Incisive market commentary from David Morrison

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Market awaits Trump, and Fed reaction
28 Feb 2017
Markets on hold ahead of Trump speech to Congress - AM Briefing
28 Feb 2017
Fibonacci Retracement - an introduction - Trading Guides
27 Feb 2017
Investors shrug off concerns ahead of Trump speech - AM Briefing
27 Feb 2017
Equities drifting lower ahead of weekend - AM Briefing
24 Feb 2017
Dollar sells off after FOMC minutes - Video Update
23 Feb 2017
FOMC minutes send dollar lower - AM Briefing
23 Feb 2017
Crude oil pushes up against resistance - Video Update
22 Feb 2017
FOMC minutes in focus - AM Briefing
22 Feb 2017
Gold pulls back from resistance - PM Bulletin
21 Feb 2017
US traders return after market holiday - AM Briefing
21 Feb 2017
Identifying market tops, or the trend is your friend - until it isn’t
20 Feb 2017
Kraft Heinz pulls Unilever bid - AM Briefing
20 Feb 2017
Major indices drifting lower as weekend approaches - AM Briefing
17 Feb 2017
US Indices hit fresh record highs
16 Feb 2017
Trump tax promise continues to drive risk appetite - AM Bulletin
16 Feb 2017
Yellen testifies in Washington
15 Feb 2017
Yellen testimony helps lift sentiment - AM Bulletin
15 Feb 2017
Silver hovers around resistance at $18
14 Feb 2017
Focus turns to Yellen’s testimony in Washington
14 Feb 2017
An introduction to the Relative Strength Index - Trading Guides
13 Feb 2017
Equity rally continues - AM Briefing
13 Feb 2017
Trump tax talk boosts risk appetite - AM Briefing
10 Feb 2017
US dollar drivers - Video Update
09 Feb 2017
Recovery in crude lifts equities AM Briefing
09 Feb 2017
Crude volatility picking up - Video Update
08 Feb 2017
Crude lower as inventories soar - AM Briefing
08 Feb 2017
Politics set to drive FX - PM Bulletin
07 Feb 2017
Major indices drift in featureless trade - AM Briefing
07 Feb 2017
MACD - an overview -Trading Guide
06 Feb 2017
European equities drift in quiet trade - AM Briefing
06 Feb 2017
Non-Farm Payrolls in focus - AM Briefing
03 Feb 2017
Non-Farm Payroll look-ahead - Video Update
02 Feb 2017
BoE meeting in focus - AM Briefing
02 Feb 2017
FOMC meeting tonight - Video Update
01 Feb 2017
Markets steady ahead of Fed meeting - AM Briefing
01 Feb 2017
Expand January <span class='blogcount'>(39)</span>January (39)
Expand 2016 <span class='blogcount'>(483)</span>2016 (483)


Early moves

·         Another record close on Wall Street

·         Odds tighten slightly on March hike

European equities are firmer this morning, once again taking their cue from the US and shrugging off political concerns ahead of Dutch and French elections.

There was another record close on Wall Street last night with the Dow, S&P and NASDAQ all ending at fresh highs. This followed on from Janet Yellen’s testimony before the Senate Banking Committee when she said that waiting too long to raise interest rates would be “unwise” given the pick-up in inflation and US economic growth. The news helped to raise the likelihood of a Fed rate hike next month, although the probability as calculated by the CME’s FedWatch Tool is still below 20%.

Overall, this has added to current upside market momentum and positive sentiment. Investors are already bulled up by the business-friendly Trump presidency with its promises of tax cuts, infrastructure spending and regulatory roll-back. What the Fed seems to be saying is that although there’s uncertainty over the fiscal outlook, the US economy is strong enough to withstand, or even thrive, with some modest monetary tightening. Dr Yellen also made reference to the Fed’s balance sheet which she sees as being reduced eventually.  However, it appears that while the FOMC expect that this will be discussed soon, it could be some time before it actually happens.

Stock Index Update

·         Another record close on Wall Street

·         Markets shrug off “hawkish” Yellen

There was another record close on Wall Street last night with the Dow, S&P and NASDAQ all ending at fresh highs. This followed on from Janet Yellen’s testimony before the Senate Banking Committee when she said that waiting too long to raise interest rates would be “unwise” given the pick-up in inflation and US economic growth. The news helped to raise likelihood of a Fed rate hike next month, although the probability as calculated by the CME’s FedWatch Tool is still below 20%.

