Incisive market commentary from David Morrison

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

·         European indices drift lower

·         Oil creeping higher

The major European stock indices are generally lower in early trade, following on from a mixed close on Wall Street. But it could be argued that equities are holding up well considering the overall weakness across Asian Pacific markets overnight.

It feels as if this could be a featureless day to end a busy week. Certainly there will be some investors who will be happy to book profits after the major US indices spent the last few sessions posting a succession of record closes. But there’s still plenty of positive sentiment around and the likelihood is that even the shallowest of pull-backs will be seized on as a buying opportunity. As things stand, investors continue to believe that the Trump administration is set to be the most-business-friendly for many years and there’s still considerable excitement about the prospect of a big announcement on tax which President Trump has promised within the next few weeks. At the same time, the market remains incredibly sanguine about the outlook for monetary tightening from the Federal Reserve. Janet Yellen has tried hard to persuade investors that every FOMC meeting remains “live” when it comes to the possibility of a rate hike. But the market doubts this hawkishness, with many believing that the Fed is still reluctant to tighten monetary policy as inflation is still some way below the central bank’s 2% target.

Stock Index Update

·         S&P winning streak ends

·         ECB minutes suggest stimulus to continue

It was a mixed close for Wall Street last night with a small gain for the Dow but losses for the S&P and NASDAQ.

European stock indices were lower first thing yesterday as profit-taking crept in after some disappointing corporate news. Dutch insurance group NN, UK manufacturer Cobham and Swiss food giant Nestle all lost ground after a slew of disappointing results and weak forward guidance. The major indices then spent the rest of the session drifting fairly aimlessly before ending the session lower.

The accounts from the European Central Bank’s (ECB) last monetary policy meeting indicated that most members of the Governing Council felt it was too early to withdraw monetary stimulus. A number of members expressed concern that any reduction in stimulus from current levels risked reversing recent positive developments concerning a recent pick-up in inflation. The consensus view appeared to be that the pick-up in inflation at the end of last year was just temporary. Officials also indicated that they were open to the prospect of buying more debt of troubled peripheral countries. The ECB minutes suggested that “limited and temporary deviations” from the capital key “were possible and inevitable” to ensure quantitative easing can be implemented as announced.

In other news Federal Reserve Vice chair Stanley Fischer was interviewed by Bloomberg. He said that the Fed expected the improvement in inflation and employment to continue, even as the current accommodative monetary policy is removed. Earlier this week Fed Chair Janet Yellen told policymakers that every FOMC meeting should remain “live” when it came to potential rate hikes.

Commodities Update

·         Oil slips on global inventory concerns

·         Gold and silver retest resistance

Oil prices were firmer in early trade yesterday with both WTI and Brent once again closing in on resistance at $54 and $57 respectively. Crude got a boost from fresh reports that OPEC and non-OPEC producers may extend their agreement to cut output beyond June, and even make deeper cuts should crude inventories fail to fall back towards target levels.

Back in November OPEC, together with a number of key non-OPEC producers, agreed to cut output by close to 1.8 million barrels per day (bpd) during the first half of 2017. The majority of producers who were party to the agreement appear to be sticking to the deal. Last week OPEC reported compliance of over 90% with Saudi Arabia even cutting production by more than agreed.  Despite this there are concerns that global inventories remain near record highs and that the current cut-back will only have a limited effect. This has been clearly demonstrated by a sharp build in US stockpiles. US inventories have risen sharply over the past six weeks, with crude and gasoline inventories hitting all-time records.

Yesterday gold forged another assault on the $1,240 level in an attempt to take out resistance. 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. This sell-off coincided with a sharp rally in the US dollar as investors recalibrated the likelihood of the Fed tightening monetary policy in the face of a raft of inflationary fiscal stimulus promised by Trump while on the campaign trail. Now investors are waiting for Trump’s “phenomenal” announcement on taxes which is expected in the next couple of weeks. Meantime, Fed Chair Janet Yellen has attempted to keep every FOMC meeting “live” when it comes to the prospect of monetary tightening. Despite this, the dollar has pulled back from its best levels while silver has broken above resistance around $18.

Forex Update

·         USD retreats on profit-taking

·         Investors wary following Yellen’s testimony

The dollar lost ground yesterday, continuing a sell-off which began on Wednesday. The sell-off came despite Fed Chair Janet Yellen’s two days of testimony in Washington where she assured politicians that every FOMC meeting was “live” when it came to monetary tightening. She also said that the Fed’s inflation and employment targets were close to being hit. This helped to raise the probability of a rate hike at next month’s FOMC meeting which would keep the Fed on target to hit its forecast of 75 basis points of tightening in 2017. However, it appears that investors aren’t convinced with the consensus coalescing around the prospect of just two 25 basis point hikes this year. This view was strengthened as Dr Yellen said there was uncertainty over the fiscal outlook from Trump’s new administration.

On Wednesday the Dollar Index hit a one month high following the release of US CPI and Core Retail Sales which both came in above expectations. But the dollar pulled back from its best levels as the session progressed. The selling continued yesterday and the Dollar Index slipped below 101.00 while the EURUSD pushed above 1.0600. There was undoubtedly some profit-taking involved although there were also unexpected drops in US Industrial Output and Housing Starts.

Upcoming events

Today’s significant economic data releases and events include the Euro zone Current Account, UK Retail Sales and US CB Leading Index.


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Posted by David Morrison

Category: AM Bulletin

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