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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

·         NASDAQ soars on strong earnings

·         ECB remains dovish

There was a positive tone across European stock indices and US stock index futures this morning. After last night’s US close we had earnings reports from Alphabet (Google), Amazon, Intel and Microsoft. All four companies comfortably beat expectations on revenues. Alphabet, Intel and Microsoft also posted earnings per share well above consensus estimates while Amazon’s came in as expected. Earlier this morning Amazon’s share price was up over 7%, Microsoft was up over 4%, Alphabet had risen close to 3% while Intel was 2% higher. These gains have helped to boost the NASDAQ100 by around 1%.

Investors were already back in bullish mode following a dovish European Central Bank (ECB). The ECB’s Governing Council said that it was extending its bond purchase programme by nine months from December, taking it up to September 2018. It also said that it would reduce its monthly purchases to €30 billion from the beginning of next year, halving the current monetary stimulus. Crucially, the ECB said that it reserved the right to extend the programme beyond 2018 should conditions warrant further stimulus. The Governing Council left all its interest rates unchanged.

President Trump continues to mull his choice to replace Janet Yellen as Fed Chair. Dr Yellen was still in the running herself and was among the bookies’ favourites earlier in the week. However a story from Politico yesterday reported that Janet Yellen and Kevin Warsh were both out of the race. Later on, Bloomberg reported that Gary Cohn was also no longer in the running meaning that Stanford economics professor John Taylor and current member of the Fed Board of Governors Jerome Powell were the only two candidates left. Some analysts have suggested that the “dream ticket” would be Powell as Chairman and Taylor as Vice Chair. We should know soon as Trump has said he will make his decision before he begins a tour of Asia on 3rd November.

Stock Index Update

·         ECB taper lifts equities

·         Twitter ends the day up 18%

Earnings took a back seat in early trade yesterday as investors focused on a key European Central Bank (ECB) meeting. European and US stock indices were all firmer in early trade despite the ECB announcing that it would begin to taper its Asset Purchase Programme (APP) from the beginning of next year. The ECB said it would purchase bonds at a rate of €30 billion per month (down from €60 billion currently) through to September 2018. But crucially, it said it was prepared to increase the programme in both size and duration should this be deemed necessary by financial conditions. ECB President made special mention of low inflation and also emphasised that the proceeds from maturing securities would continue to be reinvested. All-in-all, this was an extremely dovish approach to tightening which cheered equity investors and led to a sharp sell-off in the euro.

US stock indices picked up later in the day as investors not only looked forward to the promise of continued central bank stimulus, but were also cheered by some positive earnings reports. Twitter ended the day over 18% higher following the release of a set of strong third quarter numbers. Earnings per share came in at $0.10 on revenues of $590.o million. This was against expectations of $0.06 earnings per share on $586.7 million in revenues. Car maker Ford ended the session 1.9% higher after it posted better-than-expected results and raised its forward guidance.

Commodities Update

·         Crude consolidates

·         Precious metals fall as dollar rallies

Crude oil was largely unaffected by yesterday’s taper news from the ECB. Both Brent and WTI shrugged off the rally in the dollar (thanks to euro weakness) and spent most of the session little-moved before rallying into the close. The two contracts continue to consolidate around multi-month highs now that the US hurricane season is over. Currently there appears to be little in the way of verifiably -accurate fundamental news which could move oil dramatically one way or another. However, OPEC will release its World Oil Outlook on Tuesday 7th November and this is followed by the next biannual OPEC meeting on 30th November.

Both WTI and Brent struggled earlier in the week following the latest US crude oil inventory releases from both the American Petroleum Institute (API) and the Energy Information Administration (EIA). Both showed unexpected builds in crude stockpiles although prices were supported to a great extent by much larger-than-expected drawdowns in gasoline and distillate inventories.

WTI continues to consolidate around $52 and a decisive break above here could see it retest resistance from earlier in the year around $54.50. Brent has broken above its own resistance area around $57.50 and appears to be waiting for WTI to catch up. However, this may be difficult with the Brent-WTI premium now above $6 - up from $1.50 in July.

Gold and silver were firmer in early trade yesterday with both building on the gains made late during Wednesday’s session. Both metals were back in demand following a sell-off across Wall Street as investors took fright from a spike up in US bond yields and on the back of a number of disappointing earnings reports. However, all that changed yesterday following the ECB statement and ECB President Mario Draghi’s subsequent press conference. This was where the central bank announced that it would begin tapering its Asset Purchase Programme (APP) early next year, reducing its bond purchases to €30 billion per month from €60 billion, extended for nine months. All this was expected. However, the euro slumped, and the dollar soared, after it became apparent that the ECB reserved the right to increase the APP in size or duration should this be warranted by financial conditions. Gold and silver fell accordingly. However, it could be argued that both are holding up quite well overall considering the large positive move in the dollar.

Forex Update

·         ECB says could extend size/duration of APP

·         EURUSD breaks below 100-day EMA

Yesterday’s big story was the ECB meeting, and the big move in FX came in the euro. The single currency sold off sharply following the release of the ECB statement. But the selling accelerated as the trading day progressed. The central bank announced that it would continue with its current €60 billion per month of bond purchases until the end of December - as planned. Then it would reduce its purchases to €30 billion per month until September 2018. All this was as expected. However, there had been concerns that the ECB would signal that the programme would end definitively in September which would suggest that rate hikes would follow within a few months. But ECB President Mario Draghi emphasised that the bank reserved the right to raise its Asset Purchase Programme (APP) in either size or duration should this be warranted by financial conditions. This showed that the doves still hold the upper hand at the ECB and the euro sold off accordingly. The sell-off accelerated throughout yesterday’s session sending the EURUSD below the 100-day exponential average around 1.1680/90. There’s a clear head and shoulders pattern now visible on the chart and in the absence of a quick snap back (which we may get as shorts book profits) further euro weakness looks likely.

Upcoming events

Today’s significant economic data releases all come from the US and include Advance GDP, Consumer Sentiment and Inflation Expectations.

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Posted by David Morrison

Tagged: Dollar ECB EURUSD Bullmarket NDX

Category: AM Bulletin


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