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Using the RSI in FX - Trading Guide
31 Jul 2017
HSBC share buy-back helps lift indices - AM Briefing
31 Jul 2017
Amazon triggers tech tumble - AM Briefing
28 Jul 2017
Fed reinforces dovish credentials - Video Update
27 Jul 2017
Facebook results boost NASDAQ - AM Briefing
27 Jul 2017
Crude breaks above resistance - PM Bulletin
26 Jul 2017
Equities rally on positive earnings - AM Briefing
26 Jul 2017
Look-ahead to tomorrow’s rate decision from the Fed
25 Jul 2017
Alphabet/Google falls 3% in after-hours trade
25 Jul 2017
Equities start the week on back-foot - AM Briefing
24 Jul 2017
Euro surges on “hawkish” comments from Draghi - AM Briefing
21 Jul 2017
Equities firmer ahead of ECB meeting - AM Briefing
20 Jul 2017
Europe firmer after late US rally - AM Briefing
19 Jul 2017
US Fed turns dovish - PM Bulletin
18 Jul 2017
Dollar slumps on US healthcare gridlock - AM Briefing
18 Jul 2017
Wall Street leads equity rally - AM Briefing
17 Jul 2017
US bank earnings in focus - AM Briefing
14 Jul 2017
Yellen flip-flops to reassure investors - AM Briefing
13 Jul 2017
Oil rallies, but volatility high - Video Update
12 Jul 2017
Yellen to testify in Washington - AM Briefing
12 Jul 2017
A look-ahead to Janet Yellen’s testimony - PM Bulletin
11 Jul 2017
Second quarter earnings in focus - AM Briefing
11 Jul 2017
Jobs data boost sentiment ahead of earnings - AM Briefing
10 Jul 2017
Investors nervous; Non-Farm Payrolls in focus - AM Briefing
07 Jul 2017
Non-Farm Payroll look-ahead - Video Update
06 Jul 2017
Investors shrug off FOMC minutes - AM Briefing
06 Jul 2017
Investors shrug off FOMC minutes - AM Briefing
06 Jul 2017
Look-ahead to FOMC minutes - Video Update
05 Jul 2017
Markets quiet and waiting for fresh guidance from US - AM Briefing
05 Jul 2017
Crude continues to push higher - PM Bulletin
04 Jul 2017
Dow closes at fresh record high - AM Briefing
04 Jul 2017
Positive start to second half of 2017 - AM Briefing
03 Jul 2017
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Early moves

·         HSBC rallies 3% in early trade

·         Euro zone CPI in focus

European equities rallied sharply in early trade this morning after a mixed open. US stock index futures were also heading higher in what is shaping up to be a positive start to the trading week. Shares in HSBC were up over 3% early on after the banking giant reported better-than-expected earnings and announced that it was launching a $2 billion share buy-back. Pre-tax profits for the first six months of the year came in at $10.24 billion, comfortably above the $9.5 billion expected.

There was more good news as German Retail Sales posted a 1.1% gain in June, well above the +0.2% expected and May’s reading of +0.5%. Later this morning we have Euro zone Flash CPI. The core number (which excludes food and energy) is expected to show a year-on-year increase of +1.1%. If this comes in lower than expected, then we’re likely to see a pull-back in the euro. Conversely, a higher number would help confirm the view of ECB governing council member Ewald Nowotny. Last week he said there was no longer a deflation risk in the Euro zone. So a stronger reading should be euro-positive as it strengthens the argument for the European Central Bank to consider tapering its €60 per month bond purchase programme.

Stock Index Update

·         Amazon slides on disappointing earnings

·         But Wall Street shrugs off early concerns

European and US equities came under selling pressure at the end of last week. The trigger for the sell-off appeared to be a pull-back in Amazon’s share price after the company unveiled second quarter results. Sales were good enough, coming in at $38 billion on expectations of $37.2 billion for the quarter, and up from $30.4 for the same time last year. But earnings-per-share were dismal at just $0.40 against a consensus forecast of $1.42 and well below the year-on-year comparison of $1.78 per share. Ahead of the numbers, the Amazon share price hit an all-time high, making its founder Jeff Bezos the world’s richest person. However, he soon lost the title as the stock pulled back sharply taking the rest of the tech sector with it. It wasn’t long before the S&P500 and Dow Jones also fell into the red. The sell-off filtered through to the European majors with all ending sharply lower on Friday. However, there were already signs that the worst of the tech sell-off had passed as the NASDAQ 100 was only modestly lower by the European close and the Dow Jones unchanged.

