Incisive market commentary from David Morrison

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Collapse 2017 <span class='blogcount'>(348)</span>2017 (348)
Collapse November <span class='blogcount'>(26)</span>November (26)
Markets drift ahead of weekend - AM Briefing
24 Nov 2017
US closed for Thanksgiving - AM Briefing
23 Nov 2017
Wall Street hits fresh record highs - AM Briefing
22 Nov 2017
The UK100 and sterling - PM Bulletin
21 Nov 2017
Equities drift in featureless trade - AM Briefing
21 Nov 2017
German coalition talks collapse - AM Briefing
20 Nov 2017
Quiet start after Wall Street surge - AM Briefing
17 Nov 2017
Global stock indices steady - AM Briefing
16 Nov 2017
Is this the start of a stock market correction? - Video Update
15 Nov 2017
Crude sell-off rattles investors - AM Briefing
15 Nov 2017
GBPUSD testing support - PM Bulletin
14 Nov 2017
Central bankers meet in Frankfurt - AM Briefing
14 Nov 2017
Sterling under pressure - AM Briefing
13 Nov 2017
Indices in retreat ahead of weekend - AM Briefing
10 Nov 2017
Could low volatility trigger a market correction? - Video Update
09 Nov 2017
All quiet on the Western Front - AM Briefing
09 Nov 2017
WTI crude surges through resistance - Video Update
08 Nov 2017
Investor inertia sees equities drift - AM Briefing
08 Nov 2017
Crude in demand - PM Bulletin
07 Nov 2017
Fresh record close for Wall Street - AM Briefing
07 Nov 2017
EURUSD shows clear “head and shoulders” - PM Bulletin
06 Nov 2017
Cautious start to trading week - AM Briefing
06 Nov 2017
Traders look ahead to Non-Farm Payrolls - AM Bulletin
03 Nov 2017
Traders look ahead Friday’s US Non-Farm Payrolls - Video Update
02 Nov 2017
BoE expected to raise rates - AM Briefing
02 Nov 2017
Equities soar on US corporate tax cut hopes - AM Briefing
01 Nov 2017
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Expand 2016 <span class='blogcount'>(483)</span>2016 (483)


Early moves

·         Apple reports blow-out numbers

·         Market expects bounce-back in US Payrolls

Tech giant (or, if you prefer, luxury goods designer) Apple reported its quarterly results after last night’s close. Earnings per share came in at $2.07 on quarterly sales of $52.6 billion. These were well above the forecast numbers of $1.87 and $ 50.7 billion respectively. Phone sales were also higher than anticipated while the company anticipates revenues of $84 to $87 billion in the next quarter, again comfortably above the $84.9 billion consensus expectation. The stock is up over 3% in after-hours trade and this helped to support global indices in early trade.

Today’s big data release is monthly US Non-Farm Payrolls (NFP). The consensus expectation is that the headline number will show an increase of 311,000 which would be way above the six-month rolling average with comes in a tad below 180,000. However, this would make up for September’s dismal reading which showed a decline of 33,000 jobs for the month (the first negative reading in seven years) on expectations of an 82,000 gain. This came on the back of severe disruption caused by hurricanes over the summer. Analysts will also be paying close attention to Average Earnings which picked up sharply last month. If these continue to be strong then this will

Stock Index Update

·         BoE tightens monetary policy

·         Jerome Powell named as Fed Chairman-elect

US indices swung between negative and positive territory yesterday as traders studied Republican tax reform plans. Overall, there was relief among investors that the planned reforms would see corporation tax cut to 20% (from around 36% currently) permanently.

Yesterday the Bank of England (BoE) raised its headline Bank Rate by 25 basis points as expected. This took its key interest rate back up to 0.50% from 0.25% and was the first increase since July 2007. The BoE’s Monetary Policy Committee (MPC) voted 7-2 in favour of hiking rates. This was broadly in line with expectations although some analysts were expecting a 6-3 vote split. But the decision was viewed in a dovish light as the Bank made it clear that any future monetary tightening would be at a gradual pace. Sterling fell sharply on the news and this helped to lift the UK’s FTSE100 to the session high, up around 0.8%. All other European equity markets were lower around midday having given up earlier gains.

