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Investors on edge after Wall Street sell-off
30 Jun 2017
Central bankers keep traders guessing - Video Update
29 Jun 2017
Markets mixed ahead of weekend - AM Briefing
23 Jun 2017
Investors concerned over oil sell-off - AM Briefing
22 Jun 2017
Crude oil hits seven-month low - Video Update
21 Jun 2017
Sell-off in crude weighs on equities - AM Briefing
21 Jun 2017
Crude falls back to November lows - PM Bulletin
20 Jun 2017
Fresh records for US indices - AM Briefing
20 Jun 2017
Equity rally resumes - AM Briefing
19 Jun 2017
Markets steady ahead of weekend - AM Briefing
16 Jun 2017
FOMC surprises with “hawkish rate hike” - Video Update
15 Jun 2017
Fed unveils “hawkish rate hike” - AM Briefing
15 Jun 2017
FOMC rate decision in focus - Video Update
14 Jun 2017
Investors expect another Fed rate hike - AM Briefing
14 Jun 2017
FOMC look-ahead - PM Bulletin
13 Jun 2017
NASDAQ futures recover in early trade - AM Briefing
13 Jun 2017
Equities slide after US tech sell-off - AM Briefing
12 Jun 2017
May-hem! Tories chuck away majority - AM Briefing
09 Jun 2017
Brief notes on gold - PM Bulletin
08 Jun 2017
Markets calm as investors take “Risky Thursday” in their stride
08 Jun 2017
Markets becalmed ahead of “Risky Thursday” - AM Briefing
07 Jun 2017
Sterling, events on Thursday and the UK election
06 Jun 2017
Safe havens in demand - AM Briefing
06 Jun 2017
Trading Guides - How CFD trading works
05 Jun 2017
Sterling steady after terror attack - AM Briefing
05 Jun 2017
Non-Farm Payrolls in focus - AM briefing
02 Jun 2017
Non-Farm Payroll look-ahead - Video Update
01 Jun 2017
Crude bounces after US inventory data - AM Briefing
01 Jun 2017
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 Monday 19 June 2017

Equity rally resumes - AM Briefing



Early moves

·         Strong start to new week

·         Investors shrug off US rate hike

There’s been a storming start to this morning’s trade with European equities and US stock index futures all surging higher. There doesn’t appear to be an obvious catalyst for the rally but it’s fair to say that market sentiment is currently positive. This is despite last week’s 25 basis point rate hike from the US Federal Reserve together with its hawkish outlook for additional monetary tightening this year. However, it appears that investors are happy enough to carry on adding to their exposure to risk assets. No doubt they feel relatively secure knowing that additional monetary stimulus continues to be forthcoming from the European Central Bank, Bank of Japan and People’s Bank of China.

Meanwhile, crude oil is still struggling to find support and has begun the new week on a slightly negative note. This is despite both WTI and Brent posting steep declines over the last month. Gold and silver also remain out of favour with investors. This is despite ongoing dollar weakness. Last week the Dollar Index hit its lowest level since November’s presidential election.

There’s nothing particularly significant in the economic calendar today. The German Bundesbank releases its monthly report and Federal Reserve Bank of New York President William Dudley is set to deliver a speech later today.

Stock Index Update

·         Amazon bids for Whole Foods

·         Investors learning to cope with hawkish Fed

There was a relatively quiet start to Friday’s trade. European and US equity markets managed to find some support after Thursday’s sell-off which was triggered by the Fed’s hawkish statement the day before. Investors appeared to be back in “risk-on” mode with all the major European and US indices registering modest gains ahead of the US open. However, in an indication that investors remain cautious over the outlook for tech stocks, it wasn’t long before the NASDAQ gave up early gains. The move was led by Facebook, Amazon, Alphabet (Google) and Apple which all fell ahead of the US open. Some of this was on a renewed bout of profit-taking although Amazon slipped initially following news that it was taking over Whole Foods for $13.7 billion in cash. But it ended the session 2.4% higher while Whole Foods soared by over 29%.

