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Collapse 2017 <span class='blogcount'>(348)</span>2017 (348)
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EURUSD hovers around 1.1800 - AM Briefing
29 Sep 2017
Trump tax reform lifts Wall Street - AM Briefing
28 Sep 2017
What is the Fed trying to tell us? - PM Bulletin
27 Sep 2017
Yellen struggles with inflation - AM Briefing
27 Sep 2017
Can cable’s rally continue? - PM Bulletin
26 Sep 2017
Investors jittery after North Korean threat - AM Briefing
26 Sep 2017
EURUSD slips again - PM bulletin
25 Sep 2017
Merkel scrambles to form coalition - AM Briefing
25 Sep 2017
Caution ahead of weekend - AM Briefing
22 Sep 2017
Fed Meeting Post-Mortem - Video Update
21 Sep 2017
Fed signals another rate hike - AM Briefing
21 Sep 2017
Trading subdued ahead of Fed meeting - Video Update
20 Sep 2017
Fed expected to reduce balance sheet - AM Briefing
20 Sep 2017
FOMC and balance sheet reduction - PM Bulletin
19 Sep 2017
Dow hits fresh record high - AM Briefing
19 Sep 2017
EURUSD continues to trend higher - PM Bulletin
18 Sep 2017
Global indices storm higher - AM Briefing
18 Sep 2017
Investors shrug off NK missile test - AM Briefing
15 Sep 2017
Sterling soars after BoE meeting - Video Update
14 Sep 2017
Bank of England meeting in focus - AM Briefing
14 Sep 2017
Look-ahead to the BoE monetary policy meeting - Video Update
13 Sep 2017
Sterling bounces as inflation picks up - PM Bulletin
12 Sep 2017
Wall Street rally lifts sentiment - AM Briefing
12 Sep 2017
Euro storms higher - AM Briefing
08 Sep 2017
ECB meeting in focus - AM Briefing
07 Sep 2017
EURUSD soars during Draghi’s press conference - Video Update
07 Sep 2017
ECB meeting, a look-ahead to Thursday - Video Update
06 Sep 2017
Wall Street wobbles, but closes off lows - AM Briefing
06 Sep 2017
WTI recovering as clean-up continues - PM bulletin
05 Sep 2017
Investors shrug off North Korean threat - AM Briefing
05 Sep 2017
North Korean nuclear test boosts gold - PM Bulletin
04 Sep 2017
North Korea rattles markets - AM Briefing
04 Sep 2017
High hopes for the latest US jobs release - AM Briefing
01 Sep 2017
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Early moves

·         FOMC to update its economic projections

·         EURUSD hovers around 1.2000

The US Federal Reserve’s FOMC concludes its two-day monetary policy meeting this evening. The FOMC will update its economic projections and give its latest forecasts for GDP growth, unemployment, inflation and interest rates.

The Fed is also expected to reveal details of how and when it will begin to wind down its $4.5 trillion balance sheet. The Fed is aiming to reduce it to around $2-2.5 trillion by allowing $10 - $50 billion of bonds to mature each month without reinvesting the proceeds. The programme is expected to begin next month. So a $2 trillion reduction even at the higher $50 billion per-month rate suggests a wind-down period of around four years. This sounds cautious enough. However, in just the same way that this form of quantitative easing had never been tried before, it follows that no one has ever attempted to reduce it either.

Back in July Janet Yellen indicated that the Fed could be closer to its interest rate target, or neutral policy stance, than the market was then anticipating. This led to a repricing of the Fed’s objective to 1.75/2.00% from around 3.00%. Dr Yellen also emphasised the importance that the FOMC placed on boosting inflation. This is significant as annualised Core PCE (the Fed’s preferred inflation measure) has been trending downwards since the beginning of the year and, at 1.4%, is currently well short of its 2% target. This suggested that the US central bank was considerably more dovish than previously thought. So there’s going to be a stack of information to take in tonight which has the potential to shift markets sharply - particularly if the Fed appears more hawkish than expected. But if it keeps to the path sketched out over the summer, the dollar should continue to weaken and push the EURUSD back above 1.2000. This won’t be good news for the ECB, but ultimately it will help the Fed get inflation up towards target.

