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BoE expected to hike rates on Thursday - PM Bulletin
31 Oct 2017
Wall Street drifts on tax cut worries - AM Briefing
31 Oct 2017
USDJPY butting up against resistance - PM Bulletin
30 Oct 2017
Spanish IBEX rallies sharply - AM Briefing
30 Oct 2017
Risk appetite strong on earnings/ECB - AM Briefing
27 Oct 2017
ECB finally announces QE taper - PM Bulletin
26 Oct 2017
ECB expected to begin tapering - AM Briefing
26 Oct 2017
Earnings, UK GDP and US Durable Goods ahead - AM Briefing
25 Oct 2017
Earnings season in focus - AM Briefing
24 Oct 2017
Quiet start after record close on Wall Street - AM Briefing
23 Oct 2017
Wall Street reverses early losses-AM Briefing
20 Oct 2017
Equities slide as Catalan deadline approaches - AM Briefing
19 Oct 2017
Gold retesting 50-day moving average - PM Bulletin
18 Oct 2017
Dow surges above 23,000 - AM Briefing
18 Oct 2017
UK inflation data in focus - AM Briefing
17 Oct 2017
Gold and silver break out of downtrend - PM Bulletin
16 Oct 2017
Oil rallies on threat of fresh Iranian sanctions - AM Briefing
16 Oct 2017
US economic data in focus - AM Briefing
13 Oct 2017
FOMC Minutes Released Tonight - Video Update
11 Oct 2017
Spain’s IBEX jumps after Catalan speech - AM Briefing
11 Oct 2017
US dollar - correcting or recovering?
10 Oct 2017
Investors prepare for earnings season - AM Briefing
10 Oct 2017
Has gold broken its long-term downtrend? - PM Bulletin
09 Oct 2017
BoE meeting will decide what sterling does next - Video Update
01 Oct 2017
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Early moves

·         Euro weaker ahead of Catalan decision

·         Netflix reports after the close

There’s been another quiet start to the trading day and the new week. European stock indices began the session with a slight upside bias but it didn’t take long for that to evaporate. The euro is weaker against all the majors as traders wait to hear if Catalan President Carles Puigdemont is prepared to call for full Catalonian independence from Spain. Meanwhile Austria has elected a new president who ran on a platform of curbing immigration, amongst other things. UK Prime Minister Theresa May is heading over to Brussels to meet with Jean-Claude Junker, president of the European Commission and the EU’s chief Brexit negotiator Michel Barnier.

The main story this morning is the ongoing rally in crude oil. Both Brent and WTI were sharply higher first thing as traders responded to the possibility of renewed sanctions against Iran. This follows on from President Trump’s refusal on Friday to formally certify that Tehran was complying with its agreement not to develop nuclear weapons. The US Congress now has 60 days to consider if sanctions should be re-imposed.

Data-wise, the US Empire State Manufacturing Index is published at 13:30 BST and Netflix will report after the bell.

Stock Index Update

·         Tepid inflation boosts risk appetite

·         Earnings season progresses

European stock indices ended higher on Friday, recovering from earlier weakness as the US majors posted a fresh set of record intra-day highs. It had been a quiet start across the board, but equity investors reacted positively to the release of some US economic data. September Retail Sales came in much as expected with a slight beat for the core number and a modest miss on the headline figure. However, inflation as measured by both headline and core CPI came in below expectations. This led analysts to row back on their expectations for a December rate hike which gave traders the perfect excuse to increase their exposure to US equities.

There were also a few third quarter corporate earnings reports to consider. Bank of America reported earnings per share of $0.48 on revenues of $22.08 billion against $0.45 and $21.98 billion respectively. However, as with JP Morgan last Thursday, the bank noted a sharp drop in revenues from fixed income trading.  Scandal-hit banking giant Well Fargo missed on revenues which came in at $21.93 billion against an expected $22.40 billion. Earnings were better than forecast coming in at $1.04 versus $1.03. The stock fell over 3% on the news.

Last Thursday both JP Morgan and Citigroup reported better-than-expected numbers on the top and bottom line. However, both stocks ended that session in negative territory after JP Morgan noted an annualised 27% decline in fixed income trading revenue and Citigroup posted a sharp increase in credit costs.

Commodities Update

·         Crude up on Iranian sanctions fear

·         CPI data sends precious metals higher

Crude oil was firmer in early trade this morning. This followed on from President Trump’s refusal to formally certify that Iran is complying with the nuclear agreement. This throws open the danger of a return to sanctions against the country. Both Brent and WTI rounded off last week with sharp rallies on Friday, triggered by a report showing strong Chinese import data. Buyers were already helping to drive prices higher on news of a fall in US production and a bigger-than-expected drawdown in US inventories. At the beginning of last week OPEC secretary general Mohammad Barkindo said that the global oil market was rebalancing after years of oversupply. On top of this there’s growing evidence that US production costs are on the rise. This suggests that US output could begin to pull back after months of increases. Chart-wise, WTI is looking constructive with prices pushing up towards $52 per barrel. But the real line of resistance comes in around $54 - a price band which capped WTI throughout the first two months of this year. Interestingly, Brent is currently probing its own resistance area from the same time around $57 level. The question now is whether Brent can push through here and drag WTI with it, or if prices could now pull back. It’s also worth noting that the Brent-WTI premium has narrowed to 530 from 600, although it still remains high historically.

Gold and silver rallied sharply on Friday afternoon following the release of US inflation data. Core CPI (excludes food and energy) rose by just 0.1% in September, below both the previous month’s reading and the +0.2% anticipated. Headline CPI rose 0.5% and again this was weaker than expected although it still took the year-on-year rate up to +2.2%. But while this is above the Fed’s 2% target the Core number stood at 1.7% - a two-year low. The problem is that last week’s minutes from the Fed’s September meeting made it clear that members of the US central bank remain concerned about the lack of inflation in the economy, despite unprecedented levels of monetary stimulus. It could be that the Fed decides to hold off from hiking rates again this year, particularly as they are just about to start reducing their $4.5 trillion balance sheet. With Core PCE inflation (the Fed’s preferred measure) standing at just +1.3%, and down from +1.9% in February, there’s no doubt that inflation is a long way from target. Precious metals do well in a low growth, deflationary environment, particularly when the dollar is weak.

Forex Update

·         Sterling rallies on hopes of transition agreement

·         Dollar slides on CPI miss

FX pairs were relatively unmoved in early trade on Friday as traders sat on their hands ahead of the release of US inflation and retail sales numbers. The only exception was the British pound which rallied against both the dollar and euro as analysts digested comments following the break-up of the latest round of EU-UK Brexit negotiations. Sterling fell sharply on Thursday after the EU’s chief Brexit negotiator Michel Barnier said that talks had reached a deadlock. However, investors overlooked the suggestion that the two sides were close to agreeing to a two-year transition period. Once this was highlighted, sterling flew higher.

The US dollar fell sharply on Friday afternoon following the release of US Retail Sales and CPI. Retail Sales came in pretty much as expected, with a modest beat on the core data (excludes automobiles) and a small miss on the headline number. However, Core and headline CPI both came in below expectations. This led market participants to dial down their expectations for a Fed rate hike in December. On Wednesday the minutes from the Fed’s September meeting made it clear that the FOMC was concerned that inflation is still a long way below its 2% target. FOMC members also said that while they still favoured a December hike, they would be watching incoming economic data closely.

Upcoming events

Today’s significant events and economic data releases include the German Wholesale Price Index, Euro zone Trade Balance and US Empire State Manufacturing Index.

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Posted by David Morrison

Category: AM Bulletin


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