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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

·         Fresh record closes across Wall Street

·         Risk appetite undimmed

European stock indices and US stock index futures were drifting lower soon after this morning’s open. The European majors failed to follow through after Wall Street ended sharply higher on Friday. The Dow rose 165 points to close at yet another fresh record high, driven up by Boeing, Goldman Sachs and a dramatic turnaround in General Electric. The equity market rally was broad-based with the S&P500 and NASDAQ Composite also closing out at their highest levels ever. Investors currently see no reason to take profits and everything is being interpreted as market-positive. The prospects for US tax reform before the year-end are brighter than they have ever been. The earnings season hasn’t thrown up any cause for concern. At the same time, monetary policy remains loose and any tightening is simply seen as central bankers indicating their confidence in future economic growth. Meanwhile, North Korea’s recent provocations have been shrugged off; investors don’t see anything to worry about concerning the fracturing of the European Union and by many measures US equities are more overvalued than they have been in history, excluding just prior to the Dot Com Bust. What could possibly go wrong?

Stock Index Update

·         Dow hits yet another record

·         GE reverses 6% slump to end positive

Most European stock indices ended Friday’s session little-changed with all the majors closing in positive territory. They were helped along by further gains across Wall Street as the Dow, S&P and NASDAQ all traded in the black having shrugged off Thursday’s briefest of sell-offs. On Friday there was a dramatic turnaround in the General Electric share price which reversed an early 6% decline on the back of dismal earnings to end the day in positive territory. Investors are betting that the worst is now behind one of the US’s most historically significant conglomerates. This move, along with big gains from major constituents Boeing and Goldman Sachs, helped to lift the Dow to a fresh record high as the index posted yet another triple digit gain.

It was the final day of the EU Summit and investors were also keeping a close eye on events as Spain struggles to contain Catalonia’s move towards independence. Earlier in the week the government in Madrid threatened to suspend Catalonia’s autonomy if it pushed ahead with moves to separate the region from Spain.

On Thursday the US Senate voted in favour of a $4 trillion budget measure which clears a critical hurdle towards passing President Trump’s tax reform proposals by the end of this year. The news provided investors with yet another reason to push US stocks higher.

Commodities Update

·         Crude rallies into weekend

·         Precious metals slide as dollar rallies

WTI and Brent were lower in early trade on Friday. However, both contracts subsequently rallied sharply and ended little-changed over the week. Friday’s move left Brent retesting a price band around $57.00/57.50. This area has acted as resistance ever since December 2016. Brent has probed above here on a number of occasions over the past few weeks but has so far failed to hold here and thereby consolidate. Meanwhile WTI is still some distance below its corresponding area odf resistance which comes in around $54.50 or so. However, it’s worth noting that the Brent-WTI spread has widened sharply since the summer and the hurricane season, stretching from around $2 to as much as $6 recently. The question now is whether the spread will narrow as WTI catches up with Brent and tests its own band of resistance, or Brent drifts down towards WTI or we have some combination of the two. There’s a school of thought that crude is establishing itself in a fresh trading band for WTI between $50 and $55. This comes as traders continue to talk about the backwardation in the market where future oil prices trade below spot prices. It’s been a long time since this happened and it’s considered evidence that the market is coming back into balance after years of supply. It also removes the incentive for shale producers to hedge production by selling futures at a premium. This could help to support WTI and Brent going forward.

Gold and silver rounded off a truly dismal week with further losses on Friday. The two precious metals struggled throughout the session, giving back gains made the day before. Gold and silver both lost around 1.5% over the course of the week although both metals fell out of favour around six weeks ago as investors decided there was no pressing need for safe havens. This followed South Korea’s insistence that it would not support the US in any military action against North Korea. South Korea made it clear that it would prefer to deal with a nuclear-armed neighbour rather than take the risk of a full-blown outbreak of US-led hostilities. On top of this, the dollar is recovering after a nine-month sell-off. This comes as the probability of a December rate cut from the US Federal Reserve rose above 90%. This is up from around 50% in early September. There has also been speculation over whom (if anyone) will replace Janet Yellen as Chair at the Fed. A number of names have now been thrown into the mix and it’s still far from clear. Nevertheless, the consensus view is that anyone is likely to be more hawkish than Dr Yellen.

Forex Update

·         Dollar up on US tax reform hopes

·         Yen little-moved despite Abe victory

The dollar rallied on Friday and ended the week sharply higher against the majors. Friday’s move more than reversed Thursday’s early sell-off which came as investors dumped equities in the sharpest sell-off that the market has experienced in months. Investors were quick to once again “buy the dip.” The turnaround came after Thursday’s Senate vote on budget proposals which means another hurdle has been cleared on the way to Trump pushing through his tax reform plan. The prospect of a fiscal boost pushing up inflation helped the dollar to continue with its corrective rally which has been taking place since early September. However, the dollar is still substantially weaker than it was at the beginning of the year, having fallen around 14% against the euro since hitting a fourteen-year high in January.

Meanwhile, last week saw the USDJPY hit its best level since July. Partly this was down to the resumption of a “risk-on” rally which typically weighs on the Japanese yen. But the yen was also lower ahead of Sunday’s snap Upper House elections. This was despite Prime Minister Shinzo Abe riding high in the polls. Mr Abe went to clinch the vote on Sunday and is now set to become Japan’s longest-serving leader since the Second World War.

Upcoming events

Today’s significant events and economic data releases include the German Bundesbank’s Monthly Report, UK CBI Industrial Order Expectations and Euro zone Consumer Confidence.

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Posted by David Morrison

Tagged: Gold WallStreet crudeoil Bullmarket DJIA SPX

Category: AM Bulletin


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