Incisive market commentary from David Morrison

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Collapse 2017 <span class='blogcount'>(348)</span>2017 (348)
Expand November <span class='blogcount'>(26)</span>November (26)
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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

·         Equity rally continues

·         Investors look ahead to Non-Farm Payrolls

European stock indices were a touch firmer soon after the open. This followed on from another positive close across Wall Street and a fresh record finish for the NASDAQ.

Investors are looking ahead to this afternoon’s US Non-Farm Payroll release for August. The consensus expectation is for job gains of 180,000 which would be a touch down on the 209,000 created in July but still keep the 6-month rolling average above 180,000. This is considered healthy in the current environment.

The Unemployment Rate is expected to hold steady at 4.3% - back at lows last seen over 16 years ago, and before then back in the late sixties. This low rate of unemployment has led some FOMC members to worry that inflation could suddenly surge higher. Certainly the employment picture has been improving across the Euro zone, Japan and UK, where central banks have kept monetary policy loose. This is why investors will also keep a close eye on today’s Average Hourly Earnings release as any pick-up in wage growth should encourage the hawks within the Fed. But yesterday’s Core PCE number (the Fed’s preferred inflation measure) has given the doves the upper hand. This fell to +1.4% in July from +1.5% previously and well below the Fed’s 2% target. It also continues the downward trend that began in January. Janet Yellen has made it clear that the Fed is keeping a close eye on inflation and there’s little chance of the central bank raising rates further this year unless Core PCE picks up sharply.

Stock Index Update

·         US indices close higher on the month

·         Investors back in “risk-on” mode

US stock indices continued to storm higher yesterday. Investors put all caution behind them and hoovered up stocks. This meant that despite a number of sharp sell-offs due to political uncertainty, a rise in geopolitical tensions, a hurricane and a stock market that arguably hasn’t had a significant downside correction since the beginning of 2016, the Dow, S&P500 and NASDAQ 100 all ended higher for the month. The trigger for yesterday’s rally came during an interview with US Treasury Secretary Steve Mnuchin who said that a “very detailed” tax plan was ready to go.

European stock indices flew higher yesterday in a move triggered by a tech-led rally on Wall Street on Wednesday. Yesterday’s move was broader in scope suggesting that investors are solidly back in “risk-on” mode. Certainly, there was little evidence of the nervousness apparent at the beginning of the week after North Korea lobbed a missile over Japan and into the Pacific. This was despite a tweet from President Trump which said that when it came to dealing with N. Korea, “Talking was not the answer.”

Commodities Update

·         WTI and Brent bounce

·         Precious metals rally back after sell-off

Crude prices rallied yesterday giving WTI and Brent their first positive close-outs for the week. There was no obvious trigger for the move higher which appeared largely corrective. That’s to say a straightforward short-covering bounce. Despite this, WTI continues to trade in a minor downtrend which began at the beginning of August while Brent appears to be more range-bound. Both contracts have struggled to make much headway since early March and there was particular disappointment that the OPEC meeting at the end of May didn’t result in an agreement to deeper production cuts. But for now traders are focused on the damage inflicted on Texan oil refineries by Hurricane Harvey. The storm has knocked out around 25% of US refining capabilities. This has led to a sharp rally in gasoline prices which have hit $2 per gallon for the first time since 2015. However, crude prices have been under pressure for most of the time since the storm hit as there is reduced demand from refiners for oil.

Gold and silver both slumped in early trade yesterday on a bout of indiscriminate selling. The move came during the Asian Pacific session when liquidity is typically low. The sell-off saw gold break below $1,300 while silver dropped back below $17.30. Both bounced back quickly but struggled to make much headway during the morning session. But the two precious metals began to push higher soon after the US open. Technically, it looks as if gold is managing to bed in above $1,300 which could provide the foundation for another move higher. Support for silver comes in around $17.30 and if it can consolidate above $17.40 then a retest of the June high of $17.75 looks likely. The two metals should continue to get support from tensions across the Korean peninsula which may seem reduced but have certainly not disappeared. However, there’s always the danger that a sudden corrective rally in the US dollar could push both metals back down through support and invalidate their recent push higher.

Forex Update

·         ECB concerned about euro’s strength

·         Euro zone inflation ticks higher

The euro dipped sharply yesterday morning before rallying sharply. Traders dumped the euro following a new report suggesting that members of the ECB’s Governing Council are concerned about the currency’s strength. At the beginning of this week the EURUSD soared above 1.2000 to hit its highest level since early 2015. Some of the move was on the back of dollar weakness as traders waited for the Trump administration’s response to the North Korean missile launch. However, the euro was already on the ascendancy following ECB President Mario Draghi’s speech at the Jackson Hole Economic Symposium on Friday afternoon. Market participants had expected Mr Draghi to talk down the euro which has rallied over 15% against the dollar since the beginning of the year. This followed the release of minutes of the last ECB meeting which showed that some members of the Governing Council were worried about the euro’s gains. However, the ECB head failed to express any opinion on FX movements or monetary policy. This gave traders the green light to drive the single currency higher, although fresh talk of ECB unease over the euro’s strength saw it fall yesterday. But the sell-off in the single currency was limited to some extent as Euro zone CPI inflation ticked up to 1.5% annualised - its highest level in four months. This means that Draghi will face some tricky questions at his press conference after next week’s ECB monetary policy meeting. How will he square normalising monetary policy against a backdrop of rising inflation and economic growth across the Euro zone with a desire for a weaker currency?

Upcoming events

Today’s significant events and economic data releases include Spanish, Swiss, French, German, Euro zone, UK and US Manufacturing PMIs. Also from the US we have Non-Farm Payrolls, Average Hourly Earnings, Unemployment Rate, Consumer Sentiment, Inflation Expectations, Construction Spending and Total Vehicle Sales.


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Posted by David Morrison

Category: AM Bulletin

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