Incisive market commentary from David Morrison

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Collapse 2017 <span class='blogcount'>(348)</span>2017 (348)
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Tory Poll Lead Narrows Sharply - Video Update
31 May 2017
S&P 500 and NASDAQ break winning streak
31 May 2017
Sterling swings on polls - PM Bulletin
30 May 2017
Equities drift after long holiday weekend - AM Briefing
30 May 2017
Crude oil slumps on OPEC disappointment - AM Briefing
26 May 2017
OPEC disappoints while FOMC minutes provide cheer - Video Update
25 May 2017
OPEC expected to agree 9-month extension - AM Briefing
25 May 2017
Look-ahead to OPEC - Video Update
24 May 2017
Markets quiet ahead of FOMC minutes and OPEC - AM Briefing
24 May 2017
Crude oil update - OPEC meeting in focus - PM Bulletin
23 May 2017
Markets shrug off atrocity in Manchester - AM Briefing
23 May 2017
Equities mixed, but supported by oil
22 May 2017
Nerves steady after firmer close on Wall Street - AM Briefing
19 May 2017
Political fall-out continues to weigh on markets - Video Update
18 May 2017
Slide in European indices accelerates - AM Bulletin
18 May 2017
Trump’s woes hit markets - Video Update
17 May 2017
Trump’s woes lead to market wobble - AM Briefing
17 May 2017
EURUSD hits six-month high - PM Bulletin
16 May 2017
Crude oil extends rally - AM Briefing
16 May 2017
US inflation data and retail sales in focus - AM Briefing
12 May 2017
Crude oil recovers after “flash crash”- Video Update
11 May 2017
Crude oil soars while equities drift - AM Briefing
11 May 2017
Are investors too complacent? - Video Update
10 May 2017
Investors rattled after Trump fires FBI head - AM bulletin
10 May 2017
Crude oil’s “flash crash” leads to OPEC desperation - PM Bulletin
09 May 2017
Equities rally as oil steadies - AM Briefing
09 May 2017
Forex: Top Ten Tips for beginners - Trading Guides
08 May 2017
Markets little moved after Macron win - AM Briefing
08 May 2017
Payrolls in focus - AM Briefing
05 May 2017
NFP look-ahead - Video Update
04 May 2017
FOMC hints at rate hike in June - AM Briefing
04 May 2017
FOMC look-ahead - Video Update
03 May 2017
Apple disappoints on sales numbers - AM Briefing
03 May 2017
CFD Trading Tips - Trading Guides
02 May 2017
European traders return after May Day - AM Briefing
02 May 2017
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Early moves

·         European equities slip

·         Crude remains below key levels

European equity markets were lower first thing as were US stock index futures. The moves reflected investor nervousness following the shock news that President Trump had fired FBI head James Comey. The move was a surprise, but it has also sparked accusations that Trump has something to hide. Whether that story will stick or not is another matter. However, investors were already dialling down on their US stock market exposure last night after North Korea announced that it would proceed with a fresh nuclear test. While this suggests that geopolitical tensions could once again influence markets, there’s little evidence of anyone taking matters too seriously. Precious metals continue to struggle at depressed levels suggesting there’s little investor appetite for traditional safe havens.

Meanwhile, WTI and Brent continue to hold beneath significant support/resistance which comes in around $47 and $50 respectively. This is despite last night’s API inventory data which showed a much bigger-than-expected drawdown in crude stockpiles.

Stock Index Update

·         NASDAQ hits fresh high

·         Apple market cap tops $800 billion

Last night saw a mixed close for the US majors. Once again the NASDAQ 100 hit a fresh record, but the Dow and S&P500 ended weaker, although off their session lows. Investors were rattled by news that North Korea intends to carry out yet another nuclear test. However, the tech-heavy NASDAQ was unaffected thanks to a continued rally in stocks such as Apple, Alphabet (Google), Amazon and Facebook.

