Incisive market commentary from David Morrison

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Collapse 2017 <span class='blogcount'>(348)</span>2017 (348)
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Bounce in oil helps to steady equities - AM Briefing
30 Mar 2017
US stock indices consolidate - Video Update
29 Mar 2017
Risk appetite returns - AM Briefing
29 Mar 2017
S&P500 - Topping out, or consolidating? PM Bulletin
28 Mar 2017
Risk appetite returns after the Trump wobble - AM Briefing
28 Mar 2017
Beware hidden relationships between seemingly unrelated markets - Trading Guides
27 Mar 2017
Risk assets slump in wake of Trump’s healthcare debacle - AM Briefing
27 Mar 2017
Congress vote puts markets on hold - AM Briefing
24 Mar 2017
Markets on hold ahead of crucial vote - Video Update
23 Mar 2017
Tranquil markets await big data - AM Briefing
23 Mar 2017
Investors rattled after equity sell-off - Video Update
22 Mar 2017
US Markets Snap 109-Day Streak - AM Briefing
22 Mar 2017
Crude oil update - PM Bulletin
21 Mar 2017
European markets stable on the open - AM Briefing
21 Mar 2017
Dollar slips after G20 communique - AM Briefing
20 Mar 2017
FOMC post-mortem - Video Update
16 Mar 2017
Rate hike sends stocks higher - AM Briefing
16 Mar 2017
FOMC rate decision and Dutch election in focus - Video Update
15 Mar 2017
Oil rally gives markets lift - AM Briefing
15 Mar 2017
Crude trades at lowest levels since production cut agreement - PM Bulletin
14 Mar 2017
Politicians take centre stage again - AM Briefing
14 Mar 2017
Trading Psychology: Risk Management - Trading Guides
13 Mar 2017
Article 50 deadline approaches - AM Briefing
13 Mar 2017
European stocks push higher after Draghi’s hawkish stance - AM Bulletin
10 Mar 2017
Non-Farm Payroll look-ahead - PM Bulletin
09 Mar 2017
Fed rate hike seems certain - AM Briefing
09 Mar 2017
Market expects Fed to hike rates next week - Video Update
08 Mar 2017
Another twist in the French election - AM Briefing
08 Mar 2017
Odds slashed on Fed rate hike - PM Bulletin
07 Mar 2017
Investors lacking direction this morning - AM Briefing
07 Mar 2017
Fibonacci Retracement - extensions - Trading Guides
06 Mar 2017
Equities slip in early Monday trade - AM Briefing
06 Mar 2017
Modest profit-taking sees US indices post rare loss - AM Briefing
03 Mar 2017
Crude struggles to break above resistance - Video Update
02 Mar 2017
UK baffled by the origins of their favourite brands - PM Bulletin
02 Mar 2017
Fresh record highs for major indices - AM Briefing
02 Mar 2017
All eyes turn to the Fed - Video Update
01 Mar 2017
Markets react positively to Trump speech - AM Briefing
01 Mar 2017
Expand February <span class='blogcount'>(36)</span>February (36)
Expand January <span class='blogcount'>(39)</span>January (39)
Expand 2016 <span class='blogcount'>(483)</span>2016 (483)


Early movers

·         European equities rally on Wall street bounce-back

·         Crude oil and the dollar still in focus

Last night’s turnaround on Wall Street saw all the major US indices bounce off the lows made at the beginning of yesterday’s session. This has been the catalyst for a sharp rally in European indices in early trade this morning. Investors got further encouragement to snap up marked down equities as crude oil steadied overnight. Despite this, the front month WTI contract continues to spend most of its time below $48. Investors seem wary of coming back in on the long side ahead of tonight’s US inventory update from the American Petroleum Institute.

The US dollar has also continued to recover this morning. Yesterday the Dollar Index hit its lowest level since early November - just days after the greenback began a rally in the aftermath of Donald Trump’s surprise election win. And once again, it’s all about politics. Monday’s initial sell-off in risk followed on from the Trump administration’s failure to get sufficient Republican support to repeal and replace Obamacare. The worry now is that those same Republicans will oppose Trump’s planned tax cuts, particularly as there will be no savings from repealing Obamacare. Nevertheless, investors are once again putting their trust in the new president and for now seem happier to buy the dips than sell the rips.

