NEWS AND ANALYSIS

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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

·         Trump insists “no phase-in” for tax cuts

·         FOMC statement in focus

European equities and US stock index futures flew higher in early trade this morning. European markets followed a lead from the US as investors responded to comments from Donald Trump concerning tax reform. Last night President Trump insisted that there was no “phase-in” interval for his corporate tax cuts. On Tuesday investors panicked by speculation that Congress was considering a “gradual” phasing-in of corporate tax cuts which would still see the headline rate as high as 20% in 2022.

The Federal Reserve concludes a two-day monetary policy meeting later this evening. There’s absolutely no expectation that the US central bank will announce any change to either its fed funds rate or to the planned pace of reduction in its $4.5 trillion balance sheet. In this respect tonight’s meeting is expected to be a damp squib as this is a minor meeting with no press conference. The current market expectation is that the Fed will raise rates in December. According to the CME FedWatch Tool (which uses fed funds futures to calculate probabilities) there’s currently a 98% likelihood of a 25 basis point rate hike at next month’s meeting. Despite this, traders will still pore over tonight’s FOMC statement - just in case the Fed throws a googly, or should I say “curve ball”?

Perhaps more important is today’s ADP Employment Change update for September. This may give us a “heads-up” before Friday’s Non-Farm Payroll data. Last month’s Non-Farms registered a loss of 33,000 jobs on an expectation of an 82,000 gain. Investors will be hoping that this situation is rectified in Friday’s data.

Stock Index Update

·         US equities rally sharply in October

·         Risks of a correction grows each day

Yesterday saw the major US stock indices close out the month in positive fashion. October is often considered a troublesome month as it has often seen some dramatic downside moves across global stock markets. However, this October saw the Dow rally over 4% while the NASDAQ Composite and S&P500 were up 3.6% and 2.2% respectively. Investors continue to build up their exposure to equities as they desperately search for a return on their investments. This continues to be a struggle as central bank intervention has crushed sovereign bond yields making a “risk free” return that can keep pace with inflation virtually impossible. Yet risks remain as equities (particularly in the US) look extremely overvalued by many measures. But for now the eight-year bull market remains intact and investors continue to scale the “wall-of-worry”, buying stocks for fear of missing out on the upside move. Yet the probability of a sharp downside correction increases with every day that passes.

Commodities Update

·         Crude rallies on inventory drawdown

·         Precious metals rally on short-covering

The American Petroleum Institute (API) released its latest update on US crude inventories for the week ending 27th October. Data released after last night’s close showed larger-than-expected drawdowns across the whole energy complex and this has supported crude prices this morning.

Crude prices were consolidating ahead of the data and this saw Brent close above $60 for the third successive session. This morning’s move has taken Brent up to highs last seen in July 2015 while WTI has broken above $54.50 - the top end of an area of resistance that held throughout the first few months of this year. However, traders are now speculating that the rally since late June could encourage US shale producers to raise production. If so, this additional output from the world’s new “swing producer” could see prices pull back from current elevated levels. That said, traders may be unwilling to push prices dramatically in either direction ahead of the release of OPEC’s global oil outlook on 7th November and the cartel’s biannual meeting on 30th November.

Gold and silver were little-changed in early trade yesterday as the US dollar consolidated - albeit at higher levels. Both precious metals have come under concerted selling pressure since early September, ever since the dollar began to recover from a nine month-long sell-off. But both metals were sharply higher early on Wednesday morning as traders jumped back in to take advantage of the recent sell-off. There was no specific trigger for the jump, although some analysts suggest that it was down to safe-haven demand on growing political uncertainty in both the US and Spain.

Last Thursday the dollar managed another sharp jump higher after the European Central Bank (ECB) announced that it was extending its Asset Purchase Programme (APP) for another nine months starting in January. The central bank said it would cut its monthly purchases to €30 billion from €60 billion. But crucially, ECB President Mario Draghi emphasised that the APP could be extended in size and/or duration should market conditions warrant further stimulus. This accommodative stance led to a sharp sell-off in the euro, a rally in the dollar and further downside pressure on precious metals. Support for gold comes in around $1,260 and around $16.60 for silver.

Forex Update

·         FX quiet ahead of central bank meetings

·         Sterling rallies on BoE rate hike expectations

Yesterday saw a relatively quiet session for FX as traders sat on their hands ahead of the release this week of US jobs data and central bank meetings from the Federal Reserve and Bank of England. While the Fed is expected to keep monetary policy unchanged following the conclusion of its two-day meeting later this evening, there’s a strong probability that the Bank of England will raise rates for the first time in over ten years at tomorrow’s meeting. This expectation has helped to lift sterling sharply this week. The GBPUSD pushed above 1.3300 this morning and remains in an upwardly-trending channel as the currency pair has been steadily climbing since the beginning of the year. Of course, a major factor in this move is general dollar weakness over the same period. This fact is brought into stark relief by looking at a chart of EURGBP. The euro notched up solid gains between May and the end of August this year. However, sterling has managed to recoup over half of its losses since then and is now challenging EURGBP support around 0.8450.

Upcoming events

Today’s significant events and economic data releases include Swiss, UK, Canadian and US Manufacturing PMIs. Also from the US we have the ADP Non-Farm Employment Change, Construction Spending, Crude Oil Inventories, Total Vehicle Sales and the conclusion of a two-day Federal Reserve monetary policy meeting.  It is All Saints Day across Europe with market holidays for France and Italy.

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Posted by David Morrison

Tagged: USD FOMC FED GBPUSD BoE Bullmarket

Category: AM Bulletin


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