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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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 Monday 18 September 2017

Global indices storm higher - AM Briefing



Early moves

·         Investors regain their risk appetite

·         Geopolitical issues brushed aside

Asian Pacific indices ended sharply higher this morning as investors brushed aside concerns over North Korea’s repeated belligerence. There were gains across all the major indices in the region and South Korea’s KOSPI index ended the session over 1.3% higher. There’s been a growing feeling that geopolitical tensions have peaked. At the same time, investors are convinced that current central bank hawkish rhetoric is evidence that the global economy is finally exhibiting robustness eight years after the nadir of the financial crisis. Finally, there’s a new found optimism after President Trump appeared to strike a deal with his Democratic opponents while there are raised hopes of major tax reform. All this optimism comes in a week which sees central bank meetings in the US and Japan. On Wednesday the US Federal Reserve is expected to announce the beginning of its balance sheet reduction programme. But some analysts are concerned that all negative sentiment has been crushed, warning that some scepticism is warranted. No one can predict what North Korea will do next, or if President Trump can really maintain a coalition of the unwilling. On top of this, last Friday’s US Retail Sales and Industrial Production numbers were particularly disappointing.

Stock Index Update

·         Investors shrug off weak US data

·         Currency strength weighs on FTSE

On Friday the dollar sold off sharply and appeared to resume its downtrend following the release of US Retail Sales. Headline Retail Sales (including autos) fell 0.2% in August, missing expectations of a 0.1% month-on-month increase, and miles below the prior month’s 0.3% gain, which itself was revised down from +0.6%. Core Retail Sales were also weaker than expected. The Empire State Manufacturing Index also fell from a month ago but came in better than expected. Then the latest update on Industrial Production showed a 0.9% decline in August. Again, this was well below the consensus forecast which was expecting a modest 0.1% month-on-month increase. There was also a slight pick-up in Consumer Inflation Expectations to +2.7% annualised. All-in-all, it was a pretty disappointing clutch of data. However, this was all shrugged off by US equity markets as nonchalantly as North Korea’s missile launch on Thursday.

But European stock indices had a tougher time. Investors had to deal with currency strength as the euro and sterling both rose sharply against the dollar together with a fresh terrorist outrage in London. Last week’s rally in the British pound has proved particularly painful for UK multinationals which sold off on the prospect of lower overseas revenues and earnings. The FTSE100 has been particularly badly affected, falling around 3% over the course of the week.

Commodities Update

·         Brent-highest close in five months

·         Gold and silver slide

Last week crude oil made a break to the upside which could easily have a few more dollars to run. However, it’s important to note that the technical picture has been muddied by the effects of severe weather conditions affecting southern states in the US. This was borne out by last week’s US crude inventories. These rose more than expected while there were exceptionally large drawdowns in gasoline stockpiles. The data was entirely consistent with the fundamental picture as a large chunk of US refining capacity was disrupted by Hurricane Harvey. This week’s data should help to provide a clearer picture of the underlying US inventory situation as refiners come back on line. The hope is that there’s been little actual storm damage with the disruption coming through precautionary shut-downs.

Last week WTI broke above $50 per barrel to hit its highest intra-day high since late May. Brent traded through $55 to close out at its best level since mid-April. Prices got a boost after OPEC and the International Energy Agency (IEA) both raised their global demand forecasts. There were also signs that OPEC and non-OPEC production was once again declining after a four month pick-up.

Gold and silver struggled last week with both metals pulling back from the multi-month highs hit earlier in the month. The sell-off came despite further provocation from North Korea. Last Thursday gold and silver spiked higher as intelligence warned that another missile test was imminent. But both fell back on Friday despite North Korea firing a missile over the northern Japanese island of Hokkaido for the second time in less than a month. It’s beginning to look as if markets are acclimatising to this form of goading as investors now seeing it as nothing more than sabre-rattling rather than a potential precursor to outright hostilities. Yet the question remains just how much needling will the Trump administration stand before responding in kind? And just how much are the North Koreans prepared to escalate matters? This latest action was in response to fresh sanctions from the UN Security Council. These included an embargo on the textile trade, inspections of North Korea’s shipping and measures to cap oil imports to the country. Currently investors seem convinced that North Korea is only prepared to lob a few unarmed missiles into the Pacific. But there’s always the risk that these weapons end up hitting something “by accident.”

This morning gold broke below $1,320 which raises the possibility of a move to $1,300 or even $1,280. As far as silver is concerned, $17.40 or even $17.20 could come if prices stay below $17.60.

Forex Update

·         Sterling consolidating after last week’s gains

·         Yen pulls back as risk appetite returns

There were two main features of last week’s FX trade. First of all was the stunning rally in sterling which saw the GBPUSD smash above resistance around 1.3400/1.3450 to hit its highest level since 25th June 2016 - the day after the Brexit vote. The EURGBP fell back below 0.8800 reversing all the euro’s summer gains. Sterling flew higher at the end of last week following the Bank of England’s (BoE) latest Monetary Policy Committee (MPC) meeting. While the MPC voted 2-7 if favour of keeping the Bank Rate unchanged at 0.25%, as expected, it also accompanied this decision with a hawkish statement. The MPC noted that the continued erosion of slack in economy along with the ongoing rise in underlying inflationary pressure made some withdrawal of monetary stimulus likely to be appropriate over the coming months. The committee said that they could tighten more than current market expectations if the economy followed a path broadly consistent with the August Inflation Report central projection. However, all members agreed that any prospective increase in the Bank Rate would be expected to be at a gradual pace and to a limited extent.

The other feature of FX was the sell-off in the Japanese yen and Swiss franc. Investors continued to unwind their “safe haven” trades despite North Korea firing another missile over Japanese territory and a terror attack in London. Investors appear to be priming themselves for another push higher in equities and other risk assets. This is either a sign of confidence in the resilience of the global economy or a shocking example of market complacency.

Upcoming events

Today’s significant events and economic data releases include the Italian Trade Balance, Euro zone CPI, the German Bundesbank’s monthly report, US TIC Long-Term Purchases and a speech from Bank of England Governor Mark Carney.  


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Posted by David Morrison

Category: AM Bulletin

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