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Collapse 2017 <span class='blogcount'>(348)</span>2017 (348)
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Non-Farm Payroll look-ahead - Video Update
31 Aug 2017
Tech stocks lead market recovery - AM Briefing
31 Aug 2017
Fall-out from Jackson Hole - Video Update
30 Aug 2017
Investors shrug off North Korean missile launch - AM Briefing
30 Aug 2017
Gold breaks through $1,300 - PM Bulletin
29 Aug 2017
Equities slide after North Korean missile launch - AM Briefing
29 Aug 2017
Yellen and Draghi in focus - AM Briefing
25 Aug 2017
Jackson Hole look-ahead to key speeches - Video Update
23 Aug 2017
Wall Street surges on tax reform hopes - AM Briefing
23 Aug 2017
Euro slips, but range-bound ahead of Jackson Hole - PM Bulletin
22 Aug 2017
Equities recover in early trade - AM Briefing
22 Aug 2017
Equities under pressure as Trump struggles - AM Briefing
21 Aug 2017
Equities fall as investors find reasons to sell - AM Briefing
18 Aug 2017
ECB and FOMC minutes lead to FX volatility
17 Aug 2017
FOMC minutes viewed as dovish - AM Briefing
17 Aug 2017
FOMC minutes in focus - Video Update
16 Aug 2017
Fed minutes in focus - AM Briefing
16 Aug 2017
Sterling slips as inflation steadies - PM Bulletin
15 Aug 2017
Equities continue to recover - AM Briefing
15 Aug 2017
Gold: triple top or third time lucky? - PM Bulletin
14 Aug 2017
Stocks bounce as geopolitical risk eases - AM Briefing
14 Aug 2017
Bank of England rate decision in focus - AM Briefing
03 Aug 2017
Crude breaks above resistance - PM Bulletin
02 Aug 2017
Apple rallies 6% on strong report - AM Briefing
02 Aug 2017
Cable breaks above 1.32000 - PM Bulletin
01 Aug 2017
Apple to report after the close - AM Briefing
01 Aug 2017
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Early moves

·         Stock indices surge as traders “buy the dip”

·         Gold weaker but above $1,300

European stock indices opened sharply higher this morning following yesterday’s bounce-back on Wall Street. All the US majors reversed an early sell-off to end Tuesday’s session moderately higher. The recovery came on relief that President Trump responded to the North Korean missile launch over Japan with restraint. Rather than unleashing a Tweet-storm Mr Trump paused before stating that all options were on the table when it came to dealing with the rogue state. So traders switched back into their default “buy the dip” setting hoping to take advantage of Tuesday’s sharp sell-off to pick up risk assets at cheaper prices.

Meanwhile, the dollar has steadied, albeit at lower levels, and the EURUSD has pulled back below 1.2000. The gloss has also come off precious metals, although gold remains above $1,300 and silver is hanging in above $17.20. If the two metals can hold these levels for the rest of the week then further gains are likely.

Stock Index Update

·         Trump offers measured response to N Korea

·         US indices end positive for the session

As far as investors are concerned it’s as if North Korea’s Kim Jong-un lit up a Catherine Wheel rather than a ballistic missile and that Hurricane Harvey was an April shower. Yesterday morning’s stock index sell-off reversed sharply taking all the US majors into positive territory by the close. There was widespread relief that President Trump didn’t unleash a Tweet-storm and offered a measured response instead.

European and US stock indices opened sharply lower yesterday morning as news broke that North Korea had shot a missile directly over Japan. Investors dumped equities and lightened up on their overall risk exposure as they waited for a response from President Trump. A few weeks ago Trump threatened North Korea with “fire and fury” if it made further threats to the US. But yesterday the president’s response was slower in coming although he made it clear that “all options were on the table.” Earlier in the day Japanese Prime Minister Shinzo Abe described the latest missile test as an "unprecedented, grave threat" and called for an emergency meeting of the UN Security Council. This latest move from Pyongyang comes as the US and South Korea approaches the end of extensive military exercises in the region.