Earlier in the day second quarter US GDP showed an annualised growth rate of 2.6%. This was slightly above the early consensus number of 2.5% but below the “whisper number” (which followed on from a strong Durable Goods number on Thursday) of 2.8%. There was also an unexpectedly low reading for the GDP Deflator (a key inflation measure) which rose just 1% for the quarter, annualised, well below expectations of a 1.3% increase and last quarter’s reading of 1.9%. This followed on from the Fed’s monetary policy statement on Wednesday which emphasised the central bank’s concerns over low inflation. The weak deflator led to more dollar selling as it would suggest the Fed will be less anxious to tighten monetary policy later this year.

Commodities Update

·         Crude builds on gains

·         Gold and silver lifted by Fed dovishness

Crude ended last week on a strong note. On Friday both WTI and Brent built on gains which saw them break above downside trading channels that had been forming since March. The upper trend lines in these channels, having worked as resistance, could now become support if crude continues to attract buyers. This would suggest support around $48 and $51 for WTI and Brent respectively. There are a number of factors currently supporting oil. These include Saudi Arabia’s promise to cut exports by 1 million barrels per day (bpd) from August, a pledge from  a number of OPEC and non-OPEC oil ministers to extend the current 1.8 million bpd production cut beyond March 2018, Nigeria’s promise to cap output at 1.8 million bpd and continued sharp drawdowns in US inventories. But perhaps topping all this was the news that three major US shale oil producers (Anadarko, Hess and Whiting Petroleum) said they were slashing their capital expenditures. This points to a future slowdown in US shale production which could lead to further gains in crude.

On Friday gold and silver posted their third consecutive week of gains. Both metals got a boost following the release of US Advance GDP for the second quarter. This showed an annualised growth rate of 2.6%, slightly above the early consensus number of 2.5% but below the “whisper number” (which followed on from a strong Durable Goods number on Thursday) of 2.8%. Nevertheless, it wasn’t just this growth number which surprised traders and saw them hoover up gold and silver. It was also an unexpectedly low reading for the GDP Deflator which rose just 1% for the quarter, annualised, well below expectations of a 1.3% increase and last quarter’s reading of 1.9%. Recently the decline in inflation has weighed on precious metals, particularly as the Fed seemed determined to tighten monetary conditions. However, the Fed’s apparent dovish tone, which was reinforced by last week’s FOMC statement, together with Friday’s decent GDP reading, have convinced many that the US central bank may be less anxious to raise rates much further as it gets closer to its perceived neutral policy stance.

Forex Update

·         US dollar remains under pressure

·         EURUSD at 30-month highs

The dollar lost more ground last week while the euro continued to strengthen. On Wednesday evening the EURUSD hit its highest level since January 2015 following the conclusion of a two-day Federal Reserve monetary policy meeting.  The accompanying FOMC statement was viewed as dovish as members emphasised the significance of weak inflationary pressures. There was a stark reminder of this on Friday when the latest GDP Deflator (a key inflation measure) fell to +1.0% annualised, a sharp fall from +1.9% in the first quarter and lower than the +1.3% reading expected. On top of this the FOMC stated that balance sheet reduction would be implemented “relatively soon” rather than “this year” as noted in the June statement.

Also helping the euro were comments from ECB member Ewald Nowotny. Just ahead of the Fed’s statement Mr Nowotny said that he agreed with Bundesbank President and fellow governing council member Jens Weidmann: the ECB should consider tapering its bond purchase programme as there was no longer a deflation risk in the Euro zone. This was a turnaround from Monday when Mr Nowotny said that despite growing market concerns, the ECB "sees no need to set a timetable to end bond buying”. However, a number of analysts have crunched the numbers and are concerned that it won’t take long for the ECB to run out of eligible bonds to buy, unless of course, there’s a change in the rules. Now the rules have been tweaked on a number of occasions since the start of the financial crisis. However, we’re now eight years past the nadir of the crash and many influential voices are insisting that we’re well past the time for interest rate normalisation.

Upcoming events

Today’s significant events and economic data releases include UK Net Lending to Individuals, M4 Money Supply and Mortgage Approvals. From the euro zone we have Flash CPI and Unemployment, and from the US the Chicago PMI and Pending Home Sales.


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Posted by David Morrison

Category: AM Bulletin

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