Incisive market commentary from David Morrison

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Collapse 2017 <span class='blogcount'>(348)</span>2017 (348)
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Investors on edge after Wall Street sell-off
30 Jun 2017
Central bankers keep traders guessing - Video Update
29 Jun 2017
Markets mixed ahead of weekend - AM Briefing
23 Jun 2017
Investors concerned over oil sell-off - AM Briefing
22 Jun 2017
Crude oil hits seven-month low - Video Update
21 Jun 2017
Sell-off in crude weighs on equities - AM Briefing
21 Jun 2017
Crude falls back to November lows - PM Bulletin
20 Jun 2017
Fresh records for US indices - AM Briefing
20 Jun 2017
Equity rally resumes - AM Briefing
19 Jun 2017
Markets steady ahead of weekend - AM Briefing
16 Jun 2017
FOMC surprises with “hawkish rate hike” - Video Update
15 Jun 2017
Fed unveils “hawkish rate hike” - AM Briefing
15 Jun 2017
FOMC rate decision in focus - Video Update
14 Jun 2017
Investors expect another Fed rate hike - AM Briefing
14 Jun 2017
FOMC look-ahead - PM Bulletin
13 Jun 2017
NASDAQ futures recover in early trade - AM Briefing
13 Jun 2017
Equities slide after US tech sell-off - AM Briefing
12 Jun 2017
May-hem! Tories chuck away majority - AM Briefing
09 Jun 2017
Brief notes on gold - PM Bulletin
08 Jun 2017
Markets calm as investors take “Risky Thursday” in their stride
08 Jun 2017
Markets becalmed ahead of “Risky Thursday” - AM Briefing
07 Jun 2017
Sterling, events on Thursday and the UK election
06 Jun 2017
Safe havens in demand - AM Briefing
06 Jun 2017
Trading Guides - How CFD trading works
05 Jun 2017
Sterling steady after terror attack - AM Briefing
05 Jun 2017
Non-Farm Payrolls in focus - AM briefing
02 Jun 2017
Non-Farm Payroll look-ahead - Video Update
01 Jun 2017
Crude bounces after US inventory data - AM Briefing
01 Jun 2017
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Early moves

·         Sterling steady after terror attack

·         Tory poll lead narrows further

Yet again, the UK is forced to react to another terrorist atrocity. But as we have come to expect there’s been little overall market reaction. Sterling dipped a touch but still remains comfortably above 1.2800 - a level it reached soon after UK Prime Minister Theresa May called a snap general election. On that score, the latest opinion poll from Survation shows the Tory lead over Labour down to just 1%. However, the betting still suggests that the Conservatives will build on their current majority by winning an additional 30 seats or so.

Most European equity markets are closed for Whit Monday although we’ll get a feel for sentiment through futures trading.

Meanwhile, crude oil has bounced in a move that has taken Brent back above $50 per barrel. This follows the news that a Saudi-led coalition has broken diplomatic ties with Qatar. Saudi Arabia, Bahrain, Egypt and the United Arab Emirates have suspended all air and sea travel to and from Qatar, citing Qatar’s support for terrorist groups.

Stock Index Update

·         Non-Farm Payrolls disappoint

·         Unemployment at lowest since 2001

All the major indices were sharply higher in early trade on Friday after the Wall Street majors closed out at fresh records the day before. However, US and European stock indices pulled back from their best levels following Friday afternoon’s Non-Farm Payroll (NFP) release. The data showed that only 138,000 jobs were added in May while April’s number was revised down to 174,000 from 211,000. Investors were wrong-footed by the ADP Payroll release on Thursday which was considerably stronger than expected. This had led a number of analysts to raise their NFP predictions to 200,000 from 186,000 previously.

But there was even more bad news. The Unemployment Rate dropped to 4.3% - its lowest level since March 2001. In normal circumstances this would be a positive outcome, indicating that there was effectively full employment in the US. However, it came as a result of a low Participation Rate which means that for whatever reason a large number of individuals have given up looking for work. As a result, they’re no longer considered unemployed. Just as worrying was Average Hourly Earnings which rose just 0.2% from the previous month. This suggests that the downward trend in PCE inflation looks likely to continue for now, making it much harder for the US Federal Reserve to justify tightening monetary policy much more.

Commodities Update

·         Crude remains under pressure

·         Precious metals rally after weak payroll data

The sell-off in crude oil continued at the end of last week in a move which saw WTI and Brent break below $50 per barrel. Crude slumped following the OPEC meeting on 25th May. This was when OPEC and a number of non-OPEC producers agreed to extend their output cut by nine months to the end of March next year. This move was widely predicted, but there was considerable disappointment that producers were unable to agree to deepen the cuts beyond the current 1.8 million barrels per day. The failure of the meeting was brought into stark relief by comments made last week by OPEC’s Secretary General Mohammed Barkindo. He claimed that the agreement was a “work-in-progress” and suggested that caps could be brought in on other countries. This was seen as a desperate attempt to shore up the market. Producers had a perfect opportunity to cut further at the meeting, but quite obviously were unable to reach agreement. Crude had a short-lived rally on Thursday following the latest inventory updates from the American Petroleum Institute (API) and Energy Information Administration. These both showed an unexpectedly-large drawdown in US crude stockpiles. However, it wasn’t long before trader sentiment turned negative again.

Gold and silver both soared on Friday afternoon following the release of US Non-Farm Payrolls (NFP). The data showed that 138,000 jobs were added in May, well below the consensus forecast of 186,000. In fact, the number was even more of a disappointment as a strong ADP payroll number on Thursday had encouraged many analysts to revise their NFP forecasts up towards 200,000. Investors piled back into precious metals as the US dollar fell. The prevailing wisdom after the employment data was that the US Federal Reserve may slow down the pace of monetary tightening this year. While it’s still odds-on that the Fed will raise rates by 25 basis points later this month, the probability of another hike in September has reduced sharply.

Forex Update

·         Dollar slumps on weak payrolls

·         Polls show small Tory lead

The US dollar slumped on Friday afternoon following the weaker-than-expected US Non-Farm Payroll report. The Dollar Index broke below support around 96.50 which marks the 61.8% Fibonacci Retracement of the index’s rally between May 2016 and January 2017. The currency basket hit its lowest level since Trump’s surprise election victory back in early November. The EURUSD came within a few cents of its own high which was hit in the immediate aftermath of the Trump win. The dollar sell-off came about even though there was little change in the odds of a 25 basis point rate hike from the Fed at their next meeting on 13th/14th June. This seems nailed on, although it’s now looking very unlikely that the US central bank will hike again in September. There has been a number of disappointing economic data releases of late, with both inflation and jobs growth turning lower.

Meanwhile, sterling slipped against both the US dollar and the euro. The story of last week was how a succession of polls showed that the Conservative lead over Labour had shrunk dramatically. Yet despite this the betting market still expects the Tories to extend their overall parliamentary majority and pick up anything between 30 and 40 seats. This helps explain why GBPUSD is holding above 1.2800 - a level it reached straight after Theresa May called the snap election.

Upcoming events

Today’s significant events and economic data releases include Spanish, Italian, French, German, Euro zone and UK Services PMIs. From the US we have Non-Farm Productivity, Factory Orders and the ISM Non-Manufacturing PMI. There are bank holidays in Germany, France and Switzerland.


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Posted by David Morrison

Category: AM Bulletin

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