Incisive market commentary from David Morrison

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Collapse 2017 <span class='blogcount'>(348)</span>2017 (348)
Collapse November <span class='blogcount'>(26)</span>November (26)
Markets drift ahead of weekend - AM Briefing
24 Nov 2017
US closed for Thanksgiving - AM Briefing
23 Nov 2017
Wall Street hits fresh record highs - AM Briefing
22 Nov 2017
The UK100 and sterling - PM Bulletin
21 Nov 2017
Equities drift in featureless trade - AM Briefing
21 Nov 2017
German coalition talks collapse - AM Briefing
20 Nov 2017
Quiet start after Wall Street surge - AM Briefing
17 Nov 2017
Global stock indices steady - AM Briefing
16 Nov 2017
Is this the start of a stock market correction? - Video Update
15 Nov 2017
Crude sell-off rattles investors - AM Briefing
15 Nov 2017
GBPUSD testing support - PM Bulletin
14 Nov 2017
Central bankers meet in Frankfurt - AM Briefing
14 Nov 2017
Sterling under pressure - AM Briefing
13 Nov 2017
Indices in retreat ahead of weekend - AM Briefing
10 Nov 2017
Could low volatility trigger a market correction? - Video Update
09 Nov 2017
All quiet on the Western Front - AM Briefing
09 Nov 2017
WTI crude surges through resistance - Video Update
08 Nov 2017
Investor inertia sees equities drift - AM Briefing
08 Nov 2017
Crude in demand - PM Bulletin
07 Nov 2017
Fresh record close for Wall Street - AM Briefing
07 Nov 2017
EURUSD shows clear “head and shoulders” - PM Bulletin
06 Nov 2017
Cautious start to trading week - AM Briefing
06 Nov 2017
Traders look ahead to Non-Farm Payrolls - AM Bulletin
03 Nov 2017
Traders look ahead Friday’s US Non-Farm Payrolls - Video Update
02 Nov 2017
BoE expected to raise rates - AM Briefing
02 Nov 2017
Equities soar on US corporate tax cut hopes - AM Briefing
01 Nov 2017
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Early moves

·         Broadcom deal boosts equities

·         Crude oil highest since July 2015

Investors are solidly back in risk-on mode this morning as European stock indices and US stock index futures were all in positive territory soon after the open. Yesterday equities (particularly those in the semiconductor and related tech sectors) got a boost from news that Broadcom has made an offer of €103 billion for rival chip-maker Qualcomm. If this goes ahead it will be the biggest tech sector takeover of all time.

Meanwhile, crude oil continues to make fresh 30-month highs against a backdrop of solid demand growth and falling global inventories as the OPEC/non-OPEC 1.8 million barrels per day production cut appears to be working. There are hopes that this will be extended at the OPEC meeting at the end of this month. In the meantime, all eyes will be on the release of OPEC’s World Oil Outlook at 13:30 GMT today. Oil is also getting a boost as Saudi Arabia’s Crown Prince Mohammad Bin Salman undertakes a widespread anti-corruption purge of princes, ministers and businessmen.

Stock Index Update

·         US takeover boosts equities

·         Nikkei closes at 26-year high

US stock indices edged higher last night in a move which saw the Dow, S&P500 and NASDAQ Composite all close out at fresh record highs. The third quarter earnings season has helped to lift sentiment, but yesterday’s moves were driven by a burst of deal making which triggered buying. Broadcom has made an offer of €103 billion for rival chip-maker Qualcomm. If this goes ahead it will be the biggest tech sector takeover of all time.

European stock indices ended mixed yesterday. There was no overall direction despite a number of key geopolitical events. President Trump has kicked off the first part of his Asian tour in Japan, and lost no time in accusing the country of engaging in unfair trade practices. Mr Trump stated that trade with Japan was “not free or reciprocal” and he highlighted the lack of any Japanese car imports from the US as a glaring example. But there was little market reaction to these comments as the Nikkei ended Monday’s session effectively unchanged. But the Japanese index surged by over 1.7% overnight to close at a fresh 26-year high. President Trump is now in South Korea. What could possibly go wrong?

