Incisive market commentary from David Morrison

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

·         S&P500 hits fresh record high

·         Fed meeting in focus

European stock indices were mixed first thing but then turned sharply higher soon after the open. There is a definite rekindling of risk appetite as the second quarter earnings season steps up a gear this week. Yesterday brought a clutch of strong numbers from the likes of General Motors, Caterpillar and MacDonald’s. These reports helped to offset some disappointment after Alphabet, Google’s parent company, reported a sharp rise in customer acquisition costs and a decline in “costs per click” (the amount advertisers pay for ad clicks). There were concerns that such signs that revenue growth may now be harder to come by may not bode well for other tech giants who depend on advertising sales income. Facebook posts results after the close tonight with Amazon and Twitter reporting tomorrow.

Aside from earnings, investors will also pay close attention to tonight’s FOMC statement following a two-day meeting of the US Federal Reserve. The Fed is expected to keep rates unchanged. However, analysts will be studying the statement closely for clues over future Fed action. This is particularly important now as the central bank performed an unexpected hawkish/dovish pivot mid-month when Fed Chair Janet Yellen testified before policymakers in Washington.

Stock Index Update

·         S&P500 posts fresh record close

·         German business sentiment at record highs

US indices made solid gains yesterday in a move which saw the S&P500 close out at a fresh record high. The Dow also posted solid gains and hit an intra-day record high before pulling back from its best levels. The moves were driven by a slew of positive earnings stories with strong results from stalwart US corporate giants such as Caterpillar, General motors and McDonald’s. The NASDAQ also posted a modest gain having recovered early losses following disappointing news from alphabet, Google’s parent company. The tech bellwether posted earnings per share of $5.01, well above the $4.45 expected. Likewise, revenues were strong coming in at $26.01 billion against a consensus forecast of $25.64 billion. However, the stock closed 2.9% lower on the day. Investors were concerned that revenue growth is going to be more expensive going forward. Two key performance metrics came in weaker than expected. “Traffic acquisition costs” were $5.09 billion for the quarter - above the estimated $4.75 billion, and “costs per click” (the amount advertisers pay for ad clicks) fell by 23% year-on-year, way more than the 15% drop expected.

European stock indices soared yesterday, spurred on by a general ignition of risk appetite as US indices flirted with fresh records. There was also good news from the Euro zone when Germany’s Ifo Business Climate survey hit an all-time record high. The influential Ifo economic institute surveys around 7,000 firms every month and reported that sentiment among German businesses was “euphoric.” The index has now made three successive record highs with July’s reading coming in at 116.0 - well above the consensus forecast of 114.9.

Commodities Update

·         Crude breaks above resistance

·         Gold and silver slide ahead of Fed meeting

After the close last night the American Petroleum Institute (API) released its latest update on US inventories. Both WTI and Brent soared after the API recorded a 10.2 million barrel drawdown in crude - miles more than the 3 million expected, and the biggest draw since September 2016.

Ahead of the release both WTI and Brent had pushed above key resistance around $47 and $49.80 respectively. These two levels mark the 50% retracement of the of the May-June sell-off which followed the last OPEC meeting in Vienna. If both contracts manage to consolidate above these levels for the rest of this week then further gains look possible. However, it’s worth bearing in mind that both contracts remain in a downtrend that has developed since March this year. We would need to see WTI and Brent break and hold above $48.20/$48.50 and $51.00 respectively for the bulls to wrestle back control. But both contracts have had a strong start to the week thanks in no small measure to commitments made in St Petersburg on Monday. Oil ministers from six key oil producers met in the Russian city and Saudi Arabia promised to cuts its exports by 1 million barrels per day (bpd) to 6.6 million bpd from August. In addition, the ministers pledged to extend the current 1.8 million bpd production cut for a second time, taking it out beyond March 2018 if necessary. Nigeria also agreed to cap output at 1.8 million bpd. It currently produces around 1.7 million bpd.

Gold traded in a relatively narrow range for most of yesterday. While it spent most of the session in negative territory it managed to hold above $1,250 for most of the day. Meanwhile, silver dipped sharply halfway through yesterday’s European session but rallied back later in the day. Both precious metals appeared to be consolidating after a two-week long rally which saw gold hit a one-month intra-day high on Monday. However, both metals came under selling pressure during the Asian Pacific session overnight and have so far failed to make back these early losses. Gold is trading back below $1,250 and a retest of support around $1,240 cannot be ruled out. Meanwhile, silver has fallen below $16.40 and is close to breaking below its 20-day exponential moving average which comes in around $16.30. This could all just be a product of profit-taking ahead of tonight’s Fed statement. However, as we’ve seen on a number of occasions recently mild selling on gold, and particularly silver, can suddenly turn into a rout so it’s important to keep a close eye on both.

Forex Update

·         Yen and Swiss franc weaker on growing risk appetite

·         Fed expected to keep rates unchanged

FX was relatively quiet yesterday. Investors held back from pushing currencies decisively in any particular direction, using the latest Fed meeting as an excuse for inactivity. The main EURUSD ended the session little-changed although there was a general “risk-on” move which saw investors sell (borrow) the low-yielding safe-haven Swiss franc and Japanese yen.  Ahead of tonight’s Fed rate decision the CME’s FedWatch Tool indicated that there was very little likelihood of the US central bank making any changes to monetary policy. The tool uses the fed funds futures market to calculate the probability of a rate change at future Fed meetings. Ahead of tonight’s decision traders assign just a token 3% chance of any kind of change taking place. In fact, the market reckons there’s very little probability of a rate hike until the meeting on 13th December. Even then there’s a 50% chance of no change from the current 1.00% - 1.25% band. This market expectation runs contrary to the FOMC’s latest Summary of Economic Projections from June, where twelve out of sixteen members expect the fed funds rate to be 25/50 basis points higher from current levels by year-end. However, Janet Yellen’s testimony in Washington two weeks ago suggested that the Fed is now taking a more dovish stance and could row back on planned monetary tightening.

Upcoming events

Today’s significant events and economic data releases include Credit Suisse Economic Expectations for Switzerland, Preliminary GDP from the UK, together with BBA Mortgage Approvals and Index of Services. From the US we have New Home Sales, Crude Oil Inventories and the conclusion of a two-day Federal Reserve meeting.


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Posted by David Morrison

Category: AM Bulletin

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