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BoE expected to hike rates on Thursday - PM Bulletin
31 Oct 2017
Wall Street drifts on tax cut worries - AM Briefing
31 Oct 2017
USDJPY butting up against resistance - PM Bulletin
30 Oct 2017
Spanish IBEX rallies sharply - AM Briefing
30 Oct 2017
Risk appetite strong on earnings/ECB - AM Briefing
27 Oct 2017
ECB finally announces QE taper - PM Bulletin
26 Oct 2017
ECB expected to begin tapering - AM Briefing
26 Oct 2017
Earnings, UK GDP and US Durable Goods ahead - AM Briefing
25 Oct 2017
Earnings season in focus - AM Briefing
24 Oct 2017
Quiet start after record close on Wall Street - AM Briefing
23 Oct 2017
Wall Street reverses early losses-AM Briefing
20 Oct 2017
Equities slide as Catalan deadline approaches - AM Briefing
19 Oct 2017
Gold retesting 50-day moving average - PM Bulletin
18 Oct 2017
Dow surges above 23,000 - AM Briefing
18 Oct 2017
UK inflation data in focus - AM Briefing
17 Oct 2017
Gold and silver break out of downtrend - PM Bulletin
16 Oct 2017
Oil rallies on threat of fresh Iranian sanctions - AM Briefing
16 Oct 2017
US economic data in focus - AM Briefing
13 Oct 2017
FOMC Minutes Released Tonight - Video Update
11 Oct 2017
Spain’s IBEX jumps after Catalan speech - AM Briefing
11 Oct 2017
US dollar - correcting or recovering?
10 Oct 2017
Investors prepare for earnings season - AM Briefing
10 Oct 2017
Has gold broken its long-term downtrend? - PM Bulletin
09 Oct 2017
BoE meeting will decide what sterling does next - Video Update
01 Oct 2017
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 Tuesday 17 October 2017

UK inflation data in focus - AM Briefing

 

 

Early moves

·         UK CPI may top 3%

·         Earnings from Goldman Sachs, Johnson & Johnson

European stock indices were a touch weaker in early trade on Tuesday. This was despite the US majors all closing out at fresh record highs last night. There seems little appetite for attempting to push European indices higher as the third quarter earnings season picks up a gear.

The latest UK inflation data is released this morning. Analysts expect Headline CPI (which includes food and energy) to come in at an annualised rate of 3%. If so, this will mean UK inflation is now at its highest level since May 2012. It will also mean that CPI is a full percentage point over the Bank of England’s 2% target which should increase the likelihood of a rate hike next month. We may hear more about this when Bank of England Governor Mark Carney addresses the Treasury Committee later this morning.

Later today we get third quarter results from Johnson & Johnson, Goldman Sachs and Morgan Stanley. So far we’ve had a clutch of mixed earnings reports from the major banks. Last week JP Morgan, Citigroup and Bank of America all posted sales and earnings either in line or a touch above market expectations. However, all recorded sharp drops in revenues from fixed income trading. Wells Fargo reported disappointing revenues and the stock prices fell sharply on Friday as it took a hefty charge for litigation costs.

Stock Index Update

·         Fresh record highs on Wall Street

·         Netflix beats estimates

Last night the Dow, NASDAQ and S&P500 all closed out at fresh record highs. Investors and traders continue to be in bullish mode as the upside momentum in equities continues to drag in buyers. For now, equities remain in favour as offering the best potential returns as bond yields continue to trade near all-time record lows. Technically there’s little reason to sell although US equities appear overvalued by a number of measures. Now all eyes are on the third quarter earnings season which begins to pick up pace over the next few weeks. Netflix reported earnings and revenues which both beat the consensus forecast. The stock hit a fresh record high in yesterday’s session.

Meanwhile, European stock indices had another mixed session yesterday with German, French and Italian indices all modestly higher on the close and the UK’s FTSE100 a touch lower. The Spanish IBEX ended the day around 1% lower after Catalan President Carles Puigdemont failed to clarify if he was prepared to officially declare independence. However, he has called for a meeting with Prime Minister Mariano Rajoy, although it’s difficult to see what Madrid may be prepared to concede in any talks.

