Incisive market commentary from David Morrison

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Using the RSI in FX - Trading Guide
31 Jul 2017
HSBC share buy-back helps lift indices - AM Briefing
31 Jul 2017
Amazon triggers tech tumble - AM Briefing
28 Jul 2017
Fed reinforces dovish credentials - Video Update
27 Jul 2017
Facebook results boost NASDAQ - AM Briefing
27 Jul 2017
Crude breaks above resistance - PM Bulletin
26 Jul 2017
Equities rally on positive earnings - AM Briefing
26 Jul 2017
Look-ahead to tomorrow’s rate decision from the Fed
25 Jul 2017
Alphabet/Google falls 3% in after-hours trade
25 Jul 2017
Equities start the week on back-foot - AM Briefing
24 Jul 2017
Euro surges on “hawkish” comments from Draghi - AM Briefing
21 Jul 2017
Equities firmer ahead of ECB meeting - AM Briefing
20 Jul 2017
Europe firmer after late US rally - AM Briefing
19 Jul 2017
US Fed turns dovish - PM Bulletin
18 Jul 2017
Dollar slumps on US healthcare gridlock - AM Briefing
18 Jul 2017
Wall Street leads equity rally - AM Briefing
17 Jul 2017
US bank earnings in focus - AM Briefing
14 Jul 2017
Yellen flip-flops to reassure investors - AM Briefing
13 Jul 2017
Oil rallies, but volatility high - Video Update
12 Jul 2017
Yellen to testify in Washington - AM Briefing
12 Jul 2017
A look-ahead to Janet Yellen’s testimony - PM Bulletin
11 Jul 2017
Second quarter earnings in focus - AM Briefing
11 Jul 2017
Jobs data boost sentiment ahead of earnings - AM Briefing
10 Jul 2017
Investors nervous; Non-Farm Payrolls in focus - AM Briefing
07 Jul 2017
Non-Farm Payroll look-ahead - Video Update
06 Jul 2017
Investors shrug off FOMC minutes - AM Briefing
06 Jul 2017
Investors shrug off FOMC minutes - AM Briefing
06 Jul 2017
Look-ahead to FOMC minutes - Video Update
05 Jul 2017
Markets quiet and waiting for fresh guidance from US - AM Briefing
05 Jul 2017
Crude continues to push higher - PM Bulletin
04 Jul 2017
Dow closes at fresh record high - AM Briefing
04 Jul 2017
Positive start to second half of 2017 - AM Briefing
03 Jul 2017
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Early moves

·         European indices shrug off mixed US close

·         Second quarter earnings in focus

European equities were broadly positive in early trade this morning, despite a lacklustre close on Wall Street last night. Both the Dow and S&P ended yesterday’s session little-changed, despite a stronger open, while the NASDAQ posted modest gains thanks to Amazon and Tesla.

Crude oil is a touch firmer this morning following a positive close last night and this is also helping to keep a floor under equity prices. Nevertheless, investors seem happy to sit back and watch rather than taking on additional exposure to stocks as the second quarter reporting season gets underway.

Today we have earnings from PepsiCo and Yum! Brands.

Stock Index Update

·         Decent gains from US tech

·         But investors holding fire ahead of earnings

Yesterday brought a continuation of the recovery in US tech stocks which began on Friday. This saw the main NASDAQ composite end the session 0.4% higher with notable gains for Amazon (up 1.8%) and Tesla (up 0.9%). However, both the Dow and the S&P500 finished effectively unchanged. Investors appear to be waiting to see how the second quarter earnings season is set to shape up. Later this week we get results from Citigroup, JP Morgan and Wells Fargo.

