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PM Bulletin: Gold
29 Jan 2016
AM Bulletin: BOJ takes rate negative
29 Jan 2016
PM Bulletin: BOJ in focus
28 Jan 2016
AM Bulletin: FOMC disappoints, but earnings offer support
28 Jan 2016
PM Bulletin: Facebook reports after the close
27 Jan 2016
AM Bulletin: Crude still driving equities
27 Jan 2016
PM Bulletin: Tomorrow’s FOMC meeting
26 Jan 2016
AM Bulletin: Equities slide on crude sell-off
26 Jan 2016
PM Bulletin: Silver chart
25 Jan 2016
Weekly Bulletin: Promise of further stimulus halts equity slide
25 Jan 2016
PM Bulletin: EURUSD chart
22 Jan 2016
AM Bulletin: Equities rally on ECB and oil
22 Jan 2016
PM Bulletin: Dovish Draghi triggers euro sell-off
21 Jan 2016
AM Bulletin: ECB meeting in focus
21 Jan 2016
PM Bulletin: Crude makes fresh multi-year lows
20 Jan 2016
AM Bulletin: Stocks slide as oil slumps
20 Jan 2016
PM Bulletin: Bank of Canada rate decision
19 Jan 2016
AM Bulletin: Equities surge on relief rally
19 Jan 2016
PM Bulletin: Crude oil - long-term charts
18 Jan 2016
Weekly Bulletin: China and oil weigh on equities
18 Jan 2016
PM Bulletin: Long-term gold bullion chart
15 Jan 2016
AM Bulletin: More woe from China
15 Jan 2016
Holiday Schedule: Martin Luther King Day Monday 18th January 2016
14 Jan 2016
PM Bulletin: Equities: bull or bear?
14 Jan 2016
AM Bulletin: Investors remain jittery
14 Jan 2016
PM Bulletin: The Bank’s rate decision
13 Jan 2016
AM Bulletin: Oil rebound lifts stocks
13 Jan 2016
PM Bulletin: Saudi Aramco’s IPO
12 Jan 2016
AM Bulletin: Crude closes in on $30
12 Jan 2016
PM Bulletin: US Fourth Quarter Earnings Season
11 Jan 2016
Weekly Bulletin: 2016: Trouble ahead?
11 Jan 2016
January: Non Farm Payrolls Out Today
08 Jan 2016
PM Bulletin: Another blow-out payroll number
08 Jan 2016
AM Bulletin: China effect calms markets
08 Jan 2016
PM Bulletin: Non-Farm Payroll look-ahead
07 Jan 2016
AM Bulletin: Equities slump after 2nd China trading halt
07 Jan 2016
AM Bulletin: Investors remain jittery
06 Jan 2016
AM Bulletin: China steadies and Europe rallies
05 Jan 2016
AM Bulletin: Chinese equities plunge
04 Jan 2016
 
 
 Wednesday 13 January 2016

AM Bulletin: Oil rebound lifts stocks

 

 

Indices Update

Market sentiment was initially negative yesterday morning despite the Shanghai Composite ending Tuesday’s session little-changed. Instead investors focused on the price of crude which was lower again in early trade. As the European markets opened for business WTI came within 40 cents of breaking below $30 per barrel. However, oil subsequently bounced and this helped to lift European equities and US stock index futures off their lows.

At the end of last week some analysts were suggesting that the New Year sell-off was overdone and that equities were due a rally. Friday’s strong US payroll numbers appeared to support this view as equities bounced sharply in the immediate aftermath. But the better-than-expected data on its own wasn’t enough to keep the rally going. Sellers soon came in to take advantage of higher prices to add to short positions. This made sense as the employment numbers can be taken as a sign the US economy is strengthening enough for the Federal Reserve to hike rates again this quarter. Higher interest rates are likely to be a headwind for stocks and also lead to continued dollar strength.

Nevertheless, the Dow appears to have found some support around 16,200 and the S&P around 1,900. The question now is if we can now expect a sustained rally? But if we can, has sentiment now shifted so that investors will look to sell into rallies rather than buying dips? Of course, traders should try to remain agnostic and be prepared to do both. However, there are rare situations (such as during 2007/8) when attempting to trade both sides is a recipe for disaster. I’m not sure if we’re at that stage yet, but it would only take a few (more) policy missteps for investors to lose confidence completely and head for the exits.

