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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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Early moves

·         Corporation tax cuts to be “gradual”

·         But equities supported by earnings

European stock indices had another mixed open this morning as investors reacted to a weaker close on Wall Street last night. However, it didn’t take long for US stock index futures to reverse early losses and push back into positive territory. Yesterday, traders were spooked by reports that the US Congress was considering a “gradual” implementation of a plan to reduce corporation tax. There had been high hopes that the bulk of President Trump’s tax reform plans could be accepted by policymakers before the end of this year. But investors will be disappointed if this can only be achieved by watering down the Trump administration’s proposals.

Earnings season continues, and so far the third quarter results are beating market expectations and helping to support equities. Earlier today the travel and leisure sector got a boost after Ryanair reported an 11% increase in net profits for the first half of the year. BP rose 3% in early trading as it comfortably beat analysts’ expectations for its third quarter replacement cost profit.

Overnight the Bank of Japan (BOJ) held its latest monetary policy meeting. The central bank left rates and its 10-year JGB yield target unchanged, as expected. The yen strengthened overnight but has since given back early gains.

This morning also saw the release of Chinese Manufacturing and Non-Manufacturing PMIs. Both numbers declined from the previous month although both remain above 50 and so indicate expansion in these two crucial sectors. Nevertheless, the Manufacturing PMI is causing some concern as it came in at 51.6 - significantly below the 52.2 level anticipated.

President Trump has still to announce his pick as the new Chairman of the US Federal Reserve. He has said that he will declare his choicwe before he embarks on a tour of Asia this Friday. Yesterday the Wall Street Journal reported that he has settled on Fed Governor Jerome Powell. If so, this would represent “business as usual” and is unlikely to be market-moving.

Stock Index Update

·         Wall Street slips on profit-taking

·         Fears of “gradual” cut to corporation tax

Yesterday saw the major US stock indices sell off early in the session on fears that Trump’s plan to cut corporate taxes could be slow and gradual. US equities have benefitted from speculation that tax reform could come before the year-end. This was understood to include the slashing of the corporate tax rate and moves to encourage the repatriation of US profits made overseas. Obviously, both moves are potentially positive for stocks. However, yesterday Bloomberg reported that the plan currently being discussed by Congress looks to see the corporate tax rate cut to 20% by 2022. With a top rate of 35% the US currently has one of the highest corporate tax rates in the developed world. This is thought to hold back investment and discourage multinationals from setting up bases within the US.

The picture was mixed across Europe. The FTSE100 ended lower on the day with a sharp rally in sterling keeping a lid on UK stocks. Around 75% of FTSE100 earnings come from overseas so a rally in the British pound can weigh on international sales. But the Spanish IBEX built on early gains to end the session over 2.5% higher. There is a growing feeling that the Spanish government is finally getting a grip on the issue of Catalonian independence. Investors are taking heart from evidence that around half of Catalonians aren’t in favour of breaking away from Spain.

Commodities Update

·         WTI closes in on resistance

·         Gold rallies as dollar slips

Crude prices consolidated yesterday.  Brent appears to be settling in above the key $60 level while WTI continues to close in on an area of resistance around $54.50. The area between $54 and $54.50 held as resistance throughout the first quarter of this year. The Brent-WTI premium remains over $6, up from around $1.50 earlier this summer. This higher premium established itself as hurricanes hit key refining areas in Texas, Louisiana and the Gulf of Mexico. Recent speculation has centred on how this unusual situation would resolve itself: would WTI rally up to meet Brent, or Brent fall back towards WTI, or a combination of the two? It now appears that both contracts are capable of moving up together in tandem and this seems unlikely to change ahead of a couple of key OPEC events next month. Firstly, the oil cartel releases its latest global oil outlook on 7th November. Then there’s the biannual meeting on 30th November. The question now is whether WTI can break above resistance and push on towards $60 in the absence of fresh bullish news.

Gold and silver lost ground in early trade yesterday but rallied off their lows as the trading session progressed.  Buying interest was reinvigorated as the US dollar gave back some of last week’s gains. It also helped that both metals rallied on Friday in a move which helped to revive positive sentiment. Nevertheless, gold remains below $1,280 and is still down over 5% from the highs hit at the beginning of last month. Silver has lost close to 8% over the same period and remains vulnerable to further losses the longer it trades below $17. A break below $16.60 increases the possibility of a sharp drop to intermediate support around $16.20.

Forex Update

·         Dollar slips on mild profit-taking

·         But euro still under pressure after ECB meeting

The US dollar was a touch weaker for most of yesterday’s session, losing ground versus the euro, Japanese yen and British pound. Nevertheless, the greenback still managed to hold on to most of its gains from last week. These followed a particularly dovish ECB meeting on Thursday which saw the central bank extend its Asset Purchase Programme (APP) by nine months even as it reduced the size of its monthly purchases to €30 billion from €60 billion. ECB President Mario Draghi also said the bank was prepared to extend stimulus if necessary. The euro sold off sharply as a result. The dollar made further gains on Friday following the release of a much better-than-expected Preliminary GDP number.

The Federal Reserve meets tomorrow but isn’t expected to make any changes to monetary policy. The market consensus is that the Fed will raise rates at its December meeting, unless US economic data deteriorates significantly over the next month or so. Yesterday the September update for the Fed’s preferred inflation measure (Core PCE) came in at +1.3% annualised. This was unchanged from the month before and some analysts are suggesting that the downward trend in the data series since February may finally be over. This has added ammunition to the argument in favour of a Fed rate rise at the December meeting.

President Trump still hasn’t revealed his choice to replace Janet Yellen as Chair of the Federal Reserve. Dr Yellen’s term expires in February and it appears unlikely that Trump wants to reappoint her. Instead, the two front-runners remain current Federal Reserve member Jerome Powell and Stanford economics professor John Taylor. There’s also a vacancy for Vice-Chair following Stanley Fischer’s early retirement.

Upcoming events

Today’s significant events and economic data releases include Euro zone Flash CPI and Flash GDP. From the US we have the Employment Cost Index, S&P/Case Shiller House Price Index, Chicago PMI and Consumer Confidence.

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Posted by David Morrison

Tagged: Brent equities BankofJapan DXY nikkei

Category: AM Bulletin


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