Incisive market commentary from David Morrison

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Collapse 2017 <span class='blogcount'>(348)</span>2017 (348)
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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

·         Trump agenda in trouble

·         US/North Korean tensions set to rise?

European equities and US stock index futures have begun today’s session on the back foot. This follows yesterday’s sharp sell-off on Wall Street which saw the major indices log some of their biggest daily losses so far this year. The move mimics that from last week. Back then investors dumped equities after President Trump responded to North Korea’s threat to fire missiles towards Guam with a couple of bellicose tweets. This time round investors have a clutch of excuses for cutting their exposure to equities. Most immediately is the apparent melt-down of the Trump administration as policymakers and insiders rush to damn the president for his comments over the violence at Charlottesville. The concern is that Trump has managed to alienate so many people now that he will never garner the support to push through his promised agenda of tax cuts, regulatory reform and infrastructure spending. Secondly, there are the Spanish terrorist atrocities to consider, something which unnerves confidence in the current febrile atmosphere. Thirdly, there’s every chance that geopolitical tension builds again as the US and South Korea undertake military manoeuvres in the Pacific next week. Finally, the second quarter earnings season is drawing to a close with a raft of disappointing retail numbers. All-in-all, this seems like a good time to book profits, cut back one’s equity exposure and wait for a better opportunity to reinvest.

Stock Index Update

·         Indices slump on US political woes

·         Investors find excuses to cut back exposure

European stock indices drifted lower in early trade yesterday giving back some of the impressive gains made on Wednesday. But there was a sudden downward lurch mid-afternoon which was triggered by a sell-off across the US majors. This came as a rumour circulated that Gary Cohn was set to resign from his role as director of the National Economic Council. Mr Cohn is viewed as one of President Trump’s strongest economic appointments and has been hotly tipped as a possible replacement for Janet Yellen as Chair at the Federal Reserve. However, it was understood that he was unhappy with the president’s comments concerning the violence during protests in Charlottesville and was quitting the administration. The story was soon denied. However, investors are feeling rather jittery at present. This comes against the background of tensions between the US and North Korea (which could build again when the US/South Korea engage in military manoeuvres next week) and as Trump disbanded two councils as business leaders resigned in protest over his comments. On top of this the earnings season is winding down and we’re seeing some disappointing numbers from retailers. Then we’re in the last few weeks of summer with no real distractions apart from the Jackson Hole Economic Symposium which kicks off on Thursday.

Commodities Update

·         WTI tests support around $47

·         Precious metals rally on risk aversion

Crude was mixed yesterday with both WTI and Brent fluctuating between positive and negative territory. Nevertheless, the trading ranges were relatively narrow and this marked a brief period of consolidation following the volatile price action earlier in the week. Crude has come under a degree of selling pressure this week as a number of factors played into the supply/demand picture. Firstly, data on Monday showed a slowdown in Chinese refining activity, suggesting that demand from the world’s second largest economy may be slowing down. Then on Wednesday the US Department of Energy showed that US production rose to hit its highest level in over three years. There were bigger-than-expected drawdowns in US crude inventories, but these were largely offset by builds in stockpiles of gasoline and at the Cushing, Oklahoma hub. Technically, WTI is testing support around the $47 level. This marks the 50% retracement of the May-June sell-off. Support for Brent comes in around $49.70/50.00.

Gold and silver were a touch higher in early trade yesterday, managing to build on the substantial gains made on Wednesday. Both ceded some ground later in the session but nevertheless, this was still quite a respectable performance from the two precious metals which have seen considerable volatility of late. At the beginning of the week both metals were trading up at highs last seen in early June. The gains came in response to rising tensions between the US and North Korea after President Trump responded to a missile threat with some inflammatory tweets. However gold and silver fell back sharply after the threat levels decreased when Kim Jong-Un postponed firing missiles towards the US Pacific territory of Guam. But both subsequently bounced back as the Trump administration ran into further controversy after the president disbanded two high profile business councils. They got further support following the release of dovish minutes from last month’s FOMC meeting and as Trump’s administration comes under fire from all quarters.

Forex Update

·         Euro sells off after ECB minutes

·         Governing Council warns of euro strength

The euro succumbed to sustained selling pressure yesterday morning in a move that saw the EURUSD hit its lowest level in three weeks. The pull-back followed the release of the account from the European Central Bank’s (ECB) meeting last month. The minutes showed that the Governing Council expressed concern about “the risk of the exchange rate overshooting in the future.” This is highly significant as it follows on from the Reuters story from Wednesday which said that Mario Draghi wouldn’t be announcing any policy changes at the Jackson Hole Economic Symposium next week. Investors rushed to cut back their exposure to the euro which has rallied sharply over the course of this year. At the beginning of January the EURUSD hit a fourteen-month low. But the pair subsequently rallied 15% to the beginning of this month when it came close to breaching 1.2000. There’s now a feeling that the ECB may not be in a great hurry to taper its €60 billion per month bond purchase programme (even as it runs out of eligible bonds to buy) for fear of driving up the euro and making exports uncompetitive. The news helped to offset a sell-off in the US dollar which followed on from the release of minutes from the last FOMC meeting in July. These were released on Wednesday and showed that members were split on their outlook for inflation. Some members were concerned at how difficult it was proving to lift Core PCE towards the Fed’s 2% target.

Upcoming events

Today’s significant events and economic data releases include the Euro zone Current account and Canadian CPI. From the US we have Consumer Sentiment, Inflation Expectations and a speech from Federal Reserve Bank of Dallas President Robert Kaplan.


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Posted by David Morrison

Category: AM Bulletin

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