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

·         North Korea fires another missile over Hokkaido

·         US Retail Sales in focus

The news that the North Korean regime lobbed another missile over Japanese territory last night was largely met with indifference with risk assets little-moved. In fact, the market’s insouciance was such that the Nikkei ended the session 100 points (0.5%) higher. European stock indices were a touch weaker in early trade but that can mostly be put down to last night’s mixed close on Wall Street. There’s a feeling (hopefully correct) that North Korea has made its point so is unlikely to engage in any other provocative acts over the weekend. That leaves investors free to concentrate on more positive events, such as the prospect of US tax reform.

Today’s big economic release is US Retail Sales. The headline number is expected to come in at +0.1% in August, well below the prior +0.6% reading. Core Retail Sales (excluding autos) is expected to rise 0.5%, unchanged from the previous month.

Stock Index Update

·         Bank of England’s hawkish summary

·         Sterling rally weighs on FTSE 100

European stock indices were weaker in early trade yesterday despite fresh record closing highs on Wall Street. Investors trimmed their overall exposure to equities following the release of disappointing Chinese economic data. Industrial Production, Fixed Asset Investment and Retail Sales all came in below expectations and showed a further slowdown in China’s economic expansion. The news led to a sell-off across the major Asian Pacific stock indices. Some of the European majors managed to recover later in the session, although the FTSE100 fell over 1%. This came as sterling rallied sharply following a hawkish monetary policy summary from the Bank of England’s Monetary Policy Committee (MPC). This was more hawkish than anticipated with the MPC citing a pick-up in inflation and an erosion of economic slack as reasons to begin removing monetary stimulus soon. The FTSE100 contains a large percentage of multinationals whose revenues and earnings take a hit when sterling strengthens.

Meanwhile US Core CPI rose 0.2% in August. This was as expected and a touch above the prior reading of +0.1%. But the trouble is that the Fed’s preferred inflation measure, Core PCE, has been trending downwards since the beginning of the year, slipping to +1.4% last month. Not only is this heading in the wrong direction but it is significantly below the US central bank’s 2% inflation target. Back in July during her testimony in Washington, Janet Yellen made it clear that the Fed was playing very close attention to inflation, or the lack of it, when it came to setting monetary policy. She also suggested that the Fed was closer to its fed funds target than was estimated by the market. This led to a sharp reassessment on the timing of the next rate hike which has been pushed out to next June from December this year. This in turn continues to weigh on the dollar.

Commodities Update

·         Crude hits fresh multi-month highs

·         Precious metals rally on NK missile launch

Crude oil shot higher yesterday in a move which saw WTI surge above $50 per barrel to hit its highest intra-day high since late May. Brent broke above $55 to close out at its best level since mid-April. Yesterday’s price action saw Brent recoup all the losses which followed from the last OPEC meeting on 25th May this year. This was when OPEC and a number of non-OPEC oil producers agreed to extend their output cut agreement by nine months. This should have been bullish for prices. However, market participants had also expected all parties to increase their overall output cut above the 1.8 million barrels per day (bpd) which had been in operation since the beginning of the year. Unfortunately, the lack of agreement led to a sharp market sell-off.

There was no direct trigger for yesterday’s push higher. Instead it appeared to be driven by a combination of fresh buying and short covering which added to the upside momentum. On Wednesday the International Energy Agency (IEA) raised its estimate for global demand in 2017 to 1.6 million bpd from 1.5 million bpd, its strongest oil demand growth in two years. OPEC also raised its outlook for demand growth and hinted at prolonging output cuts further into 2018. OPEC also reported that its output fell in August, the first monthly decline in four months.

Gold and silver drifted lower for most of yesterday. Investors didn’t even bat a collective eyelid after a statement from North Korea threatened to “sink” Japan and reduce the US to “ashes and darkness”. However, both metals shot higher later in the session as intelligence warned that another missile test was imminent. This came to pass overnight as Kim Jong-un launched a second missile over the northern Japanese island of Hokkaido. This latest provocation came after the UN Security Council issued fresh sanctions against the rogue state which included an embargo on the textile trade, inspections of North Korea’s shipping and measures to cap oil imports to the country. However, it could be that this latest bit of sabre rattling helped to put a floor under the gold price as support seems to be holding around $1,320 - for now. Silver bounced off $17.60 but does look vulnerable. A pull-back towards $17.20 can’t be ruled out, particularly if the US dollar begins to correct higher.

Forex Update

·         Sterling rallies on hawkish BoE statement

·         MPC looking to reduce monetary stimulus

Sterling flew higher yesterday following the latest rate decision and statement from the Bank of England (BoE). The BoE’s Monetary Policy Committee (MPC) voted 2-7 if favour of keeping the Bank Rate unchanged at 0.25%. In fact, sterling sold off initially as some market participants had expected a closer vote, particularly in light of this week’s inflation data. Headline CPI for August shot up to 2.9% annualised from +2.6% in the prior month. However, sterling quickly reversed direction and it wasn’t long before the GBPUSD had made a fresh 12-month high. The reason for the turnaround came in the accompanying MPC statement which was considerably more hawkish than anticipated. The MPC noted that the continued erosion of slack in economy along with the ongoing rise in underlying inflationary pressure made some withdrawal of monetary stimulus likely to be appropriate over the coming months. The committee said that they could tighten more than current market expectations if the economy followed a path broadly consistent with the August Inflation Report central projection. However, all members agreed that any prospective increase in the Bank Rate would be expected to be at a gradual pace and to a limited extent.

The GBPUSD continues to close in on resistance around 1.3400/1.3450. A break above here would take the pair back up to levels last seen straight after last year’s referendum vote which saw cable plunge from 1.5000 to 1.3000 in little over a week. However, it could be a long hard slog to 1.3800 and then 1.40 which would also require US dollar to continue to weaken.

Upcoming events

Today’s significant events and economic data releases include the Bank of England’s Quarterly Bulletin and Euro zone Trade Balance. From the US we have Retail Sales, the Empire State Manufacturing Index, Capacity Utilisation, Industrial Production, Business Inventories, Consumer Sentiment and Inflation Expectations.


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Posted by David Morrison

Category: AM Bulletin

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