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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

·         Soggy start to early trade

·         St Petersburg oil meeting in focus

European and US stock indices turned lower soon after today’s open. This was despite a late rally on Wall Street on Friday night which saw the major indices make back a large chunk of earlier losses. Despite this, US equity markets had a solid week as earnings season proceeds. It picks up a gear this week with around 170 S&P500 constituents scheduled to report.

A number of OPEC and non-OPEC oil producers are set to meet in St Petersburg later today. It is thought that oil ministers Saudi Arabia and Russia will take a lead in addressing rising output from OPEC members Nigeria and Libya. Both countries were granted exemptions from the oil production cut back in November. However, output has shot higher in both countries and this is undermining the effectiveness of the production cut agreement.

The big theme continues to centre on the ECB and when it may begin tapering its €60 billion per month bond purchase programme. Last week Mario Draghi went to great lengths to insist that inflationary pressures remained weak. He also emphasised that the central bank could extend its quantitative easing programme in size and duration should the conditions require it. However, investors aren’t buying this dovishness. Instead, they are looking at the dwindling stock of eligible bonds out there and betting that the ECB will begin tapering early next year. This belief is keeping the euro well bid - for now.

Stock Index Update

·         Wall Street ends down but off lows

·         European indices end the week sharply lower

The Dow, S&P500 and NASDAQ all lost ground on Friday. This came after the NASDAQ posted its tenth successive positive close on Thursday while the Dow and S&P both ended within sight of recent record closes. But ahead of the weekend investors decided to reduce their exposure and book profits, influenced to some extent by a sell-off in major Dow constituent, General Electric. GE was down around 4% soon after the open after the conglomerate reported a 12% year-on-year decline in sales and a 58% fall in net profits. It recovered from its lows but still ended the session 2.9% lower.

All the major European stock indices ended sharply lower on Friday. The German DAX led the decline as it lost close to 2% on the day to close out around 3.5% lower for the week. The French CAC fell close to 2.5% over the week. The European sell-off was triggered by some disappointing second quarter corporate earnings which dragged down the construction, materials and autos sectors. In fact, there had been a number of occasions over last week where stocks had rallied initially after a positive performance on Wall Street only to give back early gains later in the session.

The euro flew higher on Thursday during ECB President Mario Draghi’s press conference. Mr Draghi sounded dovish as he repeatedly insisted that underlying inflation was well below the ECB’s preferred inflation target. And in an echo of his “whatever it takes” comment from two years ago, Mr Draghi said the ECB was prepared to extend its bond purchase programme in duration and/or size if required. However, traders picked up on his comment that tapering would be considered in detail at the September meeting when the Governing Council would have “all the information by then”. He also said that the pick-up in growth across the Euro zone would lead to higher prices and wages and thereby lift inflation.

Commodities Update

·         Crude fails to break resistance

·         Healthy gains for gold and silver

Last week crude oil retested key resistance around $47 and $49.80 for WTI and Brent respectively. These two levels mark the 50% retracement of the of the May-June sell-off which followed the last OPEC meeting in Vienna. From a technical standpoint, it looked as if both contracts could head higher if they were able to break through and consolidate above these levels. However, oil’s upside momentum appeared to fade as the weekend approached. Traders were considering the supply/demand fundamentals driving the oil price and the current thinking seems to be that these are negative overall. Earlier in the week crude got a lift following news of substantial US inventory drawdowns. Yet global inventories remain near all-time highs while there’s no shortage of supply. US shale oil production continues to rise while the OPEC/non-OPEC output cut agreement appears shaky after Ecuador announced that it will start raising crude production this month. Global demand growth may still be outstripping current supply, but by no means enough to make a serious dent in global inventories.

Last week brought solid gains for precious metals with gold and silver up around 1.8% and 2.8% respectively. By Friday’s close it was difficult to remember how dire the picture looked for the two metals just a fortnight ago. Back then gold was trading at its lowest level since March and looked in danger of breaking below key support around $1,200. Meanwhile silver was closing in on $15 per ounce and trading at its lowest level in 15 months. Investors were busy slashing their exposure to the two precious metals as they considered the prospect of tighter monetary policy from the US Federal Reserve against a backdrop of falling inflation. This is just about the worst possible environment for non-yielding dollar-linked assets like gold and silver. But it now looks as if the sell-off was overdone. The pull-back in the US dollar has gathered pace as investors now believe the Fed will hold off from raising rates again until the end of the year. Meanwhile, the euro is firmer as the European Central Bank is expected to begin winding down its bond purchase programme early in 2018..

Forex Update

·         EURUSD holds above 1.1600

·         US dollar continues to slide

The euro was firmer again first thing on Friday, building on gains from the day before. At the end of last week the EURUSD hit its highest level since August 2015 as traders responded to comments from European Central Bank (ECB) President Mario Draghi during his press conference last Thursday. Mr Draghi sounded dovish as he repeatedly insisted that underlying inflation was well below the ECB’s preferred inflation target. And in an echo of his “whatever it takes” comment from two years ago, Mr Draghi said the ECB was prepared to extend its bond purchase programme in duration and/or size if required. However, traders ignored all this and focused instead on his comment that tapering would be considered in detail in the autumn. Mr Draghi said that the Governing Council would have “all the information by then”. He also said that the pick-up in growth across the Euro zone would lead to higher prices and wages and thereby lift inflation.

Of course, another way of looking at last week’s FX moves is considering the continued weakness of the US dollar. Back in January the dollar hit a 14-year high against the euro as investors responded to Trump’s victory in the November presidential election. The general feeling was that Trump was good for stocks and the dollar given his business background and his campaign promises for lower taxes, infrastructure spending and regulatory roll-back. But his presidency has repeatedly run into problems - not just in its inability to drive through legislation, but also in it being constantly bogged down by controversy around the Trump team’s contacts with Russia.

Upcoming events

Today’s significant events and economic data releases include French, German, Euro zone and US Flash Manufacturing and Services PMIs. We also have the German Bundesbank monthly report and US Existing Home Sales.

Disclaimer:

Spread Co is an execution only service provider. The material on this page is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by Spread Co Ltd or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. This material has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. As a marketing communication it is not subject to any prohibition on dealing ahead of the dissemination of investment research, although Spread Co operates a conflict of interest policy to prevent the risk of material damage to our clients.”

 

Posted by David Morrison

Tagged: AM Bulletin briefing

Category: AM Bulletin


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