Incisive market commentary from David Morrison

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Collapse 2017 <span class='blogcount'>(348)</span>2017 (348)
Collapse November <span class='blogcount'>(26)</span>November (26)
Markets drift ahead of weekend - AM Briefing
24 Nov 2017
US closed for Thanksgiving - AM Briefing
23 Nov 2017
Wall Street hits fresh record highs - AM Briefing
22 Nov 2017
The UK100 and sterling - PM Bulletin
21 Nov 2017
Equities drift in featureless trade - AM Briefing
21 Nov 2017
German coalition talks collapse - AM Briefing
20 Nov 2017
Quiet start after Wall Street surge - AM Briefing
17 Nov 2017
Global stock indices steady - AM Briefing
16 Nov 2017
Is this the start of a stock market correction? - Video Update
15 Nov 2017
Crude sell-off rattles investors - AM Briefing
15 Nov 2017
GBPUSD testing support - PM Bulletin
14 Nov 2017
Central bankers meet in Frankfurt - AM Briefing
14 Nov 2017
Sterling under pressure - AM Briefing
13 Nov 2017
Indices in retreat ahead of weekend - AM Briefing
10 Nov 2017
Could low volatility trigger a market correction? - Video Update
09 Nov 2017
All quiet on the Western Front - AM Briefing
09 Nov 2017
WTI crude surges through resistance - Video Update
08 Nov 2017
Investor inertia sees equities drift - AM Briefing
08 Nov 2017
Crude in demand - PM Bulletin
07 Nov 2017
Fresh record close for Wall Street - AM Briefing
07 Nov 2017
EURUSD shows clear “head and shoulders” - PM Bulletin
06 Nov 2017
Cautious start to trading week - AM Briefing
06 Nov 2017
Traders look ahead to Non-Farm Payrolls - AM Bulletin
03 Nov 2017
Traders look ahead Friday’s US Non-Farm Payrolls - Video Update
02 Nov 2017
BoE expected to raise rates - AM Briefing
02 Nov 2017
Equities soar on US corporate tax cut hopes - AM Briefing
01 Nov 2017
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Early moves

·         Merkel favours fresh German election

·         US Thanksgiving means shortened trading week

European stock indices drifted lower in early trade this morning as investors shrugged off last night’s rally on Wall Street and a firmer close across Asian Pacific markets. As yesterday, much of the focus is on how the political situation in Germany will unfold, given the failure of talks to form a coalition government over the weekend. It is understood that Chancellor Merkel now favours holding a fresh election rather than forming a minority government. Whether this is a bluff to encourage other parties to renew talks or a genuine statement of intent is impossible to know.

Investors are also looking ahead to the UK budget tomorrow while bearing in mind the holiday-shortened week due to US Thanksgiving on Thursday.

Stock Index Update

·         German coalition failure hits stocks

·         But indices bounce back despite continuing uncertainty

Yesterday saw a dramatic turnaround in European stock indices after a very uninspiring start to the session. All the majors were sharply lower ahead of the open as traders responded to weekend news that Germany’s major political parties had failed in their attempt to form a government. German Chancellor Angela Merkel has so far failed in her attempt to build a coalition between other parties following her disappointing showing in the election back in September. This now means there is a real possibility of a second general election. Some commentators feel this could only benefit the anti-EU, anti-immigration AfD party, or could see Frau Merkel herself stand down.

The German DAX was down around 1% in pre-open trade while the EURUSD lost around 0.6%. This weighed on the other European majors and also dragged down US stock index futures. However, prices bounced back remarkably quickly, leading some analysts to suggest that governments really don’t matter as far as financial markets are concerned. How this may play into Brexit negotiations (if at all) is far from clear. But there can be little doubt that the whole of the Euro zone would be rocked if Angela Merkel were to step aside. It also means that the Chancellor will have to devote most of her energies to domestic matters rather than bothering about EU integration and such-like.

Commodities Update

·         Crude oil drifts lower

·         Precious metals give back last week’s gains

Crude prices drifted lower for most of yesterday’s session after a modestly positive start. This follows on from Friday’s sharp rally which saw both WTI and Brent effectively make back all their losses from earlier in the week. Last Tuesday crude fell sharply after the International Energy Agency (IEA) cut its global demand growth outlook by 100,000 barrels per day (bpd) throughout 2017 and 2018. In addition, the IEA noted that US crude production was standing at a fresh record high while both the American Petroleum Institute (API) and Energy Information Administration (EIA) reported large stockpile builds in both crude oil and gasoline. Prices bounced back at the end of last week as short-sellers booked profits after the downside momentum faded. Yesterday we saw some of the froth get blown off Friday’s rally as investors now look ahead to next week’s OPEC meeting. There are hopes that OPEC and non-OPEC producers will agree to extend output cuts beyond March 2018. However, there has been talk that Russia may be unwilling to make an additional commitment.

Precious metals sold off yesterday giving back all of Friday’s gains and more. The losses were initially modest but then sped up as the euro declined (and dollar rallied) after German Chancellor Merkel said she favoured holding fresh elections.  Both gold and silver fell below $1,280 and $17 respectively, which, while not significant technical support levels, are still important as far as lifting sentiment is concerned. Both metals continue to be hemmed in by resistance. This comes in around $1,290 for gold and $17.20 for silver. Both metals need to break above these levels convincingly in order to rally into the year-end. That looked like a distinct possibility last week as equity markets sold off and investors appeared to lose their risk appetite, favouring safe havens. But the dollar is also important when it comes to direction in precious metals. At the end of last week the dollar was in retreat as concerns grew over the progress of the tax reform bill currently being considered by Senate Republicans. This bill is fundamentally different from the one that passed through the House last week and the fear is that Trump’s proposals won’t get a green light before year-end. This means a delay to the corporation tax cut which has been exciting investors over the last few months.

Forex Update

·         Euro slips as German coalition talks fail

·         Sterling continues to climb

The euro fell sharply against all the majors in early trade yesterday. This followed the news that coalition talks between Germany’s major political parties broke down over the weekend. This means that the country is still without a government despite holding a general election back in September. It also opens up the possibility that a fresh general election will have to be held. Some commentators are also predicting that it could lead to Chancellor Angela Merkel stepping down.

But the euro bounced off its overnight lows early in Monday’s European session even though it remained under pressure for the rest of the day. Meanwhile, the dollar made gains versus most of the other majors, although it was unable to make any headway against sterling. The British pound rallied sharply against both the dollar and euro, building on gains made last week. Technically, the GBPUSD is looking quite bullish with the 21-day exponential moving average (EMA) set to cross above the 55-day EMA. However, the upside may be limited unless the pair can break and hold above 1.3300 - a level that had as resistance in October and November this year. Last week the EURGBP turned sharply lower after topping out at resistance around 0.9000.

Sterling will continue to be in the spotlight this week as Chancellor Philip Hammond presents his budget tomorrow. It’s also a holiday-shortened week with US Thanksgiving on Thursday.

Upcoming events

Today’s significant events and economic data releases include UK Public Sector Net Borrowing, Bank of England Inflation Report Hearings and CBI Industrial Order Expectations. From the US we have Existing Home Sales and later on a speech from Federal Reserve Chair Janet Yellen.


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Posted by David Morrison

Tagged: Dollar CFD EURO Crude

Category: AM Bulletin

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