European stock indices began yesterday in positive territory and managed to build on early gains as the session proceeded. Investors were initially encouraged by a positive close on Wall Street on Friday which followed the release of strong US payrolls. At the end of last week Non-Farm Payrolls came in at 222,000 - comfortably above the 175,000 consensus forecast. On top of this, May’s number was revised up to 152,000 from 138,000. The better-than-expected data has convinced many players that the US economic recovery is back on track and perfectly capable of weathering continued monetary tightening from the Federal Reserve. This is despite yet more evidence (through tepid wage growth) that inflation is still heading further away from the Fed’s 2% target. Yet while some investors are not yet convinced that the US central bank is committed to further rate hikes, others are now looking to the ECB to follow suit. Monetary tightening is typically negative for equities as rising yields not only increase the costs of doing business but also increase the attractiveness of other investments. But traders seem happy to take advantage of a recent pull-back in stocks to load up once again. Now it’s all down to the second quarter earnings season to see whether that proves to be a clever move or not.

Commodities Update

·         Crude bounces after OPEC jawboning

·         Precious metals in late rally

Oil fell again in early trade yesterday, continuing last week’s downward trend. Yesterday’s morning sell-off saw WTI break below $44 and Brent approach $46 for both to hit their lowest levels in over two weeks. Both contracts were weighed down by news that the US rig count rose again last week and is now up for 25 of the last 24 counts. US energy firms are now operating a total of 952 oil and gas rigs according to oil services company Baker Hughes. This is up 512 from this time last year to stand at the highest level since April 2015. This goes hand in hand with a resurgence in US production following a dip at the end of June. The latest sell-off began on Wednesday and came despite news of a dramatic drawdown in US inventories from both the American Petroleum Institute (API) and the US Energy Information Administration (EIA). Traders paid more attention to technical levels as crude approached the 50% retracement of its May-June sell-off. There was also a report from OPEC showing that crude exports from the cartel rose for the second successive month in June. But oil prices recovered later in the session on reports that OPEC may widen its production caps to include Nigeria and Libya - the two countries previously exempted from the output cut agreement. However, this could be little more than another clumsy attempt by OPEC to talk down prices without taking further action.

Gold and silver continued to struggle for most of yesterday, although both recovered after the European close. Both precious metals came under fresh downside pressure and silver lost over 2% at one stage. Silver hit its lowest level since April last year and now looks in danger of retesting its multi-year lows when it fell below $14 back in December 2015. However, it’s currently looking oversold as it has lost 10% in less than a fortnight. It’s possible it can find support around the $15 mark which marks the 161.8% extension of the Fibonacci Retracement of the May-June rally. The area around here also acted as support in April last year. Meanwhile gold also remains out of favour with investors. It came within a few dollars of $1,200 yesterday morning - a level which acted as support back in March this year. But like silver it continues to struggle in the current environment. The prospect of higher interest rates weigh on non-yielding commodities such as gold and silver as investors can find better returns elsewhere. But this is compounded when inflation is falling at the same time - in other words when real interest rates (nominal rates minus inflation) are trending down as they are now.

Forex Update

·         Dollar makes modest gains

·         USDJPY close to 2-month high

It was a quiet start to the week for FX yesterday with a slight upside bias for the dollar. Investors continue to reposition themselves following Friday’s better-than-expected Non-Farm Payroll release. This was dollar-positive as it increases the probability of further monetary tightening from the US Federal Reserve. Yet despite this the EURUSD continues to trade around the 14-month high it hit back at the end of June. On the flip side the dollar is continuing to make gains against the Japanese yen. The USDJPY is trading back near a two-month high having rallied for the best part of three weeks now. Partly this is due to a modest loss in risk appetite as equities, led by tech favourites Facebook, Amazon, Apple, Alphabet (Google) and Microsoft, experience some profit-taking. However, it’s also a function of continuing monetary accommodation from the Bank of Japan (BOJ) even as the Fed tightens while the European Central Bank (ECB) and Bank of England (BoE) get closer to removing stimulus. Some analysts believe the yen has further to fall and expect the USDJPY to close in on 115.00. However, traders may be in no rush to push the dollar much further ahead of Fed Chair Janet Yellen’s testimony in Washington tomorrow.  

Upcoming events

Today’s significant events and economic data releases include Italian Industrial Production and Canadian Housing Starts. From the US we have the NFIB Small Business Index, JPLTS Job Openings and Wholesale Inventories. There are speeches from BoE MPC members Andy Haldane and Ben Broadbent and FOMC member Lael Brainard.


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Posted by David Morrison

Category: AM Bulletin

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