Other retailers reacted badly to the news. Large US grocery chains such as Kroger, Supervalu and United Natural Foods all fell sharply. The sell-off also spread to discount retailers such as Wal-Mart and Target and UK majors including Sainsbury’s and Tesco.

Last week the Federal Reserve raised rates by 25 basis points, as expected. However, the US central bank stuck to its line that it was prepared to tighten monetary policy further this year. The Fed envisages another 25 basis point rate hike before the end of 2017, and will also begin to reduce its balance sheet. Most commentators had expected the Fed to downgrade its outlooks for growth, inflation and employment and indicate that it was prepared to suspend its programme of tightening.

Commodities Update

·         Crude steadies but registers 4th consecutive weekly decline

·         Gold and silver struggle to find support

Crude oil prices steadied on Friday and ended the session modestly higher. However, the rally wasn’t big enough to prevent both WTI and Brent notching up their fourth successive week of losses. Both contracts have fallen around 13% since the OPEC meeting in Vienna at the end of May. This was when OPEC and a number of non-OPEC producers agreed to extend their 1.8 million barrels per day (bpd) output cuts by nine months. But it turned out that oil traders were hoping for considerably more, either in terms of a longer extension or with a commitment to make the cuts deeper. Since then there’s been further evidence of a pick-up in global supply with additional output coming from Libya and Nigeria (two OPEC members exempt from the original output agreement) as well as from the US. US production for 2017 is predicted to be over 9.3 million bpd, rising to 10 million bpd next year. In addition, US exports are expected to average 1 million bpd over 2017, effectively offsetting OPEC’s contribution to the 1.8 million bpd output cut agreed last November. On top of this last week’s  US inventory updates from the American Petroleum Institute (API) and Energy Information Administration (EIA) showed bigger-than-expected builds in crude stockpiles with the EIA also reporting large increases in gasoline and distillate inventories.

Gold and silver had a mixed session on Friday with both metals trading in narrow ranges and ending the day little-changed. But overall there seems to be little buying interest out there with gold and silver registering their second consecutive week of losses. The two metals experienced a volatile week. Both rallied sharply on Wednesday afternoon following the release of disappointing US data. Headline CPI fell 0.1% from April to May providing further evidence that inflation is trending in the wrong direction, for those looking for tighter monetary policy from the Fed. Retail Sales also declined sharply. This news saw the dollar plunge to hit its lowest level against the euro since last November while gold and silver soared. However, both metals reversed direction sharply after the Fed appeared to brush aside recent weakness in economic data. Instead the central bank said it was preparing to reduce its balance sheet and raise rates again before the year-end.

Forex Update

·         Dollar steadies after volatile week

·         Bank of Japan keeps monetary policy loose

Friday saw some mild adjustments across FX as investors repositioned themselves ahead of the weekend. This included a modest pull-back in the dollar. On Wednesday night it surged higher in the aftermath of the Fed’s hawkish rate hike. Earlier in the day investors had sold the dollar down to a seven month low in euro terms in the wake of weak inflation data and a fall in Retail Sales. But the Fed’s FOMC chose to look past signs that US economic growth may be slowing and insisted that it was preparing to tighten monetary policy further before the year-end. The Fed’s hawkish stance wrong-footed investors who ended up buying back their short-dollar positions.

In other news the Bank of Japan kept rates on hold and promised to keep asset purchases around the current target of 80 trillion yen per annum (around $730 billion). Meanwhile, Greece's creditors agreed to release the next €8.5 billion tranche of its bailout program, but delayed a final decision on debt relief until August next year. This will make it more difficult for Athens to re-enter capital markets and so increases the probability of another bailout.

Upcoming events

Today’s significant events and economic data releases include the German Bundesbank’s monthly report and a speech from Federal Reserve Bank of New York President William Dudley.


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Posted by David Morrison

Category: AM Bulletin

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