Commodities Update

·         OPEC’s World Oil Outlook out today

·         Gold and silver consolidate

Crude prices have broken out to the upside. Yesterday WTI and Brent made further gains and both contracts hit their highest levels since the beginning of July 2015. Chart-wise, the next upside target for WTI is $60 while there’s little in the way of significant price levels on Brent until it closes in on $70 per barrel. As things stand, crude’s momentum is all to the upside. However, in trading it’s generally better to travel than to arrive, and one can’t help thinking that there’s a lot riding on the next OPEC meeting which takes place at the end of this month. If OPEC/non-OPEC producers fail to come up to the market’s expectations in terms of extending the current 1.8 million barrel per day output cut, then prices could pull back rapidly. But for now, traders are more concerned about the situation in Saudi Arabia which is blaming Iran for a Yemeni-based missile attack, even as Crown Prince Mohammad Bin Salman gets busy organising the arrest of his opponents.

OPEC will release its World Oil Outlook at 13:30 GMT today. OPEC’s Secretary General, Mohammad Barkindo, will present t an in-depth review and analysis of the global oil industry.

Yesterday gold and silver managed to claw back some of their losses from the end of last week. This seemed like little more than a mild corrective bounce following a sharp sell-off soon after the Non-Farm Payroll release on Friday. Initially the dollar fell and precious metals rose after the headline payroll number came in at 261,000 - well below the 312,000 expected. However, the dollar sell-off soon ran out of steam and reversed sharply as traders focussed on an upward revision of 90,000 to data from the two preceding months. Gold lost around $20 (1.5%) in a little less than two hours while silver lost over 2% in the same period. Investors decided that the data wasn’t bad enough to dissuade the Fed from hiking rates by 25 basis points next month. This was despite no change in Average Hourly Earnings, meaning no wage inflation. The Unemployment Rate came in at 4.1% - the lowest since January 2001. However, this was a function of a low Participation Rate as would-be job seekers give up looking for work. Later on, the ISM Non-Manufacturing PMI broke above 60 to hit its highest level in over two years. Gold and silver rallied sharply later in yesterday’s session although both dropped back a bit in early trade this morning.

Forex Update

·         Dollar gives back early gains

·         Sterling up against euro and USD

Yesterday’s FX session was relatively uneventful, particularly when compared with last week’s big moves. In early trade the dollar crept higher against most of the majors, making modest gains versus the euro and Japanese yen. In this way it managed to build on last week’s rally. However, it slipped back later in the session as traders responded to a fall in US Treasury yields.  On Friday the dollar dipped sharply in the immediate aftermath of the US Non-Farm Payroll release only to snap back higher later in the session. The headline payroll number registered an increase of 261,000 jobs in October, well above September’s dismal reading which registered a decline for the first time since 2010. There was initial disappointment as analysts had expected a gain of 312,000. Not only that, but wage growth was flat meaning that this would not help the Fed achieve its 2% inflation target anytime soon. However, there was an upward revision to prior data totalling 90,000 jobs. This was seized on as dollar-positive as it keeps the Fed on course to raise rates at next month’s meeting. Meanwhile, sterling managed to firm up against both the dollar and the euro in a move which looked largely technical. Last week the Bank of England surprised no one when it raised rates for the first time in over ten years.

Upcoming events

Today’s significant events and economic data releases include Euro zone Retail Sales, ECOFIN Meetings and a speech from ECB President Mario Draghi. From the US we have JOLTS Job Openings and speeches from outgoing Fed Chair Janet Yellen and        Federal Reserve Governor Randal Quarles.


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Posted by David Morrison

Tagged: GOLD Brent crudeoil DJIA

Category: AM Bulletin

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