Incisive market commentary from David Morrison

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Collapse 2017 <span class='blogcount'>(348)</span>2017 (348)
Expand November <span class='blogcount'>(26)</span>November (26)
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EURUSD hovers around 1.1800 - AM Briefing
29 Sep 2017
Trump tax reform lifts Wall Street - AM Briefing
28 Sep 2017
What is the Fed trying to tell us? - PM Bulletin
27 Sep 2017
Yellen struggles with inflation - AM Briefing
27 Sep 2017
Can cable’s rally continue? - PM Bulletin
26 Sep 2017
Investors jittery after North Korean threat - AM Briefing
26 Sep 2017
EURUSD slips again - PM bulletin
25 Sep 2017
Merkel scrambles to form coalition - AM Briefing
25 Sep 2017
Caution ahead of weekend - AM Briefing
22 Sep 2017
Fed Meeting Post-Mortem - Video Update
21 Sep 2017
Fed signals another rate hike - AM Briefing
21 Sep 2017
Trading subdued ahead of Fed meeting - Video Update
20 Sep 2017
Fed expected to reduce balance sheet - AM Briefing
20 Sep 2017
FOMC and balance sheet reduction - PM Bulletin
19 Sep 2017
Dow hits fresh record high - AM Briefing
19 Sep 2017
EURUSD continues to trend higher - PM Bulletin
18 Sep 2017
Global indices storm higher - AM Briefing
18 Sep 2017
Investors shrug off NK missile test - AM Briefing
15 Sep 2017
Sterling soars after BoE meeting - Video Update
14 Sep 2017
Bank of England meeting in focus - AM Briefing
14 Sep 2017
Look-ahead to the BoE monetary policy meeting - Video Update
13 Sep 2017
Sterling bounces as inflation picks up - PM Bulletin
12 Sep 2017
Wall Street rally lifts sentiment - AM Briefing
12 Sep 2017
Euro storms higher - AM Briefing
08 Sep 2017
ECB meeting in focus - AM Briefing
07 Sep 2017
EURUSD soars during Draghi’s press conference - Video Update
07 Sep 2017
ECB meeting, a look-ahead to Thursday - Video Update
06 Sep 2017
Wall Street wobbles, but closes off lows - AM Briefing
06 Sep 2017
WTI recovering as clean-up continues - PM bulletin
05 Sep 2017
Investors shrug off North Korean threat - AM Briefing
05 Sep 2017
North Korean nuclear test boosts gold - PM Bulletin
04 Sep 2017
North Korea rattles markets - AM Briefing
04 Sep 2017
High hopes for the latest US jobs release - AM Briefing
01 Sep 2017
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Early moves

·         Tax changes pass first hurdle

·         Now the costs need calculating

The major US stock indices shot higher yesterday and the S&P500 hit a fresh all-time intraday high, although it pulled back from its best levels ahead of the close. Investors responded positively to the Trump administration’s tax reform plans. As expected, these include a significant cut to corporation tax and a tax break for corporations when they repatriate profits from overseas. Individuals will also benefit, and not just the rich. Standard deductions will be doubled and the system streamlined and simplified. The plan was endorsed by the Republican House freedom Caucus which means it has passed the first hurdle as it wends its way through the legislative process. Tax reform was a major part of Trump’s election campaign. It now seems that his administration has taken a leap forward in fulfilling at least one of his promises. However, there are still questions concerning the overall cost and how this will impact on the debt ceiling.

Stock Index Update

·         Wall Street cheers Trump tax plan

·         Fed keeps options open

The major US indices closed higher last night as investors welcomed a possible breakthrough on tax reform. The Trump administration put forward a plan which includes a tax break for US multinationals that repatriate profits from overseas. This should help boost investment back in the US, as should a planned cut in corporation tax which should see a number of major US corporations shift their head offices back home. The plan has been endorsed by the Republican House Freedom Caucus which was the first hurdle for reform.

