Incisive market commentary from David Morrison

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Market awaits Trump, and Fed reaction
28 Feb 2017
Markets on hold ahead of Trump speech to Congress - AM Briefing
28 Feb 2017
Fibonacci Retracement - an introduction - Trading Guides
27 Feb 2017
Investors shrug off concerns ahead of Trump speech - AM Briefing
27 Feb 2017
Equities drifting lower ahead of weekend - AM Briefing
24 Feb 2017
Dollar sells off after FOMC minutes - Video Update
23 Feb 2017
FOMC minutes send dollar lower - AM Briefing
23 Feb 2017
Crude oil pushes up against resistance - Video Update
22 Feb 2017
FOMC minutes in focus - AM Briefing
22 Feb 2017
Gold pulls back from resistance - PM Bulletin
21 Feb 2017
US traders return after market holiday - AM Briefing
21 Feb 2017
Identifying market tops, or the trend is your friend - until it isn’t
20 Feb 2017
Kraft Heinz pulls Unilever bid - AM Briefing
20 Feb 2017
Major indices drifting lower as weekend approaches - AM Briefing
17 Feb 2017
US Indices hit fresh record highs
16 Feb 2017
Trump tax promise continues to drive risk appetite - AM Bulletin
16 Feb 2017
Yellen testifies in Washington
15 Feb 2017
Yellen testimony helps lift sentiment - AM Bulletin
15 Feb 2017
Silver hovers around resistance at $18
14 Feb 2017
Focus turns to Yellen’s testimony in Washington
14 Feb 2017
An introduction to the Relative Strength Index - Trading Guides
13 Feb 2017
Equity rally continues - AM Briefing
13 Feb 2017
Trump tax talk boosts risk appetite - AM Briefing
10 Feb 2017
US dollar drivers - Video Update
09 Feb 2017
Recovery in crude lifts equities AM Briefing
09 Feb 2017
Crude volatility picking up - Video Update
08 Feb 2017
Crude lower as inventories soar - AM Briefing
08 Feb 2017
Politics set to drive FX - PM Bulletin
07 Feb 2017
Major indices drift in featureless trade - AM Briefing
07 Feb 2017
MACD - an overview -Trading Guide
06 Feb 2017
European equities drift in quiet trade - AM Briefing
06 Feb 2017
Non-Farm Payrolls in focus - AM Briefing
03 Feb 2017
Non-Farm Payroll look-ahead - Video Update
02 Feb 2017
BoE meeting in focus - AM Briefing
02 Feb 2017
FOMC meeting tonight - Video Update
01 Feb 2017
Markets steady ahead of Fed meeting - AM Briefing
01 Feb 2017
Expand January <span class='blogcount'>(39)</span>January (39)
Expand 2016 <span class='blogcount'>(483)</span>2016 (483)


Early moves

·         Kraft Heinz pulls Unilever bid

·         US closed for Presidents’ Day

Shares in Unilever opened around 9% lower in London this morning after Kraft Heinz pulled its bid made at the end of last week. Kraft Heinz said they had hoped to negotiate on a “friendly basis” so dropped takeover plans when Unilever management made it clear they had no interest in a deal. It’s quite an odd situation and makes one think that Kraft really hadn’t done its homework on this one.

The wider market was unaffected by the news with the major European stock indices all firmer in early trade. The Dow and S&P ended little-changed on Friday night although both indices bounced off lows made earlier in the day. Trade is expected to be subdued today as volumes should be light over the Presidents’ Day holiday.

Stock Index Update

·         Wall street drifts ahead of Presidents’ Day

·         Trump needs to deliver on promise of fiscal stimulus

There was a softer tone to trade at the end of last week. US investors seemed unwilling to add to positions ahead of the long weekend with many markets closed today for Presidents’ Day. Yet the major US indices continue to hover near their all-time highs, boosted by the promise of a big announcement on taxes from the Trump administration over the next couple of weeks. Mr Trump is viewed as being the most business-friendly of presidents that the US has experienced for many years. Nevertheless, there will come a time when investors will want the president to follow up on his promises of tax cuts and infrastructure spending programmes. Not only that, but there’s a danger that the market has got ahead of itself and is expecting too much from the president in terms of fiscal stimulus. Meanwhile, investors have shrugged of Fed Chair Janet Yellen’s hawkish testimony in which she said that every FOMC meeting should be considered “live” in terms of the possibility of tighter monetary policy.

