Incisive market commentary from David Morrison

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Collapse 2017 <span class='blogcount'>(348)</span>2017 (348)
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Non-Farm Payroll look-ahead - Video Update
31 Aug 2017
Tech stocks lead market recovery - AM Briefing
31 Aug 2017
Fall-out from Jackson Hole - Video Update
30 Aug 2017
Investors shrug off North Korean missile launch - AM Briefing
30 Aug 2017
Gold breaks through $1,300 - PM Bulletin
29 Aug 2017
Equities slide after North Korean missile launch - AM Briefing
29 Aug 2017
Yellen and Draghi in focus - AM Briefing
25 Aug 2017
Jackson Hole look-ahead to key speeches - Video Update
23 Aug 2017
Wall Street surges on tax reform hopes - AM Briefing
23 Aug 2017
Euro slips, but range-bound ahead of Jackson Hole - PM Bulletin
22 Aug 2017
Equities recover in early trade - AM Briefing
22 Aug 2017
Equities under pressure as Trump struggles - AM Briefing
21 Aug 2017
Equities fall as investors find reasons to sell - AM Briefing
18 Aug 2017
ECB and FOMC minutes lead to FX volatility
17 Aug 2017
FOMC minutes viewed as dovish - AM Briefing
17 Aug 2017
FOMC minutes in focus - Video Update
16 Aug 2017
Fed minutes in focus - AM Briefing
16 Aug 2017
Sterling slips as inflation steadies - PM Bulletin
15 Aug 2017
Equities continue to recover - AM Briefing
15 Aug 2017
Gold: triple top or third time lucky? - PM Bulletin
14 Aug 2017
Stocks bounce as geopolitical risk eases - AM Briefing
14 Aug 2017
Bank of England rate decision in focus - AM Briefing
03 Aug 2017
Crude breaks above resistance - PM Bulletin
02 Aug 2017
Apple rallies 6% on strong report - AM Briefing
02 Aug 2017
Cable breaks above 1.32000 - PM Bulletin
01 Aug 2017
Apple to report after the close - AM Briefing
01 Aug 2017
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Early moves

·         Equities lower as geopolitical tensions escalate

·         Precious metals make further gains

European and US stock index futures were sharply lower overnight and this morning following news that North Korea had shot a missile over Japan. Investors headed for safe havens which have meant gains for precious metals, the Swiss franc and Japanese yen. Surprisingly, Japan’s Nikkei held up quite well ending the session around 0.5% lower, despite Prime Minister Shinzo Abe calling the action an “unprecedented, serious and significant threat.” We have yet to hear a reaction from President Trump and there are concerns that he may ratchet up the tension once he switches his attention from the Hurricane damage across Texas to the Korean peninsula. Gold has broken through resistance around $1,300. If it can consolidate above here for the rest of the week then further gains look likely.

Stock Index Update

·         N. Korean missile riles investors

·         Jackson Hole speeches avoid FX/monetary policy

European equities and US stock index futures were sharply lower in early trade. The sell-off was a response to news that North Korea had fired a ballistic missile over Japan leading Prime Minister Shinzo Abe to respond: “North Korea’s reckless action is an unprecedented, serious and grave threat to our nation.” This act of aggression from North Korea has taken investors by surprise after summer doldrums. Last week’s Jackson Hole Economic Symposium was even more of a damp squib than most observers thought possible. Both Fed Chair Janet Yellen and ECB President Mario Draghi made no reference to the outlook for monetary policy. In addition, Mr Draghi also avoided talking about recent euro strength and this has emboldened traders who seem determined to push the EURUSD up to 1.2000 or beyond. Dr Yellen addressed issues around financial stability and she pushed back against the prospect of reduced regulations. She warned about the “risks of excessive optimism returning sooner or later” and also commented that “algorithmic traders and institutional investors are a larger presence in various markets than previously, and the willingness of these institutions to support liquidity in stressful conditions is uncertain.” Her remarks come in the face of mounting calls for a loosening of financial regulation from Republicans concerned that the regime is stifling growth.

Commodities Update

·         Crude steadies after Monday’s sell-off

·         Gold and silver soar on safe haven demand

Crude oil has steadied in early trade this morning following yesterday’s sell-off. Both WTI and Brent fell sharply on Monday afternoon as the state of Texas dealt with the devastation caused by Hurricane Harvey. The severe weather conditions have disrupted oil and gas production along the Gulf Coast - an area which accounts for nearly half the country's refining capacity. There has been a relatively minor disruption to oil production while refining capacity has been severely affected. So gasoline prices have shot higher while crude has fallen as there is reduced demand from refiners for oil.

The next joint committee meeting of OPEC and non-OPEC producers will be held in Vienna on 22nd September. According to an OPEC statement all options, including extending supply cuts beyond March 2018, are being "left open to ensure that all efforts are made to rebalance the market.”

Precious metals shot higher overnight following North Korea’s highly provocative missile launch. Today’s rally built on yesterday’s move which saw gold break through resistance around $1,300. Silver also rallied sharply on Monday, powering above resistance around $17.20. Investors initially bought up the two metals due to dollar weakness. Last week’s key speeches from Jackson Hole have done nothing to temper ongoing euro strength. On Friday gold and silver suddenly spiked higher ahead of speeches from Janet Yellen and Mario Draghi. The moves came after Dallas Federal Reserve President Robert Kaplan said that a stock market or real estate correction wouldn’t necessarily hurt the economy and could actually be healthy. Mr Kaplan made his comments during an interview with Bloomberg while at the Jackson Hole Economic Symposium. But both then plunged with gold falling $20 in 30 minutes. The turnaround was attributed to a research note from Citigroup suggesting that US policymakers would approve an increase to the debt ceiling as there was no appetite in Congress for a showdown leading to a government shutdown. The moves also demonstrated just how thin and apprehensive markets were going into the speeches.

Forex Update

·         NK missile sees USD slump

·         EURUSD surges above 1.2000

The US dollar continues to come under selling pressure. This morning the Dollar Index crashed below 92.00 to hit its lowest level since January 2015. The EURUSD surged above 1.2000 as stops were triggered and the single currency went on to hit its highest level against the dollar since the beginning of 2015. North Korea fired off a ballistic missile which passed over northern Japan in the general direction of Guam, a US territory in the Pacific. The Japanese yen soared on the news, primarily as investors sold risky assets (such as US and European equities) and used the proceeds to buy back borrowed yen. But the Japanese currency also rose as traders assumed that Japanese investors would be anxious to repatriate funds and so increase demand for the yen.

The dollar was already in retreat at the end of last week. On Friday afternoon the dollar sold off sharply following the release of the text of Fed Chair Janet Yellen’s speech at Jackson Hole. Dr Yellen was addressing the issues around financial stability and she pushed back against the prospect of reduced regulations. She warned about the “risks of excessive optimism returning sooner or later” and also the "larger presence of algorithmic traders in markets." Her remarks come in the face of mounting calls for a loosening of financial regulation from Republicans concerned that the regime is stifling growth. The euro then got a boost after ECB President Mario Draghi made no mention of the single currency’s recent strength. This gave traders the green light to test EURUSD  resistance around 1.2000.

Upcoming events

Today’s significant events and economic data releases include US S&P/Case Shiller House Price Index and Consumer Confidence.


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Posted by David Morrison

Category: AM Bulletin

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