European stock indices ended in positive territory yesterday following some bullish merger news and on the back of a hawkish speech from Fed Chair Janet Yellen. French rail operator confirmed that it will merge with German engineering giant Siemens while Finnish power company Fortum prepared a €8 billion bid for German utility company Uniper. The news encouraged fresh buying across all the majors as did the apparently hawkish comments made by Dr Yellen on Tuesday evening. The Fed Chair appears to be setting the scene for a rate hike in December, thereby expressing confidence in the US economy. However, she went to some pains to make clear that the FOMC’s “dot plot” was subject to revision should the economic data require it. Investors took that to mean that the additional three 25 basis point rate hike forecast for 2018 by the FOMC weren’t “written in stone.”

Commodities Update

·         Brent/WTI spread tightens

·         Further losses for precious metals

Crude prices were mixed yesterday following the latest US inventory update from the Energy Information Administration (EIA). This is the official data from the US Department of Energy and it showed an unexpected drop in actual crude stockpiles. Usually this would be supportive for oil prices and to some extent it was as WTI pushed higher. However, there were larger-than-anticipated builds in gasoline and Cushing inventories which helped to keep a lid on price gains as did an unexpected rise in crude production. Meanwhile Brent slipped back in a move which saw the spread between the two contracts narrow towards $5 from $6 on Tuesday.

Despite this, crude continues to hover around the highs hit earlier in the week. Turkey’s President Tayyip Erdogan repeated his threat to cut off the pipeline which carries over half a million barrels of crude per day from Northern Iraq to the rest of the world. This followed on from the Kurds voting overwhelmingly for independence in this week’s referendum.

Gold and silver continue to struggle with some technical analysts warning that we may have already seen the highest prices for the two precious metals this year. Earlier this month gold broke above $1,340 and hit its best level since August 2016. At the same time silver topped $18.20 to trade at its highest level since April this year. Both metals made gains after falling out of favour with investors. Speculators shunned them in favour of cryptocurrencies such as Bitcoin, even as the dollar sold off. However, there was a pick-up in safe haven demand as Bitcoin proved too volatile for many traders and following the increasing geopolitical concerns as tensions built between the US and North Korea. Now however, the dollar is beginning to pick up, the US Federal Reserve seem intent on tightening monetary policy, inflation continues to trend lower while South Korea have made it abundantly clear that they won’t sanction US-led military action against their northern neighbours. All-in-all, this is not the best environment for holding precious metals, although a sudden loss of risk appetite could see things turn around very quickly.

Forex Update

·         Dollar continues to recover

·         EURUSD holds below 1.1800

The US dollar was the main focus of yesterday’s FX trade.  The EURUSD fell further below 1.1800 although it bounced off its lows later in the session. The greenback added to gains made earlier in the week as investors responded to a speech and comments from Fed Chair Janet Yellen on Tuesday evening.  These were interpreted as hawkish overall after Dr Yellen said the FOMC shouldn’t wait for inflation to hit 2% before raising rates. She also warned that moving gradually could be risky. But Dr Yellen tempered this thought by saying the Fed may need to slow the removal of accommodation should the economic data take a turn for the worse.

The dollar has also made gains recently as a “safe haven” play thanks to the continuing bellicose rhetoric between the US and North Korea. On Monday North Korea’s foreign minister claimed that a tweet from President Trump was a declaration of war. As a consequence the regime was prepared to shoot down US military aircraft even if not flying over North Korean airspace. The euro was already falling on the back of Sunday’s German election result. Angela Merkel and her coalition partners all lost support as voters turned to smaller parties. Frau Merkel now faces the challenge of forming a four-way coalition while shunning the anti-immigration AfD who came third in terms of vote share.

Upcoming events

Today’s significant events and economic data releases include the German GfK Consumer Climate survey, German Preliminary CPI, Spanish Flash CPI and a speech from Bank of England Governor Mark Carney. From the US we have Final GDP, Unemployment Claims, Wholesale Inventories and a speech from retiring Fed Vice-Chair Stanley Fischer.


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Posted by David Morrison

Category: AM Bulletin

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