Incisive market commentary from David Morrison

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Collapse 2017 <span class='blogcount'>(348)</span>2017 (348)
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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

·         S&P500 at fresh record

·         EURUSD remains in uptrend

European stock index futures got off to a solid start this morning, boosted by last night’s strong rally across Wall Street. Yesterday saw the S&P500 close out at an all-time record high after posting its biggest one-day percentage gain since April this year. Investors piled back into equities and out of safe-havens as Hurricane Irma proved less destructive than feared and after North Korea held off from further provocative actions.

The euro has fallen back sharply after shooting higher last week. But the EURUSD was a touch firmer first thing this morning and it’s worth noting that it remains in an uptrend for now. Meanwhile, gold and silver are both a tad lower, but have stabilised following yesterday’s pull-back. The first line of support for gold comes in around $1,320.

Stock Index Update

·         European/US indices soar

·         Relief follows “uneventful” weekend

Yesterday saw US and European stock indices soar higher in a general relief rally. Investors piled back into equities and other “risk assets” after a weekend which was said to have passed without major incident. What that meant was that Hurricane Irma didn’t inflict as much damage as many feared and that the North Korean leadership chose not to celebrate its “Day of Foundation” with another missile test.

European stock indices ended last Friday’s session mixed. All the indices closed off their lows, boosted by a turnaround in the fortunes of the US majors. These had begun the day in negative territory but recovered ahead of the European close. In some ways it was surprising to see equity prices buoyant going into the weekend. After all, Hurricane Irma was heading straight for Florida leading to a mass evacuation of residents. On top of this there was speculation that North Korea was planning another missile launch on Saturday to help celebrate the country’s founding anniversary. But it’s an indication of just how reluctant investors are to give up on the stock market rally that few were tempted to cut their exposure. And of course in hindsight it’s apparent that investors gambled the right way going into the weekend.

Commodities Update

·         Crude pulls back from best levels

·         Investors take profits on precious metals

Both Brent and WTI crude rallied for most of last week. WTI made back all the losses following refinery shut-downs in the wake of Hurricane Harvey despite a sharp sell-off on Friday afternoon.

On Thursday Brent closed out at its highest level since the end of May - just before crude prices slumped 5% in a single session following the last OPEC meeting. This was when OPEC and a number of the world’s major oil producers agreed to extend their 1.8 million barrels per day (bpd) output cut agreement by nine months, taking it through to March 2018. However, there was disappointment that the countries involved were unable to agree to cut production levels more aggressively.

Looking at a daily chart the rally in Brent looked overdone, although less so since the sell-off which began on Friday. However, on a weekly basis it looks like a continuation of price consolidation. The next upside target comes in around $57.50 - an area which acted as resistance at the beginning of this year. As far as WTI is concerned, the contract has made back all the losses which came as a result of Hurricane Harvey. The storm took out a significant chunk of US refining capability which in turn reduced demand for US crude. However, there were signs last week that refining capacity was coming back on line with little actual damage to the plants themselves. Technically, WTI is closing in on $50 and a break above here would set up an assault on resistance around $54.50.

Gold and silver sold off sharply yesterday as traders rushed in to book profits and cut their long-side exposure. This came as the dollar rallied and as market participants reduced their safe haven trades after a relatively uneventful weekend. Key support for gold and silver comes in around $1,320 and $17.75/80 respectively.

The two precious metals soared last week helped in no small part by the dramatic sell-off in the US dollar. Both metals were also boosted by safe-haven demand as investors look to diversify risk while North Korea continues to take increasingly provocative and aggressive actions. It’s also getting a lift on the back of a sell-off in cryptocurrencies. Bitcoin and others have hogged the headlines over the past year as speculators look for financial instruments that fall outside the purview of governments and restrictive regulation. However, volatility in Bitcoin, Etherium and other offerings has persuaded some investors that precious metals still tick all the boxes as stores of value and real money, rather than currency.

At the end of last week gold briefly broke above $1,350 to hit its highest intra-day high since August 2016. While a pull-back and period of consolidation can’t be ruled out, gold looks as if its next upside target is $1,375 - the multi-year high from July 2016. Silver could also be set for some consolidation, particularly if the short-dollar trade corrects. But the next upside target is $18.65 - the high from this April.

Forex Update

·         US dollar has short-covering bounce

·         Investors don’t believe Draghi

Yesterday saw the dollar stage a mild recovery. This came as there was a move back into risk assets following a relatively uneventful weekend. Hurricane Irma proved less destructive than feared while North Korea held back from further provocations. But the bounce in the dollar looks like little more than a bout of corrective short-covering as it remains in a downtrend for now.

At the end of last week FX was in the headlines as commentators struggled to get their heads round the dollar sell-off. The greenback has been in decline since the beginning of the year but last week it broke through a number of significant levels against other currencies. First off, the Dollar Index slumped below 92.00 and went on to hit its lowest level since January 2015. The move also saw the dollar crash below 108.00 versus the Japanese yen sending this currency pair to its lowest level in 10 months. Then there was the EURUSD itself which soared through key resistance around the 1.2000 level.

These moves were triggered by Thursday’s ECB meeting and Mario Draghi’s subsequent press conference. Mr Draghi went out of his way to insist that the current asset purchase programme could be extended in duration and size should conditions warrant it. He also emphasised his determination to drive inflation back up towards the ECB’s sub-2% target. All this should have been euro-negative. However, investors are convinced that the ECB has no option but to begin winding down its €60 billion per month bond purchase programme, with many believing details will be announced next month. This helped to boost the euro while a less hawkish Federal Reserve has helped to undermine the dollar.

Upcoming events

Today’s significant events and economic data releases include UK inflation data and US JOLTS Job Openings.


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Posted by David Morrison

Category: AM Bulletin

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