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BoE expected to hike rates on Thursday - PM Bulletin
31 Oct 2017
Wall Street drifts on tax cut worries - AM Briefing
31 Oct 2017
USDJPY butting up against resistance - PM Bulletin
30 Oct 2017
Spanish IBEX rallies sharply - AM Briefing
30 Oct 2017
Risk appetite strong on earnings/ECB - AM Briefing
27 Oct 2017
ECB finally announces QE taper - PM Bulletin
26 Oct 2017
ECB expected to begin tapering - AM Briefing
26 Oct 2017
Earnings, UK GDP and US Durable Goods ahead - AM Briefing
25 Oct 2017
Earnings season in focus - AM Briefing
24 Oct 2017
Quiet start after record close on Wall Street - AM Briefing
23 Oct 2017
Wall Street reverses early losses-AM Briefing
20 Oct 2017
Equities slide as Catalan deadline approaches - AM Briefing
19 Oct 2017
Gold retesting 50-day moving average - PM Bulletin
18 Oct 2017
Dow surges above 23,000 - AM Briefing
18 Oct 2017
UK inflation data in focus - AM Briefing
17 Oct 2017
Gold and silver break out of downtrend - PM Bulletin
16 Oct 2017
Oil rallies on threat of fresh Iranian sanctions - AM Briefing
16 Oct 2017
US economic data in focus - AM Briefing
13 Oct 2017
FOMC Minutes Released Tonight - Video Update
11 Oct 2017
Spain’s IBEX jumps after Catalan speech - AM Briefing
11 Oct 2017
US dollar - correcting or recovering?
10 Oct 2017
Investors prepare for earnings season - AM Briefing
10 Oct 2017
Has gold broken its long-term downtrend? - PM Bulletin
09 Oct 2017
BoE meeting will decide what sterling does next - Video Update
01 Oct 2017
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Early moves

·         Mixed open for global indices

·         Precious metals stage recovery

There was a mixed start for the European majors this morning as investors responded to a mild sell-off across Wall Street last night. It looks as if there was some position squaring and profit-taking going on ahead of the third quarter earnings season which gets underway this week. However, as the morning session got underway European stock indices rose from their lowest levels as US stock index futures headed into positive territory.

Meanwhile, gold and silver continue to recover after falling sharply over the last four weeks. The two precious metals came under relentless selling pressure as the dollar recovered after a nine month sell-off and as geopolitical tensions subsided. However, it appears that investors are prepared to to step in and purchase safe haven assets, as long as the price is right.

Stock Index Update

·         US indices slip as earnings season approaches

·         FTSE100 falls as sterling strengthens

All the US majors ended in negative territory last night as investors positioned themselves for the start of the third quarter earnings season. But the losses were modest and appeared to be little more than profit-taking after the Dow and NASDAQ hit fresh record intra-day highs earlier in the session. Overall trade was quiet yesterday thanks to the US Columbus Day break. While most markets were open, the pivotal US bond market was closed and this left investors wary of adding to existing exposure.

US equities have had a stunning run over the past year and this has continued through into October which is often considered a problem month for investors. The latest uplift has come as the Trump administration looks set to push through tax reform which should simplify personal tax returns and slash corporation tax. This news has helped to offset Friday’s Non-Farm Payroll data which showed job losses for the first time in seven years. However, the data is confusing as it covers the period when hurricanes were hitting southern states. In addition, there was evidence that wages are starting to pick up which should lift inflation and help the Fed reach its 2% target for core PCE.

There was a firmer tone across European equity markets yesterday to start the week. Investors were relieved that despite concerns on Friday, the weekend didn’t bring another North Korean missile test. All the European majors posted modest gains on Monday, although the FTSE100 lost ground thanks to a rally in sterling. The UK index is heavily weighted towards corporations with significant overseas sales. A stronger currency makes UK exports more expensive so tends to depress revenues. Earnings are also negatively affected once these are converted back into sterling from local currencies.

Commodities Update

·         OPEC says market rebalancing

·         Precious metals steady after steep falls

Crude oil steadied yesterday following a sharp sell-off at the end of last week. Both WTI and Brent slumped during Friday’s session in a move which took WTI back below $50 and Brent down towards $55. Both contracts hit their lowest levels in three weeks. The sell-off followed news of increased OPEC output while it was also reported that US production is now at two-year highs. However, yesterday OPEC secretary general Mohammad Barkindo stated that there were clear signs that the global oil market is rebalancing after years of oversupply. He said that there were drawdowns in onshore and offshore crude stockpiles which suggest that the OPEC/non-OPEC production cut agreement may finally be having some effect. The agreement is set to expire in March next year although there is speculation that it will be extended for a second time. On top of this, there is some evidence suggesting that US shale oil production may have peaked which, if correct, will be one less cap for oil prices going forward.

Gold and silver were firmer in early trade this morning, building on gains made in yesterday’s session. This in turn followed on from last Friday’s rally. Both metals have had a torrid time over the last four weeks as the dollar rebounded after a relentless sell-off which began at the beginning of the year. A stronger dollar makes dollar-denominated commodities less attractive to non-dollar holders. On top of this, investors dumped safe haven assets as they rediscovered their risk appetite as fears of hostilities breaking out between the US and North Korea subsided somewhat. Geopolitical tensions rose sharply over the summer as North Korea undertook a number of provocative missile tests. These led President Trump to unleash a stream of bellicose Tweets which increased the probability of hostilities breaking out. However, South Korea diffused the situation to some extent when it stated that it would rather live next door to a nuclear-armed North Korea than support the US in attempting a military solution.

Forex Update

·         USD drifts and euro rallies

·         Sterling recovers as May steadies the ship

The US dollar slipped yesterday and was a touch weaker again in early trade this morning. The greenback fell against all the majors although the moves appear to be related to individual currency factors rather than a single “dollar-negative” story. The euro continues to get a boost from yesterday’s strong German Industrial Production number. It also got a lift after ECB executive board member Sabine Lautenschlaeger called on the central bank to cut back its asset purchases in 2018. There also appears to be less concern over the prospect of Catalonia taking further steps towards independence from Spain. Meanwhile, sterling is firmer as UK Prime Minister Theresa May recovers from last week’s conference disaster and on the prospect of a BoE rate hike next month.

For the EURUSD, resistance comes in around 1.2000 while there are areas of support around 1.1660 and then 1.1400. It feels as if worst may be over for the euro as market absorbs German general election result and the controversial Catalonian independence referendum in Spain. Aside from this, the market seems like it’s refocusing on what the European Central Bank (ECB) will do next. The feeling is that the ECB will have to start tightening monetary policy soon and that ECB President Mario Draghi may announce bond purchase tapering before the year-end. This means the world’s two largest central banks will both be engaged in removing monetary stimulus at the same time.

Upcoming events

Today’s significant events and economic data releases include French and Italian Industrial Production. From the UK we have Manufacturing Production, the Goods Trade Balance, Construction Output and Industrial Production. Later in the day Federal Reserve Bank of Minneapolis President Neel Kashkari will deliver opening remarks at the Regional Economic Conditions Conference.

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Posted by David Morrison

Category: AM Bulletin


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