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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

·         Dollar dips on FOMC inflation split

·         Precious metals build on gains

European equities and US stock index futures had a slightly negative bias first thing this morning as investors continued to absorb yesterday’s FOMC minutes. The overall takeaway was that the minutes were more dovish than expected as they revealed a split in opinion over the US inflation outlook. While most FOMC members saw inflation picking up over the next couple of years, some were concerned that inflation could remain weak due to “idiosyncratic factors.” This suggested that at least some at the Fed would argue against further monetary tightening this year. Equities did little overall but bond yields fell as did the dollar while precious metals rose.

Stock Index Update

·         FOMC minutes leave markets little-changed

·         UK unemployment at 45-year low

US stock indices rose sharply in early trade yesterday, ahead of the release of minutes from the FOMC’s July meeting. The rally came despite weaker-than-expected housing data which saw both Housing Starts and Building Permits come in beneath expectations. There was a relatively muted reaction from US equities to the minutes themselves. The major indices rallied briefly before pulling back sharply and then consolidating around levels seen prior to the release.

European stock indices surged higher yesterday soon after the open and maintained their gains into the close. The rally came as second quarter corporate results continue to beat estimates while geopolitical tensions between the US and North Korea eased further. On Tuesday, North Korea’s leader Kim Jong-Un appeared to back down from his threat to launch missiles at Guam, a US territory in the Pacific. However, there’s always a risk of a reescalation in the slanging match between the two sides, or even something more serious. The US and South Korea will undertake joint air, sea and land military exercises in the region next week. Manoeuvres are set to last 10 days and begin on 21st August.

Yesterday also saw the release of some decent data with Euro zone GDP confirmed at a respectable +0.6% for the second quarter. Meanwhile, the UK employment situation continues to improve with the claimant count falling by 4,200 on expectations of a 3,200 increase. The Unemployment Rate fell to 4.4% - its lowest level since 1975 - while Average Earnings rose at an annual rate of 2.1% for the second quarter.

Commodities Update

·         Crude slips on US production increase

·         Precious metals bounce back

Crude prices were modestly firmer for most of yesterday’s European session. WTI pushed above $48 per barrel - a level that has acted as both support and resistance since March this year. However, both WTI and Brent pulled back from their best levels following the latest US inventory update from the Energy Information Administration (EIA). This showed a bigger-than-expected drawdown in crude but this was offset by builds in gasoline, distillates and at the Cushing, Oklahoma hub. Oil also came under pressure as US production rose again to hit its highest level in over three years.

On Monday both contracts fell sharply as traders reacted to a slowdown in Chinese refining activity. But WTI and Brent found support after the American Petroleum Institute (API) released its latest update on US inventories late on Tuesday. This showed a 9.2 million barrel drawdown in crude stockpiles - way above the 427,000 draw expected and also the biggest reduction since September 2016 (confirmed by yesterday’s EIA data). Distillate stockpiles also fell more than expected although these draws were offset to some extent by builds in gasoline and at the Cushing, Oklahoma hub.

Gold broke below $1,270 for a second consecutive trading session yesterday. At one stage it looked as if it was ready to head back towards $1,250. However, it managed to hang on above $1,270 - a level that previously acted as resistance through late July and early August. It got a lift after silver suddenly perked up, soon after the US open. There was no specific reason behind the move, and was probably due to little more than an indiscriminate buy order which triggered stops. But we have seen silver move sharply higher, and lower, on a number of occasions recently. On Wednesday silver fell 26 cents in little less than an hour, so yesterday it was the bulls turn to get a break. The pick-up in the two precious metals came despite a modest rally in the US dollar. The Dollar Index rose for the third successive session and is now up around 1.5% since hitting a multi-month low two weeks ago. But the real move in gold followed the release of minutes from the last FOMC meeting. These were viewed as dovish due to a split in opinion over the outlook for inflation. Buyers rushed in and increased their exposure to both gold and silver, betting that the Fed may be in less inclined to tighten monetary policy much more in 2017.

Forex Update

·         Dollar falls following FOMC minutes

·         Draghi won’t signal QE wind-down this month

The US dollar pulled back from its best levels following the release of minutes from the last FOMC meeting back in July. These were considered more dovish than the statement from that time, primarily as they revealed a split in opinion concerning the outlook for inflation. Some FOMC members said they expected to see a pick-up in inflation over the next couple of years. But others expressed concern about the outlook and several indicated that “the risks to the inflation outlook could be tilted to the downside."

Earlier in the day the euro fell against all the majors and this helped the US Dollar Index to push further away from the fifteen-month low made earlier this month. Investors cut their exposure to the single currency after Reuters reported that Mario Draghi wouldn’t be announcing any policy changes at the Jackson Hole Economic Symposium later this month. There had been some speculation that the ECB President may use the occasion to signal that the central bank was preparing to reduce its bond purchase programme early next year. This view came about due to seemingly auspicious timing. Firstly, in its current set-up the ECB’s bond purchase programme runs through to year-end. Secondly, the economic data suggest that the Euro zone is recovering. Thirdly, it will be precisely three years since Mr Draghi signalled an ECB quantitative easing programme at Jackson Hole, so the symmetry appeared very attractive. However, we should not rule out the possibility that the central bank signals that a reduction in bond purchases comes sometime after the start of 2018.

Upcoming events

Today’s significant events and economic data releases include UK Retail Sales, Euro zone CPI and the European Central Bank’s Monetary Policy Meeting Accounts. From the US we have Weekly Jobless Claims, the Philly Fed Manufacturing Index, Capacity Utilisation, Industrial Production and the CB Leading Index.  

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Posted by David Morrison

Category: AM Bulletin


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