The major European stock indices ended modestly higher overall yesterday, with only the Spanish Ibex failing to close in positive territory. Yet again, global equities shrugged off further weakness in crude oil. Usually, a sell-off of the current magnitude would lead to a slump in stocks across the energy sector. However, the major oil companies continue to hold up well, boosted by a strong set of first quarter earnings. This saw the energy majors reduce debt, cut capital expenditure, keep their dividends high and generally capitalise on the stronger oil price which was in evidence in the fourth quarter last year and the first three months of 2017.

On Monday Apple's market capitalization burst above the $800 billion threshold for the first time ever. This came despite the release of a disappointing set of results last week with iPhone sales coming in below expectations. But analysts appear to believe CEO Tim Cook who said customers are waiting for the next iPhone launch in September.

In other news, the CBOE Volatility Index (VIX) has fallen below 10.00 to hit a 24-year low of 9.67. This is a strong indication that investors are in “risk-on” mode and happy to hoover up US equities. The French election result has certainly helped, as has the recent reduction in geopolitical tensions. However, it can also indicate over-confidence and some analysts are urging caution when it comes to investing in US equities.

Commodities Update

·         API reports massive crude drawdown

·         Precious metals struggle to find support

Last night the American Petroleum Institute (API) reported a 5.8 million barrel drawdown in crude stockpiles. Not only was this way above the 2 million barrel reduction anticipated, it was the biggest decrease since 2016. Crude jumped on the news but the rally was capped by a large build in gasoline stockpiles.

Both WTI and Brent are managing to hold on to gains made at the end of last week although both contracts appear vulnerable at current levels. Brent and WTI really need to break back above $50 and $47 respectively. These are support levels that were breached last Thursday which could now act as resistance. While there’s been renewed talk that OPEC and other producers may extend their output cut agreement beyond June, rising US production remains a damper for oil prices. We’ll get another update on US inventories later this afternoon.

Saudi Arabia's energy minister Khalid Al-Falih raised hopes that the output cuts agreed by OPEC members and other major producers looked likely to be extended beyond June. In fact, there’s current speculation that it could stretch through to March 2018. Unfortunately for those producers who are sacrificing quantity for price, it appears that the US is happy to capitalise on the situation by increasing its own production.

Gold and silver crept higher in early trade yesterday. However, prices began to head lower soon after the US open. It seems that neither precious metal can catch a break at the moment with investors shunning safe havens and happy to take on riskier, higher-yielding assets instead. Part of this has to do with the recent dialling-down in geopolitical risk. Certainly, there’s less concern that tensions between the US, China and North Korea will trigger a Third World War. But the two precious metals are also getting caught up in a general sell-off across the commodity space. This has led to sharp falls in the price of oil, copper and iron ore. Below $1,220 the next significant support for gold comes in at $1,200. Meanwhile, silver looks set to break $16 and retest December’s lows.

Forex Update

·         Dollar makes gains across the board

·         Fed expected to tighten next month

The US dollar was back on the rally tracks yesterday. The greenback made gains across the board in a move which saw the EURUSD slip below 1.0900. Considering that this currency pair was trading above 1.1000 on Monday morning following Emmanuel Macron’s victory in the French presidential election and one can see the extent of the turn-around. The dollar also did well against the yen with the USDJPY trading up to its highest level in two months. Investors were increasing their dollar exposure as they look ahead to further monetary tightening from the US Federal Reserve. The expectation is that the Fed will hike rates by another 25 basis points at next month’s meeting and this is reflected in rising US Treasury yields. Meanwhile, the Bank of Japan and European Central Bank appear content to continue with their current lose monetary policies.

Upcoming events

Today’s significant events and economic data releases include French Industrial Production, French Trade Balance and Italian Industrial Production. At lunchtime ECB President Mario Draghi will deliver a speech about the impact of monetary policy. From the US we have Mortgage Delinquencies, Crude Oil Inventories and the Federal Budget Balance. Later on this evening we have a rate decision from the Reserve Bank of New Zealand.


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Posted by David Morrison

Category: AM Bulletin

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