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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

·         US markets recover as Bannon quits

·         Fears of increased US/North Korean tensions

European stock indices opened lower this morning following on from Friday night’s weakness on Wall Street. Nevertheless, it’s worth noting that at the end of last week all the US majors recovered from their lows although it feels as if there could be more downside to come. The Trump administration continues to stumble from one crisis to another amid a stream of sackings and resignations. On Friday there was some relief amongst investors after Steve Bannon, one of the president’s senior (and most controversial) advisors was shown the door. In contrast, investors were quick to dump stocks earlier in the week following rumours (soon discounted) that Trump’s Chief Economic Advisor Gary Cohn was set to quit. The president has faced a barrage of criticism over his comments concerning the violent protests in Charlottesville. There’s a feeling that Trump will struggle to find supporters now for his promised tax cuts, regulatory reform and infrastructure spending plans.

The US dollar was little-changed first thing this morning. The Dollar Index continues to hover near this year’s low hit earlier this month. Precious metals were also mixed. Last week gold briefly topped $1,300 to hit its highest level since the US presidential election back in November. Investors continue to look for safe-haven exposure due to continued political uncertainty. On top of this there are fears that this week’s joint military US/South Korean manoeuvres could ratchet up tensions with North Korea.

Stock Index Update

·         Stock indices under pressure

·         But dip is shallow so far

Friday brought further losses across European and US stock indices. Investors took the opportunity to trim their exposure to global equities for the second successive trading session, leading to the third significant sell-off in little over a week. The pull-back in the US and European majors has been a long time in coming with many analysts warning about extended valuations (specifically in the US) for many months now. However, until now there has been little in the way of negative news which has done anything to upset the bull market rally which began in March 2009. Arguably, there hasn’t been a significant pull-back for over 18 months now with just two minor blips following the Brexit vote and US election since early 2016. And while last week’s sell-off is being viewed as an unusual event, it has been shallow so far with the S&P500 less than 3% below its all-time record high hit earlier this month.

Nevertheless, there are concerns that the Trump administration is falling apart. Certainly, many business leaders are desperately trying to distance themselves from the president following the controversy over his comments concerning the violence at Charlottesville. The worry is that President Trump has managed to alienate so many business leaders and policymakers that he will find it impossible to garner the support required to push through his promised agenda of tax cuts, regulatory reform and infrastructure spending. On top of this there’s every chance that geopolitical tension builds again with North Korea. The US and South Korea undertake military manoeuvres in the Pacific this week and the opportunity for a misstep is high.

Commodities Update

·         Crude falls for third consecutive week

·         Gold briefly tops $1,300

Crude had another mixed session in early trade on Friday before exploding higher soon after the European close. Both front-month contracts had been flirting with significant technical levels of support around $47 and $49.70/50.00 respectively. These levels mark the 50% retracement of the May-June sell-off which followed the last official OPEC meeting. It looks as if an unexpected decline in the US rig count led to a price spike which triggered a deluge of buy-stops.

Meanwhile, this week brought evidence of a number of factors playing into the supply/demand picture. Firstly, data from last 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. Nevertheless, some analysts have said there are indications that global supply is tightening which should help to underpin prices for the rest of the year.

Gold and silver rallied sharply in early trade on Friday. The move took gold above $1,300 for the first time since early November last year when Donald Trump secured an unexpected victory in the US presidential election. Silver briefly popped its head above $17.30 to hit its highest level since mid-June. Friday’s moves capped off a solid week for the two metals despite a shaky start. Last Monday both metals fell back sharply after a rally triggered by rising tensions between the US and North Korea. The pull-back came as threat levels decreased when Kim Jong-Un postponed firing missiles towards the US Pacific territory of Guam. But both then rallied again as the Trump administration ran into further controversy after the president disbanded two high profile business councils. Precious metals got further support following the release of dovish minutes from last month’s FOMC meeting. Investors also piled in on the long side as equity markets slipped and ahead of this week’s joint US/South Korean military manoeuvres in the Pacific.

Forex Update

·         Yen rallies as investors trim risk exposure

·         FOMC split on inflation outlook

Perhaps the key FX takeaway at the end of last week was the sharp rally in the Japanese yen. Investors rushed to buy back the yen which they had previously sold to finance riskier investments. The low-yielding Japanese currency (along with the Swiss franc) tends to be sold (borrowed) when investor risk appetite is raised, and then bought back when investors are fearful. Last week saw market participants reduce their exposure to equities and other riskier, higher-yielding assets. They then bought back the yen and Swiss francs that they had borrowed at low rates of interest to finance these deals. On Friday the USDJPY fell to its lowest level since mid-April, and while this was linked to weakness in the US dollar to some extent, the more powerful dynamic was yen strength.

Investors were also struggling to position themselves following the release of minutes from two central bank meetings. Minutes from the Fed’s FOMC meeting last month indicated that some members felt that inflation would struggle to reach the central bank’s 2% target. Others felt that the low unemployment rate would eventually lead to a pick-up in wage growth which could see inflation overshoot the target. Yet overall, the minutes were viewed as dovish and this led to a modest pull-back in the dollar. No doubt as they played into Janet Yellen’s testimony last month when she said the Fed was getting close to achieving a neutral policy fed funds rate. But on Thursday minutes from the ECB’s July meeting showed that the Governing Council was concerned about “the risk of the exchange rate overshooting in the future.” This helped to cap gains in the single currency.

Upcoming events

Today’s significant events and economic data releases include UK Public Sector Net Borrowing, the German Bundesbank’s Monthly Report and US Mortgage Delinquencies.

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Posted by David Morrison

Tagged: AM Bulletin briefing

Category: AM Bulletin


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