Facebook reported earnings after the close on Wednesday. Third quarter earnings per share came in at $1.59 - way above the $1.28 estimated. This was on revenues of $10.33 billion which was also well above the consensus forecast of $9.84 billion. Monthly Active Users were also higher than anticipated. Yet despite all this, the Facebook share price lost ground after CEO Mark Zuckerberg said that spending on security was going to have a negative impact on profitability. 

Yesterday afternoon President Trump announced that Fed Governor Jerome Powell was his choice for the Chairmanship of the Federal Reserve. Mr Powell is the safe and uncontroversial choice. He is known as a centrist dove when it comes to monetary policy, but how he would react in a crisis is far from clear.

Commodities Update

·         Crude pulls back from Wednesday’s high

·         Gold and silver consolidate after rally

Crude prices drifted lower yesterday as sellers appeared anxious to book profits by closing out long positions. But buyers came back later in the session to push both WTI and Brent back into positive territory. On Wednesday Brent spiked above $61 per barrel to hit its highest level since July 2015. WTI shot above $55 per barrel to trade at its best level since the beginning of this year. However, both contracts subsequently fell back from their best levels to end Wednesday’s session lower. The trigger for the move was the latest US inventory update from the Energy Information Administration. This showed inventory declines in crude, gasoline and distillates of 2.4 million barrels, 4.0 million barrels and 320,000 barrels respectively. The crude and gasoline reductions were bigger-than-expected. However, all were considerably higher than the numbers recorded by the American Petroleum Institute after Tuesday’s close and this led to the sell-off. Given this disappointment together with the sharp price spike since the beginning of this week and the near-relentless rally since the end of August, it’s not surprising that traders would want to trim their long-side exposure.

Gold and silver spent most of yesterday’s session in positive territory, ultimately closing out modestly higher and building on Wednesday’s gains. The gold price has steadied over the past week and appears to be consolidating, albeit at lower levels and below support/resistance around $1,280. Meanwhile, silver has managed to hold on to the gains made on Wednesday when large buy-side volumes saw the metal rise by over 50 cents. The US dollar has steadied over the same period following a sharp rally just over a week ago. This came after the European Central Bank (ECB) announced a fresh round of monetary stimulus beginning next year which is effectively open-ended. The news saw the euro lose ground even as the ECB said next year’s monthly bond purchases would be at a rate of €30 billion per month rather than €60 billion currently. With the Fed expected to raise rates next month, the dollar is finding support and this could help to keep a lid on gold and silver in the near term.

Forex Update

·         BoE raises rates as expected

·         But sterling slumps on “gradual” tightening

Sterling slumped yesterday afternoon despite the Bank of England raising its headline interest rate by 25 basis points - the first UK hike in over 10 years. The move was widely anticipated, as was the 7-2 voting split across the nine-member MPC. However, the Bank emphasised that future rate increases would take place at a gradual pace, with the MPC forecasting two further 25 basis point rises over the next three years. In his subsequent press conference, Governor Mark Carney emphasised the Bank’s concerns over high inflation, particularly given limited spare capacity and an unemployment rate at a 42-year low. The Bank raised its inflation forecast while reducing its predicted low for the unemployment rate. The Bank also said that growth was just above its new lower “speed limit” while Mr Carney insisted that the UK’s rate of growth was “slow but not subdued” as characterised by a BBC journalist. Also, he emphasised ongoing uncertainty over Brexit and how the Bank’s economic projections could change should the UK and EU reach deals on trade and the transition period. The GBPUSD fell to test a trend line of support around 1.3070. If it can bounce off here then we may see sterling resume its uptrend against the dollar.

Upcoming events

Today’s most significant economic data release is the US Non-Farm Payroll number. We’ll also have the US Unemployment Rate, Average Hourly Earnings, Trade Balance, Services PMI, Factory Orders and the ISM Non-Manufacturing PMI.


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Posted by David Morrison

Tagged: Dollar FOMC NonFarmPayrolls BoE Apple Apple APPL

Category: AM Bulletin

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