Stock Index Update

·         Equities slide after Trump fails to repeal Obamacare

·         Concerns that tax reform could be problematic

Yesterday saw a sharp sell-off in European equities following President Trump’s failure to repeal and replace Barak Obama’s Affordable Care Act. Investors seem to be backing off the “Trumpflation Trade” which has been such a big driver of the stock market rally since early November. The thinking is/was that fiscal stimulus was on its way. However, the Trump administration seems to have miscalculated or taken bad advice in trying to shove through the repeal of the Affordable Care Act to replace it with the American Health Care Act. Initially investors seemed unperturbed after the House vote was pulled. The general feeling was that the administration would now be able to focus their attention on pushing through promised tax cuts. However, the replacement of Obamacare was expected to save anything from $500 billion to $1 trillion - funds needed to help ease through tax cuts. So it now looks like there will be a significant funding gap when the Trump administration turn their attention to tax cuts. This is anathema to many Republicans. Additionally, the Border Adjustment Tax which could bring in around $1.2 trillion over the next ten years is opposed by members of the “Freedom Caucus” - the Republican group which opposed Trump over the repeal and reform of Obamacare. So, it now looks as if there’s very little chance that Trump can obtain a quick win over taxes. Instead, there’s a feeling that the Trump administration, or Republican Speaker Paul Ryan, or both have messed up badly.

Commodities Update

·         OPEC/non-OPEC team to review output cut extension

·         Gold surges above $1,250

Crude oil continues to come under heavy selling pressure. Yesterday the front-month WTI contract dropped further below $48 per barrel while Brent hovered around $50. Over the weekend a committee of ministers from OPEC and non-OPEC countries convened in Kuwait to discuss the possibility to extend their production cut agreement beyond its current June cut-off date. The committee managed to agree to evaluate how effective a six month extension to the output cut may be. Obviously they will have to consider how limiting production further could simply provide US shale oil producers with an opportunity to step up their own production. A technical group together with the OPEC Secretariat will carry out a review and report back next month.

Both WTI and Brent oil prices remain under pressure following a dramatic plunge three weeks ago. The sell-off was triggered by the release of US inventory data which showed a much bigger-than-expected growth in stockpiles. Since then the data has been mixed, although last week’s data showed a further build. We get a fresh update from the American Petroleum Institute after tonight’s close.

Gold and silver rallied sharply in early trade yesterday morning. The moves came as investors reacted to the Trump administration’s failure to push through the repeal and replacement of the Affordable Care Act, commonly referred to as Obamacare. Initially, there had been little market reaction when the news broke on Friday night. In fact, the general feeling was that with Obamacare remaining in place, Trump would be able to concentrate on pushing through his promised tax reforms. However, over the weekend two things became apparent. Firstly, that Trump needed the savings from ditching Obamacare to help pay for tax cuts. Secondly, it looks as if the Republican “Freedom Caucus” who refused to support him over his healthcare reforms looks likely to oppose Trump’s tax cuts as well. The news led to a sharp sell-off in risk assets, including the dollar and this helped to boost gold and silver.

Forex Update

·         USDJPY hits lowest level since mid-November

·         Dollar Index breaks below 99.00

The US dollar continues to come under selling pressure. Investors have rushed to cut their exposure to the greenback in a move which yesterday saw the Dollar Index break below key support around 99.00. The sell-off has also led to sharp gains for the euro and British pound while the Japanese yen hit its highest level against the dollar since the middle of November, soon after Donald Trump clinched a surprise victory in the US Presidential Election.

Investors had built up significant long positions in the dollar following the election. This saw the greenback hits its highest level against the euro for fourteen years. The overriding feeling was that Trump was going to be the most pro-business president for a generation. In addition, there was a general expectation that he would come through on his campaign promises to boost fiscal stimulus through tax cuts, regulatory roll-back and infrastructure spending. The fear now is that the Trump administration may struggle to push tax reform through Congress, even though it is widely seen as less controversial than the repeal and replacement of Obamacare. Not only that but Trump’s failure to get rid of Obamacare means that he has less money available (approximately $1 trillion less) to make significant tax cuts.

Upcoming events

Today’s significant economic data releases and events all come from the US. These include the Goods Trade Balance, Wholesale Inventories, the S&P/Case Shiller House Price Index, Consumer Confidence and the Richmond Manufacturing Index. Federal Reserve Bank of Dallas President and FOMC-voting member Robert Kaplan is due to speak at the Committee of Foreign Relations in Dallas.


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Posted by David Morrison

Category: AM Bulletin

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