Incisive market commentary from David Morrison

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Collapse 2017 <span class='blogcount'>(348)</span>2017 (348)
Collapse November <span class='blogcount'>(26)</span>November (26)
Markets drift ahead of weekend - AM Briefing
24 Nov 2017
US closed for Thanksgiving - AM Briefing
23 Nov 2017
Wall Street hits fresh record highs - AM Briefing
22 Nov 2017
The UK100 and sterling - PM Bulletin
21 Nov 2017
Equities drift in featureless trade - AM Briefing
21 Nov 2017
German coalition talks collapse - AM Briefing
20 Nov 2017
Quiet start after Wall Street surge - AM Briefing
17 Nov 2017
Global stock indices steady - AM Briefing
16 Nov 2017
Is this the start of a stock market correction? - Video Update
15 Nov 2017
Crude sell-off rattles investors - AM Briefing
15 Nov 2017
GBPUSD testing support - PM Bulletin
14 Nov 2017
Central bankers meet in Frankfurt - AM Briefing
14 Nov 2017
Sterling under pressure - AM Briefing
13 Nov 2017
Indices in retreat ahead of weekend - AM Briefing
10 Nov 2017
Could low volatility trigger a market correction? - Video Update
09 Nov 2017
All quiet on the Western Front - AM Briefing
09 Nov 2017
WTI crude surges through resistance - Video Update
08 Nov 2017
Investor inertia sees equities drift - AM Briefing
08 Nov 2017
Crude in demand - PM Bulletin
07 Nov 2017
Fresh record close for Wall Street - AM Briefing
07 Nov 2017
EURUSD shows clear “head and shoulders” - PM Bulletin
06 Nov 2017
Cautious start to trading week - AM Briefing
06 Nov 2017
Traders look ahead to Non-Farm Payrolls - AM Bulletin
03 Nov 2017
Traders look ahead Friday’s US Non-Farm Payrolls - Video Update
02 Nov 2017
BoE expected to raise rates - AM Briefing
02 Nov 2017
Equities soar on US corporate tax cut hopes - AM Briefing
01 Nov 2017
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Early moves

·         FX and bond markets quiet

·         Shanghai Comp steadies after pull-back

European stock indices were mixed first thing with FX and bond markets offering little in the way of guidance going into the weekend. US markets were closed yesterday for Thanksgiving, and many market participants will be away from their desks again today, taking advantage of Thursday’s break to enjoy a long weekend. This means that trading volumes will be light going into the weekend, particularly as there’s little of note on the economic calendar.

China’s Shanghai Composite steadied overnight and closed out the session little-changed. This follows yesterday’s sharp pull-back which saw the index lose around 2.3% to post its biggest one-day loss since June last year. The decline accelerated into the close and came as the government tightened rules on lending. On top if this there’s been a sharp sell-off in the Chinese bond market which some analysts fear is turning into a rout. Typically, China’s authorities are quick to step in to cut off market corrections and maintain investor confidence. However, there’s been no evidence of any such interference this time round.

Stock Index Update

·         European indices eke out modest gains

·         Fed’s FOMC worry about imbalances

US equity markets were closed yesterday for Thanksgiving, although US stock index futures had a holiday-shortened session and ended little-changed. But European indices eked out modest gains as investors were encouraged by some better-than-expected economic data early in the session. French, German and Euro zone Manufacturing and Services PMIs pushed higher in November with all numbers showing improvement when compared with the prior readings. In addition, with the exception of Germany’s Services sector, all the data came in above expectations. The news helped to lift the euro which had already got a boost from the weaker dollar following Wednesday’s release of minutes from the last FOMC meeting. These indicated that a number of committee members were concerned about the outlook for US inflation with some judging it worryingly sluggish. This led some market participants to revise down their forecasts for Fed rate hikes next year. In addition, there was some unease after a few FOMC members expressed apprehension about the ongoing stock market rally in such a low volatility environment. The fear is that there’s been a build-up of imbalances which could harm the economy should there be/when there is a correction.

Commodities Update

·         WTI hits fresh 28-month high

·         Modest profit-taking on precious metals

US traders may have been away from their desks yesterday and enjoying Thanksgiving, but that did nothing to hold back the ongoing rally in crude. WTI made a fresh 28-month high while Brent pushed back above $63 per barrel. Both contracts have surged higher since the summer with Brent tacking on 41% since the end of June and WTI up 38% over the same period. The rally shows no sign of abating despite last week’s report from the International Energy Agency (IEA) which revised down its prior forecast for global demand growth by 100,000 barrels per day through to next year. It also predicted that the growth in US production through to 2025 is set to be the strongest achieved by any country in the history of the oil market. Instead, investors appear to be focused on next week’s OPEC meeting when 21 oil-producing nations (OPEC and non-OPEC) are expected to announce another extension to their output cut agreement.

Gold and silver traded in negative territory for most of yesterday’s holiday-shortened trading session. But overall the losses were modest, particularly when considering the solid gains made on Wednesday, and looked like nothing more than a touch of profit-taking. Both metals continue to trade in a shallow uptrend and bullish investors will take heart that gold is now comfortably above $1,280 while silver has got some clear water between current levels and $17 per ounce. Both metals are benefitting from the recent round of dollar weakness although the upside still looks capped around $1,300 for gold while silver has been unable to hold above $17.20 for any length of time over the past few months. The dollar continues to come under selling pressure and this was exacerbated to some extent following the release of minutes from the FOMC’s last monetary policy meeting. These showed that some members remain concerned about the outlook for inflation which remains a long way below the Fed’s 2% target, when measured by Core PCE. While this shouldn’t inhibit the US central bank from raising rates again next month, it suggests that the Fed may be in less of a rush to tighten further throughout 2018. If the dollar continues to trend lower, then gold and silver should push higher from here.

Forex Update

·         Euro rallies after strong data

·         FOMC minutes add to dollar woes

The dollar drifted lower yesterday, adding to losses made on Wednesday. The euro continues to be in favour and got an additional lift following a strong set of Manufacturing and Services PMIs from across the Euro zone.

The greenback has come under selling pressure over the last couple of weeks in a move which has seen the Dollar Index give back over half of its gains made between the September low and October high. There has been an opposite, and corresponding, move in the EURUSD which has made back more than 50% of its losses in the two months since the first week of September. Technically, it looks as if the dollar may be about to resume the decline which began at the beginning of this year. Investors seem to be losing confidence in the greenback due to uncertainty over the likelihood that US tax reform will happen anytime soon. This is despite President Trump’s assurance earlier this week that, “We’re going to give the American people a huge tax cut for Christmas.”

The dollar is also out of favour despite the markets assigning a 90% probability of a December rate hike. At the same time, the European Central Bank has increased its Asset Purchase Programme by €270 billion and says it’s prepared to provide more stimulus as necessary. But while the FOMC’s latest minutes seemed to confirm that a December rate rise is on the cards, some members expressed concern that inflation (as measured by Core PCE) is still a long way below the Fed’s 2% target. This has led some traders to consider that the Fed may not be as keen to tighten monetary policy further next year as previously believed.

Upcoming events

Today’s significant events and economic data releases include the German Ifo Business climate survey and UK high Street Lending. From the US we have the Flash Manufacturing and Services PMIs.   


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Posted by David Morrison

Tagged: Dollar FOMCminutes crudeoil EURUSD CFD

Category: AM Bulletin

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