In other news, last week House Speaker Paul Ryan insisted that the US would raise the debt ceiling to avoid a default. His comments came after President Trump tweeted that Congress could have avoided a "mess" if Ryan and Mitch McConnell had taken his advice to link the debt ceiling and veterans' funding measure. Separately, Trump’s National Economic Council Director Gary Cohn told the Financial Times that the president would spend this week concentrating on tax reform. But this seems less likely now with North Korea and the Texan storm damage to consider.

Commodities Update

·         Hurricane Harvey keeps lid on crude

·         Gold steadies above $1,300

After yesterday’s close the American Petroleum Institute (API) released its latest update on US crude inventories. Crude stockpiles fell by 5.8 million barrels for the week ending 25th August, way above the 1.8 million barrel decline anticipated. But this had little effect on crude prices as the data was collected before Hurricane Harvey hit Texas.

Crude prices were steadier in early trade yesterday following Monday’s steep fall. However, both WTI and Brent sold off later in the session as investors continued to weigh the effects on output and refining of Hurricane Henry and its aftermath. The severe weather conditions have disrupted oil and gas production along the Gulf Coast - an area which accounts for nearly half the country's refining capacity. There has been a relatively minor disruption to oil production while refining capacity has been severely affected. So gasoline prices have shot higher while crude has fallen as there is reduced demand from refiners for oil. It’s calculated that more than 13% of US refining capacity could remain offline and this has led to a spike higher in gasoline prices. However, crude has fallen as demand is set to fall in the short-term as refiners have no use for their raw material.

On Monday afternoon gold broke above $1,300 and then flew higher as stops were triggered and fresh buyers poured into the market. Gold went on to close out at its highest level in eleven months, having traded at prices last seen in the volatile times directly following Donald Trump’s surprise election victory in November. Some traders believe this move could prove decisive in undoing the apparent stalemate that has existed between bulls and bears over the past few months. A look at the chart shows how gold repeatedly struggled to make a decisive break above $1,290 and appeared to be forming a bearish triple top just a fortnight ago. It’s looking a lot healthier now. But despite this it could be a bit rash to suggest that gold is now set for another big leg higher with last summer’s $1,375 high in prospect. It’s certainly a possibility, but it’s worth bearing in mind that a bounce-back in the dollar or any reduction in geopolitical tensions should lead to a sell-off in gold. Traders will want to see gold consolidate above $1,300 for the rest of this week and this could then provide a solid backdrop for buying the dips.

Forex Update

·         Dollar steadies after sharp sell-off

·         EURUSD pulls back below 1.2000

The US dollar fell again yesterday although it managed to make back a fair proportion of its early losses. It came under pressure as investors reacted to speeches from Fed Chair Janet Yellen and ECB President Mario Draghi on Friday at the Jackson Hole Economic symposium. While neither central bank head was expected to address monetary policy, it had been thought that Mr Draghi would try talking down the euro. Earlier in the month minutes from the ECB’s monetary policy meeting in July revealed that the Governing Council was concerned about the strength of the single currency. But Mr Draghi made no mention of the euro, preferring to comment about regulation instead.  This gave traders the green light to take the single currency higher. This saw the EURUSD surge above 1.2000 to hit its highest level since the beginning of 2015. This represents quite a reversal in the euro’s fortunes. At the beginning of this year the EURUSD hit a 14-year low. The dollar was much in demand, helped to some degree by Trump’s unexpected election victory in November. However, the failure of the new administration to push through promised tax cuts, regulatory reforms and infrastructure spending programmes (together with the never-ending round controversies which  attach to Trump and his team) has seen the dollar pull back significantly over the past eight months.

Upcoming events

Today’s significant events and economic data releases include Spanish CPI and the Swiss KOF Economic Barometer. From the UK we have Net Lending to Individuals, M4 Money Supply and Mortgage Approvals. From the US we have the ADP Employment Change, Preliminary GDP and Crude Oil Inventories.


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Posted by David Morrison

Category: AM Bulletin

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