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Collapse 2017 <span class='blogcount'>(348)</span>2017 (348)
Expand November <span class='blogcount'>(26)</span>November (26)
Expand October <span class='blogcount'>(24)</span>October (24)
Collapse September <span class='blogcount'>(33)</span>September (33)
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

·         European equities bounce back

·         World unsure of response to North Korea

European equities were modestly higher first thing this morning while US stock index futures had made back most of yesterday’s losses as US traders return from the long Labor Day weekend. The only indication that there’s still some risk aversion out there is in FX where there have been further gains for the safe haven currencies of the Japanese yen and Swiss franc. Despite this the USDJPY is still some way off support around the 108.00 area and overall investors don’t appear overly concerned about another surge in tensions across the Korean peninsula. This could be naïve. After all, assuming that the worst two possible outcomes (the outbreak of hostilities or US sanctions against all North Korea’s trading partners)don’t come to pass, that still leaves the regime dangerous, effectively unsanctioned and overall a clear winner in the game of international brinksmanship. The question being, what will Kim Jong-un do next?

Stock Index Update

·         Stock indices bounce back

·         Central banks set to keep policy loose

Today marks the first full trading day after the summer as US market participants come back from their holidays and the long Labor Day weekend. First on the order of business will be deciding on a proper response to North Korea’s nuclear weapons test over the weekend. Yesterday there was a sharp move out of riskier assets such as equities and a move into safe havens such as precious metals, the Japanese yen and Swiss franc. But all the European stock indices ended the day comfortably off their lows.

It should have been a slow start to the trading week following a disappointing Non-Farm Payroll release on Friday and yesterday’s Labor Day holiday for the US and Canada. However, North Korea’s nuclear test over the weekend saw investors rush to dump European equities and US stock index futures. North Korea conducted its sixth and most powerful nuclear test to date, which it claimed was of an advanced hydrogen bomb for a long-range missile.

The nuclear test led to a sharp “risk off” reversal. But once again it appears that buyers appear happy to take advantage of cheaper equity prices. Last week they were encouraged by comments from US Treasury Secretary Steve Mnuchin who said on Thursday that a “very detailed” tax plan was ready to go. Earlier in August markets had sold off sharply on fears that the Trump administration was falling apart. Also, it now appears that the ECB will wait until December to provide details on how it proposes to wind down its €60 billion per month asset purchase programme. On top of this, the Fed is unlikely to raise rates again this year given weak inflation numbers. Another rate hike isn't fully priced in until June 2018, according to the CME Group's FedWatch tool.

Commodities Update

·         US crude demand falters

·         Gold and silver shoot higher

Crude oil was mixed yesterday. There were modest gains for WTI and a small loss for Brent. This appeared to be nothing more than corrective action following last week’s moves. This saw WTI lose ground while Brent was pretty much unchanged. WTI came under selling pressure thanks to the effects of Hurricane Harvey and the subsequent flooding across Texas and Louisiana. In addition to the loss of human life and widespread destruction, the hurricane has led to the shutdown of a significant percentage of US refining capacity. This has led to a sharp rise in gasoline prices. As a result WTI crude sold off as there is severely reduced demand for oil from refiners. Consequently, crude stockpiles are expected to rise over the coming weeks. But it could be a long time before we get a clear picture of the longer-term effects of the storm on US refining capacity. This is because in addition to controlled shut-downs, some refineries have been flooded and the full extent of the damage is unknown.

Gold and silver prices gapped higher yesterday morning. These moves followed news that North Korea had undertaken another nuclear test over the weekend. Silver hit its highest level since April while gold hit its best level in close to a year when it came within a few cents of breaching $1,340. The moves came exactly a week after both metals shot higher again on raised geopolitical tensions. Last Monday gold flew above $1,300 after North Korea fired a missile straight over Japanese territory. The latest move has raised the possibility of a military response from the US although it seems more likely that enhanced sanctions will be the next step. However, even these will be market-negative. President Trump has tweeted that the US is considering “…stopping all trade with any country doing business with North Korea.”

Technically, both charts are looking constructive as gains over the latter part of this summer appear to have led to an upside breakout. Despite this, it shouldn’t be a surprise to see traders book profits after recent gains. But if gold and silver are able to consolidate at these higher levels then it’s possible both could push higher.

Forex Update

·         North Korea undertakes 6th nuclear test

·         Safe havens in demand

Yesterday’s biggest movers in FX were those traditional safe havens - the Japanese yen and Swiss franc. Both currencies made significant gains versus both the US dollar and euro following news that North Korea had undertaken its sixth nuclear test over the weekend. The regime claimed that they had tested a hydrogen bomb, and this was supported by high seismic activity recorded in the area. Investors reduced their exposure to riskier assets (such as equities) and bought back lower yielding financial instruments which had been borrowed (sold) to pay for stocks. The yen also rose on the expectation that Japanese investors would look to repatriate funds from overseas due to increased uncertainty and raised geopolitical tensions.

The dollar fell sharply on Friday following the release of disappointing US jobs numbers. The headline Non-Farm Payrolls came in well below expectations and the two prior readings were also revised down. On top of this, Average Hourly Earnings rose 0.1% in August - well below July’s 0.3% increase. The weaker data helped to reduce the likelihood of the US central bank raising rates again before the year end. However, news that the ECB won’t be in a position to disclose reductions in its bond purchase programme until December saw the euro sell off and the dollar rise. Investors had expected the ECB to release details at its monetary policy meeting this week.

Upcoming events

Today’s significant events and economic data releases include Spanish, Italian, French, German, Euro zone and UK Services PMIs. We also have Euro zone Retail Sales and revised GDP. From the US we have speeches from Federal Reserve members Lael Brainard, Neel Kashkari and Robert Kaplan.


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Posted by David Morrison

Category: AM Bulletin

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