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Using the RSI in FX - Trading Guide
31 Jul 2017
HSBC share buy-back helps lift indices - AM Briefing
31 Jul 2017
Amazon triggers tech tumble - AM Briefing
28 Jul 2017
Fed reinforces dovish credentials - Video Update
27 Jul 2017
Facebook results boost NASDAQ - AM Briefing
27 Jul 2017
Crude breaks above resistance - PM Bulletin
26 Jul 2017
Equities rally on positive earnings - AM Briefing
26 Jul 2017
Look-ahead to tomorrow’s rate decision from the Fed
25 Jul 2017
Alphabet/Google falls 3% in after-hours trade
25 Jul 2017
Equities start the week on back-foot - AM Briefing
24 Jul 2017
Euro surges on “hawkish” comments from Draghi - AM Briefing
21 Jul 2017
Equities firmer ahead of ECB meeting - AM Briefing
20 Jul 2017
Europe firmer after late US rally - AM Briefing
19 Jul 2017
US Fed turns dovish - PM Bulletin
18 Jul 2017
Dollar slumps on US healthcare gridlock - AM Briefing
18 Jul 2017
Wall Street leads equity rally - AM Briefing
17 Jul 2017
US bank earnings in focus - AM Briefing
14 Jul 2017
Yellen flip-flops to reassure investors - AM Briefing
13 Jul 2017
Oil rallies, but volatility high - Video Update
12 Jul 2017
Yellen to testify in Washington - AM Briefing
12 Jul 2017
A look-ahead to Janet Yellen’s testimony - PM Bulletin
11 Jul 2017
Second quarter earnings in focus - AM Briefing
11 Jul 2017
Jobs data boost sentiment ahead of earnings - AM Briefing
10 Jul 2017
Investors nervous; Non-Farm Payrolls in focus - AM Briefing
07 Jul 2017
Non-Farm Payroll look-ahead - Video Update
06 Jul 2017
Investors shrug off FOMC minutes - AM Briefing
06 Jul 2017
Investors shrug off FOMC minutes - AM Briefing
06 Jul 2017
Look-ahead to FOMC minutes - Video Update
05 Jul 2017
Markets quiet and waiting for fresh guidance from US - AM Briefing
05 Jul 2017
Crude continues to push higher - PM Bulletin
04 Jul 2017
Dow closes at fresh record high - AM Briefing
04 Jul 2017
Positive start to second half of 2017 - AM Briefing
03 Jul 2017
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Early moves

·         US stock indices at record highs

·         FX quiet ahead of ECB meeting

European equities are sharply higher this morning as investors react to last night’s Wall Street rally. The Dow, S&P500 and NASDAQ all closed out at fresh record highs. Meanwhile, there’s comparatively little movement in FX so far today as traders prepare themselves for the ECB monetary policy statement and Mario Draghi’s subsequent press conference.

The ECB isn’t expected to surprise anyone when it releases its statement later today. Nevertheless, investors will focus on ECB President Mario Draghi’s press conference. The big question is whether he provides a bullish assessment of the ongoing Eurozone recovery and plays down weakening inflation, in other words, goes hawkish. Alternatively, he may highlight the lack of inflation which would be the dovish Draghi that we all know and love. This would lead investors to row back their expectations of bond purchase tapering early next year. The general consensus is that he won’t say too much. Mr Draghi is most likely to say nothing more than that the Governing Council discussed tapering at this meeting. If this is how it plays out, then the euro should pull back from current levels.

In Portugal last month Mr Draghi was unusually hawkish and seemed to pave the way for ECB stimulus reduction when he talked of "reflationary forces". The euro surged on the news until officials rushed to say Draghi had been misinterpreted. Nevertheless, Euro zone economic growth is surprisingly strong. But inflation is still some way below the ECB’s 2% target. The stronger euro and the recent decline in oil prices haven’t helped.

But the ECB has to be careful. The ECB’s balance sheet largest in world at $4.8 trillion (€4.2 trillion) - bigger than Bank of Japan’s and Fed’s at around $4.5 trillion each. Also, there are restrictions on the amount of bonds the ECB can hold of any one country or issue. This has already restricted the central bank’s purchases of Irish and Portuguese government bonds, and this is expected to affect German and other core countries early next year.