The FTSE 100 index closed at 5,929.2 up 57.4 points on the day or around 1%

The German DAX rose 160.4 points or 1.6% to finish at 9,985.4

The US30 closed up 117.7 points to finish at 16,516.2 The S&P 500 ended at 1,938.7 up 15 points or 0.8% while the Nasdaq 100 rose 1.2% to close at 4,333.7

Equities Update

As is tradition, Alcoa (AA) unofficially marked the start of a new US earnings season when it released its fourth quarter trading results after last night’s close. These were a bit of a mixed bag as earnings came in better-than-expected at 4 cents per share against 2 cents, while revenues slumped. The latter fell 18% from the same quarter last year due to the sharp decline in aluminium prices. The company also had a number of restructuring charges as it realigns its business, including closing a production plant in India. Alcoa’s aluminium output is now at its lowest level in sixty five years as the company shifts to more profitable activities such as supplying parts for the auto and aerospace industries. The share price dipped modestly in after-hours trading. But Alcoa is no longer the market bellwether it used to be. We should now look ahead to some of the major banks (JP Morgan, Citigroup and Wells Fargo) which report later this week.

Commodities Update

Crude oil continued to fall throughout the Asian Pacific trading session. WTI came within 40 cents of breaking below $30 per barrel to trade at a fresh twelve year low. However, there was a swift and sudden turnaround as Europe opened for business. There was no obvious trigger for the buying activity so it could simply be short sellers closing out positions and booking profits. If that is the case then it seems likely that the slide lower should resume soon. Technically crude oil remains in a downtrend, if a touch oversold. But there has been no change in the supply/demand fundamentals which continue to weigh on prices and most oil analysts don’t anticipate anything changing in this regard over the next six months. This should be factored into current prices. But given all this, together with the prediction amongst some analysts that oil looks set to head towards $20 per barrel, there’s a real possibility of a violent spike in prices. It has been a very long time since a flare-up in geopolitical tensions led to higher oil, and it feels as if investors have been lulled into a false sense of security.

Both gold and silver drifted lower yesterday. The two precious metals had a solid start to the New Year thanks to safe-haven buying which was triggered by the turmoil in China’s stock market. However, bullish speculators must be feeling extremely frustrated now as a significant proportion of those safe-haven gains have evaporated. They must be pulling their hair out wondering what has to go wrong in the world for the two precious metals to garner the kind of buying interest which would give them a sustained lift.

Both metals continue to trade close to multi-year lows and well off the all-time highs hit back in 2011. Gold has lost 43% of its value since trading above $1,900 in September that year. Meanwhile silver is down 73% since April 2011 when it came close to hitting $50 per ounce.

Forex Update

The British pound fell sharply in early trade yesterday. The sell-off followed the release of disappointing UK production numbers. Manufacturing Production fell 0.4% in November while total production output declined 0.7%. The news is yet another blow to those investors who expect the Bank of England to be the next significant central bank to follow the US Federal Reserve in tightening monetary policy. The numbers followed on from last week’s drop in the Manufacturing PMI. While this sector is still in expansion territory the data is heading in the wrong direction. The UK’s Services PMI has also trended downwards since the end of 2013. The brightest number is the Construction PMI which came in above expectations last week. But even here the longer-term trend remains to the downside.

The GBPUSD chart looks truly awful. Sterling is trading at five and a half year lows against the US dollar with no obvious support between current levels and the May 2010 low of 1.4230. As long as investors remain convinced that the Fed will tighten monetary policy by around 100 basis points this year, the greenback should continue to make gains against all the majors. Last week’s blow-out Non-Farm Payroll number supports the view that the Fed will continue to hike rates. However, the US central bank could decide to pause this quarter should the sell-off in global stock markets continue for much longer.

Upcoming events

Today’s significant economic releases include Euro zone Industrial Production. From the US we have Crude Oil Inventories, the Beige Book and Federal Budget Balance.


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Spread Co is an execution only service provider. The material on this page is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by Spread Co Ltd or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

 

Posted by David Morrison

Category: AM Bulletin


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