European stock indices ended mixed yesterday. The FTSE and German DAX both posted modest losses while the French CAC and Italian MIB ended higher. Rolls Royce shares ended the day down around 4% but off its lows. The engineering giant posted a record loss of £4.6 billion due to sterling weakness and fines related to bribery charges. Meanwhile, UK inflation recorded their fastest rate of growth last month since June 2014. This came on the back of higher oil prices and the sell-off in sterling. Crude oil has doubled in price over the last twelve months while sterling fell sharply following the UK’s decision to leave the European Union.

Commodities Update

·         WTI and Brent slip on inventory build

·         Gold and silver fall on Yellen testimony

After the close the American Petroleum Institute (API) released its latest US inventory update. This showed another unexpectedly large build in crude stockpiles. These rose by 9.94 million barrels for the week ending 10th February - well above the 3.5 million expected. Both WTI and Brent fell on the news.

Last week the API reported unexpectedly large builds in crude and refined product stockpiles. Crude inventories rose by 14.27 million barrels - way above the 2.5 million build expected and the second largest weekly build in US history. On top of this, gasoline stocks rose 2.9 million against a forecasted increase of 1.5 million. This was the sixth week of successive builds. Crude fell sharply on the news but then recovered after the Energy Information Administration (EIA) released its own data. This confirmed the crude build but this was offset by a drawdown in gasoline stocks. We get the latest update from the EIA this afternoon.

Yesterday morning Brent and WTI rallied back up towards resistance around $57 and $54 respectively. This meant that both contracts remain mired within their tight $3 trading ranges that have been in place since early December. The trouble is from a trader’s point of view that there’s no guarantee that a test of resistance is automatically followed by a return to downside support. So, while the range remains pretty obvious, actually trading it profitably is tricky.

Gold and silver were both firmer in early trade yesterday, making back some of their losses from Monday. Both precious metals recovered their footing following a sell-off which came as investors recovered their risk appetite and piled back into equities. This came as President Trump promised to announce something “phenomenal” concerning taxes within the next few weeks. However, both metals lost ground as the text of Fed Chair Janet Yellen’s testimony before the Senate Banking Committee in Washington was made public. Dr Yellen’s testimony was viewed as quite hawkish as she warned that it would be “unwise” to wait too long to raise rates given the ongoing evidence of US economic growth.

Silver has had a solid run since hitting a multi-month low at the end of December. Silver has steadily rallied from below $15.70 per ounce to $18 for a 14% rise over the past six weeks. Gold has risen close to 9% over the same period. Both metals have benefitted from a sell-off in the US dollar. At the beginning of the year the Dollar Index traded at a 14-year high of 103.80 but it has lost around 3% since then. But the big question for traders and investors alike is where the dollar goes from here.

Forex Update

·         USD rallies on Yellen testimony

·         UK inflation undershoots expectations

The US dollar was little-changed in early trade yesterday. However, it pushed higher against the majors as Fed Chair Janet Yellen began her testimony before the Senate Banking Committee in Washington. Dr Yellen said that it would be unwise to wait much longer to raise rates given the ongoing evidence of US economic growth. This was interpreted as keeping next month’s FOMC meeting “live” in terms of being the setting for a possible rate hike. Dr Yellen also said that she anticipated the Fed’s balance sheet eventually being much smaller, and this would be discussed over the coming months.

Yesterday morning brought the release of UK inflation data. Headline CPI (which includes volatile components such as food and energy) came in at +1.8% annualised. This was comfortably above the 1.6% from the prior month, but a touch below the 1.9% consensus expectation. Sterling fell on the news as traders saw the data as weakening the argument for the Bank of England (BoE) to raise rates. Some analysts had expected CPI to come in as high as 2% which would mean the BoE’s inflation target had been met. That would have been yet further embarrassment for Mark Carney and his colleagues who have been accused of scaremongering over the UK’s referendum vote on leaving the European Union. Back in August the Bank cut rates by 25 basis points and boosted its Asset Purchase Facility.

Later in the day the dollar bounced off its lows after US PPI came in higher than expected. The numbers suggested a pick-up in inflationary pressures, at least as far as producer prices were concerned. This increased the prospect of tighter monetary policy from the Federal Reserve.

Upcoming events

Today’s significant economic data releases and events include UK Claimant Count Change, Unemployment Rate and Average Earnings Index. From the US we have CPI, Retail Sales, the Empire State Manufacturing Index, Capacity Utilisation Rate, Industrial Production, Business Inventories, Crude Oil Inventories, TIC Long-Term Purchases and Fed Chair Janet Yellen’s second day of testimony in Washington.


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Posted by David Morrison

Category: AM Bulletin

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