Stock Index Update

·         Dow hits another record high

·         European indices quiet ahead of FOMC

There was relatively little movement across European stock indices yesterday, although the US majors had another positive session. This saw the Dow close out at another record high - the sixth in succession. Despite this, traders are mostly in “wait and see” mode ahead of tonight’s releases from the US Federal Reserve. The central bank is expected to provide details about reducing its $4.5 trillion balance sheet.

The Bank of Japan (BOJ) holds its own monetary policy meeting overnight with its press conference scheduled for tomorrow morning at 07:30 BST. The BOJ is expected to continue with its programme of Quantitative and Qualitative Easing. But there’s already speculation that the ECB will start to reduce its own bond purchase programme early next year.

Commodities Update

·         Oil rallies after inventory update

·         Gold and silver steady after pull-back

Overnight the American Petroleum Institute (API) released its US crude oil inventory update for the week ending 15th September. Crude stockpiles grew less than expected while there was a bigger-than-anticipated drawdown in gasoline inventories. The report has helped to lift both WTI and Brent in early trade. Last week’s inventory data releases showed large drawdowns in gasoline stockpiles and modest builds in crude supplies. This was entirely consistent with the sharp drop-off in refining activity which led to gasoline shortfalls and reduced demand for crude oil as a result of Hurricane Harvey.

Earlier in the day crude prices rallied and WTI closed in on $51 while Brent pushed further above $55 per barrel. This followed reports that that a number of key Middle Eastern producers continued to comply with the OPEC/non-OPEC output cuts agreed last year. Both contracts slipped back later in the session but continued to hover around multi-month highs at levels last seen at the end of May, straight after the last OPEC meeting. 
On Friday the latest data from Baker Hughes recorded a decline in shale rigs. On top of this last week both OPEC and the IEA raised their demand forecasts for both this year and 2018 which helped to support prices going into the weekend.  

Gold and silver steadied yesterday after pulling back sharply from the multi-month highs made less than a fortnight ago. On Monday gold fell below support around $1,320 and came close to testing $1,300. A break below here opens up the prospect of a move towards the next level of support around $1,280. Meanwhile, silver sipped below support around $17.20 although it subsequently managed to recover yesterday afternoon. It now seems likely that investors will sit on their hands ahead of tonight’s monetary policy announcements from the Federal Reserve. This is a major meeting for the US central bank as members of its FOMC will update their quarterly Summary of Economic Projections. In addition, the Fed is expected to provide details concerning balance sheet reduction which is expected to start next month. If the Fed appears more dovish than expected we should the dollar to resume its decline. This in turn should support dollar-denominated commodities such as gold and silver.

Forex Update

·         EURUSD hovers around 1.2000

·         ECB split over future of monetary stimulus

The euro pushed higher for most of yesterday’s session, making decent gains against all the majors. At one point the EURUSD pushed back above 1.2000 and it continues to hover around here this morning. However, the single currency suddenly lurched lower at one point following a news story from Reuters. This suggested that there were serious divisions over at the ECB concerning the timing of an announcement to taper its bond purchase programme. Some members are concerned about the euro’s recent strength, with a EURUSD rate of 1.2000 thought to be the “line in the sand”. As a consequence, some members of the Governing Council want to keep all options open when it comes to reducing the central bank’s €60 billion per month bond purchase programme. After all, any reduction in monetary stimulus should prove supportive for the single currency. This means delaying any announcement to December’s meeting at the earliest. So far the ECB has twice redirected market expectations of a pronouncement: once ahead of Jackson Hole at the end of August and then ahead of the ECB’s Monetary Policy Meeting earlier this month. It was then that the ECB’s October 26th meeting came into focus as the most likely arena for a statement. However, it now seems likely that we will have to wait until December for further news.

Upcoming events

Today’s significant events and economic data releases include UK Retail Sales and the Swiss National Bank’s Quarterly Bulletin. From the US we have Existing Home Sales, Crude Oil Inventories and the Federal Reserve’s FOMC statement, Summary of Economic Projections and Janet Yellen’s press conference.


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Posted by David Morrison

Category: AM Bulletin

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