-up was a direct response to last night’s sharp rally on Wall Street which saw substantial gains for the Dow, S&P500 and NASDAQ. The US indices bounced back sharply from last week’s sell-off as tensions eased between the US and North Korea. Firstly, it helped that senior members of the Trump administration took to the media to assure people that war with North Korea was not “imminent.” Secondly, President Trump held back from launching a further round of bellicose tweets. Thirdly, it appears that North Korea’s leader Kim Jong Un is prepared to delay plans to fire missile towards the US territory of Guam, the threat of which stirred Trump’s angry outburst in the first place.

The result of all this is a sharp pull-back in precious metals and a rally in equities. We’ve also seen the dollar push higher after comments from New York Federal Reserve President William Dudley. The senior FOMC member said last night that it wasn’t unreasonable for the Fed to hike rates again this year and start to trim its balance sheet. This suggests that the Fed is less worried about tepid inflation than previously thought.  

Stock Index Update

·         Stock indices soar

·         Investors refuse to contemplate outbreak of hostilities

US and European stock indices soared yesterday. Investors took advantage of last week’s modest pull-back (and an uneventful weekend) to load up on equities at slightly lower prices than were available a few days ago. This is not to trivialise the news that caused Thursday’s sell-off. After all, the prospects of a full-blown shooting match between the US and North Korea with the danger that it could go nuclear is not something to take lightly. However, when one puts it like that, the main takeaway from last week’s price action must be how restrained was the overall behaviour of market participants. Despite the aggressive rhetoric from President Trump and North Korea, the bottom line is that most investors really aren’t pricing in any possibility of outright hostilities. And those that are must be using the Iraq war as their template and discount any possibility of use of nuclear weapons. As noted yesterday morning, it’s still a long time since equities saw any sizable downside correction, and last week’s move really doesn’t count. But as a consequence the charts show that there’s been no technical damage done. This should give the bulls the confidence to push equities higher.

Commodities Update

·         Crude slumps in late trade

·         Gold falls back below $1,280

Crude oil fell in early trade yesterday, then gradually recovered during the afternoon session only to plunge ahead of the European close. Traders initially marked prices lower following news of a slowdown in Chinese refining activity. Early on Monday Bloomberg reported that China’s oil refining in July dropped by the biggest amount in three years suggesting that there could be a reduction in demand for crude oil from the world’s second largest economy by GDP. Chinese refineries processed around 10.7 million barrels per day in July - some 0.5 million barrels per day fewer than in June. There was also a clutch of disappointing economic numbers out of China. Industrial Production rose 6.4% annualised in July, well below last month’s 7.6% and the consensus expectation of 7.1%. Retail Sales and Fixed Asset Investment also disappointed.  WTI has spent the last couple of weeks attempting to break and hold above $50 per barrel. Late yesterday the bulls suddenly capitulated and prices of WTI slumped below $48 per barrel. This sets up the possibility of a further pull-back towards $46.

Gold and silver were sharply lower in early trade yesterday. Investors rushed to reduce their long-side exposure following an uneventful weekend. There was widespread relief that the geopolitical situation didn’t escalate after Trump’s tweet on Friday when he warned that military solutions were “fully in place, locked and loaded should North Korea act unwisely.” Investors also took heart from comments made by senior members of the Trump administration who insisted that war with North Korea wasn’t imminent. Gold and silver recovered a fair proportion of their losses as the trading day proceeded. But there was a sharp sell-off soon after the European close. It felt as if the speculative longs who piled in to the safe havens last week suddenly decided to ditch their positions and increase their exposure to riskier assets. Both metals have ceded more ground overnight.

Forex Update

·         Dollar spikes higher

·         US/North Korean tensions ease

The US dollar rallied modestly yesterday afternoon before spiking higher soon after the European close. The greenback lost ground in the latter half of last week as tensions escalated between the US and North Korea. President Trump upped the ante with some fierce rhetoric after the North Koreans threatened to fire missiles in the general direction of Guam, a US territory in the Pacific. This led to strong gains for traditional “safe-haven” currencies - the Japanese yen and Swiss franc. These both benefit in times of stress as investors buy back these low-yielders which they had previously sold (borrowed) to finance riskier speculative trades. Of course, the US dollar is the ultimate safe haven trade as investors favour its depth and liquidity when the chips are down. However, when the US itself is in focus in times of uncertainty (as it is now) it is the Swiss franc and Japanese yen which see the sharpest inflows. Yesterday both fell as investors recovered their confidence after a quiet and uneventful weekend.

Upcoming events

Today’s significant events and economic data releases include UK CPI, RPI, HPI and the Conference Board Leading Index. From the US we have Retail Sales, the Empire State Manufacturing Index, Import Prices and Business Inventories.

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Posted by David Morrison

Category: AM Bulletin


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