Stock Index Update

·         Dow, S&P500 and NASDAQ indices hit record highs

·         Investors decide earnings are “good enough”

European stock indices shot higher yesterday morning as investors responded to a late bounce-back on Wall Street on Tuesday night. But these early gains quickly evaporated as investors appeared reluctant to increase their exposure to European equities. However, there was a sudden rebound as sentiment picked up as Wall Street opened. US investors are managing to shrug off some indifferent second quarter results from the banking sector and President Trump’s failure to reform healthcare. Instead they responded to decent numbers from Morgan Stanley and a solid rally in tech stocks, thanks in part to a big move in Netflix on strong second quarter subscriber numbers. Vertex Pharmaceuticals soared 21% and helped push the S&P higher as a study into the efficacy of its cystic fibrosis drug showed remarkable results.

There were also a couple of better-than-expected economic data releases yesterday. Both Building Permits and Housing Starts were exceptionally strong, coming in well above expectations. By the close the Dow, S&P500 and NASDAQ all ended at fresh record highs.

Commodities Update

·         WTI and Brent hover around resistance

·         Gold and silver drift lower

Crude oil shot higher yesterday afternoon following the latest US inventory update from the Energy Information Administration (EIA). This showed a drawdown of 4.7 million barrels of crude - well above the 3.5 million barrel reduction expected. There were also large declines for gasoline and distillate inventories. Crude has been pushing higher since the beginning of last week. WTI is once again trading around resistance just above $47 while Brent is closing in on $49.80. These two levels mark the 50% retracements of the May-June sell-off which followed the last OPEC meeting in Vienna. This was when producers extended their timetable for output cuts but was unable to agree to reduce production by more than 1.8 million barrels per day (bpd). Since then, Ecuador has announced that it will start raising crude production this month. The country faces budget issues and is unable to meet its commitment to lower output by 26,000 bpd to 522,000 bpd. However, there have been a number of partially successful attempts to counter all this bearish news. Earlier this week sources within Saudi Arabia suggested the kingdom is preparing to cut exports by one million bpd.

Gold and silver drifted a touch yesterday afternoon, giving back some of their recent gains. The moves appeared to be little more than profit-taking, triggered in part by a modest pick-up in the US dollar. This in turn was linked to the euro which slipped ahead of today’s ECB meeting. Traders reduced their exposure ahead of the rate decision and ECB President Mario Draghi’s subsequent press conference. The thinking is that there’s always the danger of Mr Draghi being dovish and playing down the prospect of bond purchase tapering early next year. As the EURUSD hit a fresh 14-month high on Tuesday, there was plenty of scope for profit-taking. The pull-back in precious metals saw gold dip back below $1,240. It needs to consolidate above here over the next few sessions to have any chance of building on recent gains. Meanwhile, if silver is unable to hold above $16.20 then a move back to $16.00 can’t be ruled out.

Forex Update

·         Euro slips on profit-taking

·         Mario Draghi’s press conference in focus

The euro turned lower yesterday in a move which saw the EURUSD come off the 14-month high hit yesterday. Traders appeared to be trimming their positions ahead of today’s European Central Bank (ECB) rate setting meeting. Analysts don’t expect any change in monetary policy. However, there’s always a danger that ECB President Mario Draghi uses his press conference as an opportunity to dampen down expectations on bond purchase tapering. After all, it was just last month when the euro soared after he talked of "reflationary forces" and was upbeat about the prospects for Euro zone economic growth during a speech in Portugal. The euro surged on the news until officials rushed to say Draghi had been misinterpreted. The trouble is that Euro zone inflation remains well below the ECB’s 2% target and a stronger euro is deflationary. The consensus opinion is that Mr Draghi will say that the Governing Council discussed tapering its €60 billion per month bond purchase programme but will wait until its September meeting before it provides a roadmap.

Upcoming events

Today’s significant events and economic data releases include the Bank of Japan’s Monetary Policy Statement and press conference, UK Retail Sales and Euro zone Consumer Confidence. We also have the ECB rate decision followed by Mario Draghi’s press conference. From the US we have Weekly Jobless Claims.

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Posted by David Morrison

Category: AM Bulletin


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