European stock indices spent most of Friday’s session on the back foot as investors cut their exposure and booked profits after recent market strength. Banking stocks were the worst performers closely followed by car makers.

There was some excitement early afternoon after Kraft-Heinz announced that it had made an offer for Anglo-Dutch consumer group Unilever which valued the company at around £115 billion (BBC). This would represent one of the biggest merger/acquisition deals of all time. Nevertheless, Unilever responded by saying that the deal “fundamentally undervalues” the company and that it saw neither financial nor strategic worth in the offer. The share price in London was up over 15% at one stage but pulled back from its best levels towards the close. Kraft Heinz announced over the weekend that it had pulled its bid, suggesting that they had no wish to go hostile.

Commodities Update

·         Crude little-moved ahead of Presidents’ Day

·         Gold and silver fail to hold above resistance

There was relatively little activity in crude markets on Friday with no fresh news to move the price one way or another. Instead traders positioned themselves ahead of the US holiday weekend which should lead to lighter than usual volumes today. As has been the case for a few months now there are two sides to the oil story. First up there is the agreement made back in November between OPEC members and 11 non-OPEC oil producers to cut production by just under 1.8 million barrels per day (bpd). There were a number of cynics (myself included) who felt that even if all sides managed to reach a deal to cut output, it wouldn’t be long before someone was caught cheating. Yet that hasn’t happened - so far. In fact, six weeks in compliance is running at over 90% with Saudi Arabia even cutting production by more than agreed. But the problem is that the moves so far have done little to reduce global inventories. Not only are there signs of faltering demand growth in China and India, but US production continues to rise while inventories are at record highs and growing. As a result, there’s talk that the OPEC/non-OPEC agreement could be extended beyond June and that there may be a renegotiation to cut production further.

Gold continues to knock up against resistance around the $1,240 level. It has managed to break above here a few times on an intra-day basis, but it just hasn’t managed to keep the upside momentum going into the close. The last time gold closed above this level was in early November just after the US Presidential Election. It subsequently sold off heavily breaking below $1,130 in mid-December. Meanwhile, silver is having its own struggle trying to break and hold above $18. The chart certainly looks constructive with silver managing to post week-on-week gains for two solid months now. But the two precious metals have to contend with benign market conditions elsewhere with US equities trading near all-time highs and volatility at extraordinarily low levels. Consequently, few investors see any reason to seek out the safe haven of precious metals. At the same time the outlook for the US dollar is contradictory. The Trump administration is keen to keep a lid on the greenback to help maintain competitiveness for US exporters. But at the same time Trump’s campaign promises of tax cuts, infrastructure spending, regulatory roll-back, tariffs and immigration controls are all inflationary. These all contribute to the fiscal uncertainty expressed by Federal Reserve Chair Janet Yellen at her testimony in Washington last week. She may have gone out of her way to talk up the prospects of monetary tightening this year, but she’s too well known as a dove so it’s difficult to see her as anything else.

Forex Update

·         USD recovers from mid-week sell-off

·         Sterling slumps on weak Retail Sales

It was a day of mixed fortunes in FX on Friday. The dollar managed to make modest gains against most of the majors after a sharp sell-off earlier in the week. However, most of these came at the expense of the euro and the British pound while the greenback slipped against the Japanese yen. The yen caught a bid due to a slight downturn in risk appetite. This could be most clearly seen in equity markets which were weaker across Europe and the US. Investors seemed happy to book profits after a positive week for stocks and ahead of today’s US Presidents’ Day break. Typically, investors buy back borrowed yen when they reduce their exposure to higher yielding (riskier) assets.

Meanwhile, sterling came under pressure thanks to another disappointing Retail Sales number. January Retail Sales fell 0.3% on expectations of a 1.0% increase. This represented the third consecutive decline in UK retail sales and December’s grim reading of -1.9% was revised down to -2.1%. Cable remains stuck in a rut with some minor support around 1.2400. However, it continues to struggle to break and hold above 1.2500 which makes it vulnerable to another leg downwards. Traders will be mindful of the mid-January sell-off which saw the GBPUSD briefly break below 1.2000. However, just two days later it went on to register its biggest rally in over 20 years after UK Prime Minister Theresa May delivered her bullish Brexit speech.

Upcoming events

Today’s significant economic data releases and events include the UK’s CBI Industrial Order Expectations, Euro zone Consumer Confidence, the German Bundesbank Monthly Report and Canadian Wholesale Sales. A number of US markets will be closing early in observance of Presidents’ Day.


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Posted by David Morrison

Category: AM Bulletin

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