Commodities Update

·         Iranian sanctions fear boosts crude

·         Precious metals slip as dollar rallies

Crude oil shot higher yesterday morning after President Trump announced on Friday that he was not prepared to formally certify that Iran is complying with the nuclear agreement. There is now the danger that the US will resume sanctions against Tehran although this will have to be debated and agreed by Congress over the next couple of months. Crude also got a lift after Iraqi forces pushed back against Kurdish fighters and entered the city of Kirkuk. This threatens supply from the oil-rich region and led to a shut-down of production in Kurdistan. On top of all this there was an explosion at an oil rig in Louisiana. Also, weekly data showed a fall in the US rig count which is now at its lowest level since the beginning of the summer. Brent has broken above resistance around the $57 level while WTI is still some way below $54 - a price level which capped WTI throughout the first two months of this year. Interestingly,

Gold and silver worked hard to build on gains made last week. In early trade yesterday gold appeared to be consolidating above $1,300 while silver spent most of the European session trading above $17.40. However, both sold off sharply later in the session as the dollar rallied and on an apparent easing of geopolitical tensions. US Deputy Secretary of State John J Sullivan said he doesn’t rule out the possibility of face-to-face meetings with North Korea. Nevertheless there are still hopes expressed by bullish traders that the two precious metals have broken out of their respective downtrends which have been in place since 2011. This could help to lift both metals although they could both struggle if the dollar now reverses the downtrend that’s been in place since the beginning of the year. According to the minutes of the FOMC’s September meeting, committee members remain concerned that inflationary pressures are so weak. However, some members are convinced that this downturn in Core PCE inflation is transitory and will pick up soon. This in turn makes a December rate hike quite likely (according to the fed funds futures market) which should be dollar-positive and negative for precious metals. However, ECB tapering could help lift the euro and keep a lid on the dollar going forward.

Forex Update

·         Dollar up on rising bond yields

·         Traders ignore ECB tapering plan

The dollar was a touch firmer in early trade building on gains made yesterday. The greenback is currently getting a boost from rising US bond yields. This follows speculation that President Trump is preparing to replace Fed Chair Janet Yellen with John Taylor. Professor Taylor is considered to be more hawkish than Dr Yellen. There was some light euro selling due to uncertainty over Catalonian independence from Spain and following the Austrian election.

The dollar staged a bit of a recovery over the four weeks since 8th September after falling steadily ever since the beginning of the year. But it is still difficult to tell if that rally marks the beginning of a change in trend or will prove to be nothing more than a corrective bounce before the dollar resumes its downtrend. Last week’s minutes from the Federal Reserve’s meeting back in September made it clear that the FOMC was concerned that inflation is still a long way below its 2% target. Nevertheless, committee members made it clear that they still favoured a December hike although they will keep a close eye on incoming economic data. On Friday the latest readings for Headline and Core CPI both came in below expectations. This saw the dollar slide sharply (although it subsequently recovered) as traders cut the probability of a December rate hike to 73% from 80%. Goldman Sachs were quick to put a note out to say that the likelihood of a rise at the end of this year had fallen a touch. Earlier in the week investors effectively ignored a story which said that the ECB was preparing to cut its monthly bond purchases from €60 billion to €30 billion while extending the programme for another nine months from December. It appears that this was widely priced in to FX.

Upcoming events

Today’s significant events and economic data releases include UK CPI, RPI and HPI. Bank of England governor Mark Carney is due to testify before the Treasury Select Committee. From the euro zone there’s the latest updates on CPI, ZEW Economic Sentiment and German ZEW Economic Sentiment. From the US we have Capacity Utilisation, Industrial Production and a speech from FOMC-voting member Patrick Harker.

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Posted by David Morrison

Category: AM Bulletin


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