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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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 Thursday 23 November 2017

US closed for Thanksgiving - AM Briefing

 

 

Early moves

·         FOMC members express concerns

·         Shanghai Comp falls 2.2%

European indices were mixed in early trade this morning as traders responded to a touch of Wall Street weakness and an overnight slump in China’s Shanghai Composite. Chinese investors rushed to cut their exposure to stocks after the government tightened rules on lending. Last night the NASDAQ100 carved out a fresh record high as tech stocks got a lift, driven by Amazon. The online giant ended over 1% higher following news that its cloud business is on the verge of announcing an important deal with major health care technology company Cerner. But the Dow and S&P500 both ended the last pre-Thanksgiving session lower following the release of minutes from the Fed’s FOMC meeting earlier this month. Investors were rattled by comments from some FOMC members who expressed concern over continued low inflation. Some members are also worried by ongoing stock market strength against a low-volatility background. The suggestion is that there’s been a build-up of imbalances which could harm the economy during a stock market correction.

Stock Index Update

·         European indices end mixed

·         UK Budget shores up May’s government

Yesterday brought a mixed session for European equities with most indices ending little-changed. The stand-out exception was the German DAX which ended the day over 1% lower. The sell-off has continued this morning as investors ponder the unsettled political situation in the European Union’s leading country. Germany is still without a government two months after the General Election. Coalition talks between four parties broke down over the weekend leading Chancellor Merkel to say she would prefer a fresh election to leading a minority government. However, it is not her decision whether to hold another election or not and some commentators are now wondering if she can hold on as leader of the CDU and remain Chancellor for much longer.

Meanwhile, Theresa May’s embattled Tory government got a lift yesterday after Chancellor of the Exchequer Philip Hammond delivered a decent Budget. The feeling is that he’s done enough to keep his job as he offered up a number of popular tax breaks and threshold rises. These included the abolition of stamp duty for property purchases up to £300,000 for first-time buyers and keeping the threshold for VAT exemption unchanged at £85,000. This, along with freezes on most excise duties, extra money for the NHS, tax breaks for transfers on North Sea oil and gas fields and a few other titbits helped to cover up a sharp deterioration in the outlook for GDP growth. Sterling rallied after a modest decline early in the afternoon.

Commodities Update

·         Oil volatile on US inventory data

·         Gold and silver head towards resistance

On Tuesday oil prices rallied sharply in a move which saw WTI close out at its highest level since July 2015. The pick-up came ahead of the latest US inventory update from the American Petroleum Institute (API) which reported a bigger-than-expected drawdown in crude stockpiles - 6.36 million barrels versus 2.2 million. This was the largest decline since August and offsets last week’s data which showed a significant inventory build. Yesterday afternoon the Energy Information Administration (EIA) showed a much smaller drawdown in crude stocks and also reported another record high in US production. The news weighed on oil prices, bringing them off their highs.

Ignoring these volatile inventory numbers, investors continue to shrug off concerns about record US production and the International Energy Agency’s (IEA) forecast of a decline in global demand growth. Instead they are banking on the prospect of an output cut extension being announced at next week’s OPEC meeting. The bottom line is that the path of least resistance for oil prices is up - at least until we hear from the world’s major oil producers (except the US) next Thursday. But that’s not to say there won’t be volatility, particularly if there’s any inkling that some countries are reluctant to agree to extend output cuts.

Gold and silver put in a decent rally yesterday which began soon after the open of the US futures market. The move saw gold push further above $1,280 and silver move away from $17. These two levels have acted as magnets for the two precious metals over the last few months while resistance continues to come in around $1,290 and $17.20 for gold and silver respectively. Both metals got a lift yesterday from a pull-back in the US dollar. The greenback fell against all the majors in a move which saw the EURUSD push back up towards resistance around 1.1800. The euro continues to attract buyers despite uncertainty over the political outlook for Germany. Coalition talks broke down over the weekend and Chancellor Merkel said she would rather face another general election than form a minority government. However, it is understood that the decision over whether to hold an election is down to the German President. This is a position held by former SPD vice-chairman (formerly in coalition with the CDU/CSU) Frank-Walter Steinmeier who is understood to be against holding a second round of voting.

Forex Update

·         Sterling rallies after “safe” UK Budget

·         Dollar slips ahead of Fed minutes

FX markets came back to life yesterday as traders positioned themselves for the long holiday weekend due to today’s Thanksgiving holiday. Markets are expected to be quiet, or at least volumes will be light, with the US closed today with only a partial session tomorrow. Yesterday was Budget Day in the UK. Sterling fell after Chancellor Philip Hammond said the independent Office for Budget Responsibility (OBR) had sharply reduced its GDP forecasts for 2017 through to 2020. But it subsequently rallied as the Chancellor did enough to keep his job and so shore up Theresa May’s troubled government.

The dollar was trading lower ahead of the release of minutes from the Federal Reserve’s monetary policy meeting earlier this month. The sell-off accelerated despite the minutes suggesting that there will be another rate rise next month. Some FOMC members expressed their concerns over low inflation and the continued stock market rally given depressed volatility.

The pull-back in the dollar saw the EURUSD break above a minor level of resistance around 1.1800. Meanwhile, the Dollar Index fell back below 93.00 suggesting that the September-November countertrend rally may have topped out. If so, that opens up the prospect of a retest of September’s multi-year low below 91.00. The greenback is coming under pressure due to the ongoing flattening of the US Treasury yield curve which is seeing the spread narrow between short and longer-term interest rates. There’s a belief that the dollar could snap back quickly should US tax reform pass through the Senate before the year-end. However, some analysts have pointed out that it is the prospect of a lower corporate tax rate (and corresponding reduction in tax offset) that is driving longer-term bond yields lower as pension funds pile into longer-dated debt to take advantage of current high tax rates.

Upcoming events

Today’s significant events and economic data releases include Flash Manufacturing and Services PMIs from France, Germany and the Euro zone. From the UK we have the Second Estimate of 3rd Quarter GDP, Preliminary Business Investment and CBI Realised Sales. There’s also the release of the ECB’s Monetary Policy Meeting Accounts and Canadian Retail Sales. US markets are closed for Thanksgiving.  

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Posted by David Morrison

Tagged: FOMCminutes FED crudeoil DJIA DXY

Category: AM Bulletin


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