Incisive market commentary from David Morrison

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Collapse 2017 <span class='blogcount'>(348)</span>2017 (348)
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Non-Farm Payroll look-ahead - Video Update
31 Aug 2017
Tech stocks lead market recovery - AM Briefing
31 Aug 2017
Fall-out from Jackson Hole - Video Update
30 Aug 2017
Investors shrug off North Korean missile launch - AM Briefing
30 Aug 2017
Gold breaks through $1,300 - PM Bulletin
29 Aug 2017
Equities slide after North Korean missile launch - AM Briefing
29 Aug 2017
Yellen and Draghi in focus - AM Briefing
25 Aug 2017
Jackson Hole look-ahead to key speeches - Video Update
23 Aug 2017
Wall Street surges on tax reform hopes - AM Briefing
23 Aug 2017
Euro slips, but range-bound ahead of Jackson Hole - PM Bulletin
22 Aug 2017
Equities recover in early trade - AM Briefing
22 Aug 2017
Equities under pressure as Trump struggles - AM Briefing
21 Aug 2017
Equities fall as investors find reasons to sell - AM Briefing
18 Aug 2017
ECB and FOMC minutes lead to FX volatility
17 Aug 2017
FOMC minutes viewed as dovish - AM Briefing
17 Aug 2017
FOMC minutes in focus - Video Update
16 Aug 2017
Fed minutes in focus - AM Briefing
16 Aug 2017
Sterling slips as inflation steadies - PM Bulletin
15 Aug 2017
Equities continue to recover - AM Briefing
15 Aug 2017
Gold: triple top or third time lucky? - PM Bulletin
14 Aug 2017
Stocks bounce as geopolitical risk eases - AM Briefing
14 Aug 2017
Bank of England rate decision in focus - AM Briefing
03 Aug 2017
Crude breaks above resistance - PM Bulletin
02 Aug 2017
Apple rallies 6% on strong report - AM Briefing
02 Aug 2017
Cable breaks above 1.32000 - PM Bulletin
01 Aug 2017
Apple to report after the close - AM Briefing
01 Aug 2017
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Early moves

·         Tech stocks lead bounce-back

·         Investors shrug off concerns

European stock indices opened firmer thanks mainly to yesterday’s tech-led rally on Wall Street. Investors have put aside their concerns over North Korea’s provocative missile launch as the Trump administration’s response was considered relatively benign. This is despite Trump’s tweet yesterday which said that when it came to dealing with N. Korea, “Talking was not the answer.”

Instead, investors were cheered by a solid US jobs number and a strong upward revision to US second quarter GDP, even though the better data raises the prospect of further monetary tightening this year from the Fed.

In other news, precious metals slumped overnight on a bout of indiscriminate selling which saw gold break below $1,300. Both metals have since recovered but remain under pressure. Overall, it appears that investors see few clouds on the horizon despite the onslaught of Hurricane Harvey, North Korean missile tests, a wobbly US presidential administration (with an upcoming debt ceiling debate to be had) and the prospect of higher interest rates.

Stock Index Update

·         Indices boosted by strong US data

·         North Korea largely ignored

US tech stocks were in the vanguard of a broad equity market rally yesterday which led to gains for all the majors. Investors have refused to take North Korea’s latest provocation too seriously as few believe the US is prepared to engage in a military confrontation with the rogue state. This may prove to be an optimistic assumption as it sounds as if the Trump administration is wary of waiting any longer to clip Kim Jong-un’s wings. But investors were cheered by the better-than-expected ADP Payroll number and a strong upward revision to second quarter GDP. The stage is set for a solid Non-Farm Payroll reading tomorrow.

European stock indices opened sharply higher yesterday morning following Tuesday’s bounce-back across Wall Street. All the US majors reversed an early sell-off after it became apparent that President Trump was not prepared to respond to the North Korean missile launch with a “stream of consciousness” Tweet-storm. Instead Mr Trump stated that all options were on the table when it came to dealing with the rogue state. Traders rushed to “buy the dip”, repeating a profitable strategy that has worked so successfully over the past eight years.

But investors should exercise some caution. Stock market volatility has picked up a touch this summer, even though the S&P500 has been stuck in a range of 2,480 - 2,420 for the past six weeks. But profitable strategies can suddenly stop working without warning, and it’s worth bearing in mind that there’s still a danger of a fatal mishap (assuming we don’t have an outbreak of full-on hostilities) when it comes to the US dealing with North Korea.

Commodities Update

·         Crude oil slips again

·         Gold and silver under pressure

Yesterday afternoon the Energy Information Administration (EIA) released its latest update on US oil inventories. Crude stockpiles fell 5.4 million barrels for the week ending 25th August, much in line with Tuesday’s API data which registered a 5.8 million drop. In both cases analysts had expected a stockpile reduction of around 1.8 million barrels. But there were a couple of disparities between the two data sets. Firstly, yesterday’s EIA report showed a negligible rise in gasoline stocks compared to an increase of 476,000 barrels for the API. The EIA also reported a distillate build of 748,000 barrels against an API drawdown of 486,000. Investors were unsure about how to interpret the data initially, but ended up being modest sellers. It’s worth noting that both the API and EIA numbers were collected before Hurricane Harvey made landfall. And one thing is clear, it’s difficult to fully assess the disruption that the storm will cause to the crude complex. But for now it appears there has been a relatively minor disruption to oil production while refining capacity has been severely affected. Gasoline prices continue to rally while crude has sold off as there is reduced demand from refiners for oil.

Gold and silver steadied in early trade yesterday morning following a modest pull-back from multi-month highs made earlier in the week. However, the two precious metals drifted lower in the early afternoon as the dollar recovered from its post-Jackson Hole sell-off. The dollar rallied yesterday on a mixture of short side profit-taking and a bounce on the back of the release of better-than-expected US economic data. The ADP Employment Change rose 237,000 in August, way above the 185,000 expected while second quarter GDP was revised up to +3% annualised from the Advance reading of +2.6% previously. Yet gold and silver continue to consolidate at higher levels and there’s a growing feeling that both may have broken out to the upside. The two metals continue to get support from tensions across the Korean peninsula. Yesterday afternoon President Trump tweeted that the US had been talking and paying North Korea extortion money for 25-years and that: “Talking is not the answer.”

Forex Update

·         Dollar steadies after sharp sell-off

·         EURUSD pulls back below 1.2000

The US dollar recovered a touch yesterday in a move which saw the Dollar Index push back above 92.00 and the EURUSD slide below 1.2000. The early part of the move could be put down to profit-taking following the dollar’s plunge which followed ECB President Mario Draghi’s speech last Friday at the Jackson Hole Economic Symposium. But the dollar got a further lift following the latest update on the ADP Non-Farm Employment Change. Job creation in the private sector rose 237,000 in August on expectations of an increase of 185,000. There isn’t a strong correlation between the ADP number and the Bureau of Labor Statistics’ Non-Farm Payroll release due on Friday. Nevertheless, yesterday’s ADP was particularly strong suggesting that the Federal Reserve’s FOMC may be in a hawkish frame of mind when it meets towards the end of September. Later on, US second quarter GDP was revised up to 3% annualised - way above the 2.7% rate anticipated. Again, this gave investors another good reason to buy dollars.

Upcoming events

Today’s significant events and economic data releases include Euro zone Flash CPI and the Unemployment Rate. From the US we have Weekly Jobless Claims, the Core PCE Price Index, Personal Spending, Personal Income, the Chicago PMI and Pending Home Sales.


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Posted by David Morrison

Category: AM Bulletin

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