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AM Bulletin: Equities and oil slip in early trade
31 Mar 2016
PM Bulletin: Non-Farm Payroll look-ahead
31 Mar 2016
AM Bulletin: Yellen comments boost risk appetite
30 Mar 2016
PM Bulletin: Is a dovish Janet really that bullish?
30 Mar 2016
AM Bulletin: Yellen to speak
29 Mar 2016
PM Bulletin: US indices running into resistance
29 Mar 2016
AM Bulletin: Profit-taking ahead of holiday weekend
24 Mar 2016
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24 Mar 2016
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23 Mar 2016
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23 Mar 2016
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22 Mar 2016
Weekly Bulletin: US dollar on the back foot
21 Mar 2016
AM Bulletin: USD sell-off boosts oil
18 Mar 2016
PM Bulletin: A look at the S&P500 and FTSE100
18 Mar 2016
AM Bulletin: USD down on dovish Fed
17 Mar 2016
PM Bulletin: USDJPY
17 Mar 2016
AM Bulletin: All ears and eyes on FOMC
16 Mar 2016
PM Bulletin: Reaction to the “Sugar Tax”
16 Mar 2016
AM Bulletin: BOJ unchanged
15 Mar 2016
PM Bulletin: FOMC look-ahead and the USD
15 Mar 2016
Weekly Bulletin: Central banks still in focus
14 Mar 2016
PM Bulletin: Gold
14 Mar 2016
AM Bulletin: Confusion reins
11 Mar 2016
PM Bulletin: EURUSD revisited
11 Mar 2016
AM Bulletin: ECB meeting in focus
10 Mar 2016
PM Bulletin: Mr Draghi fires his bazooka
10 Mar 2016
AM Bulletin: Markets consolidate
09 Mar 2016
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09 Mar 2016
AM Bulletin: Chinese data weighs on equities
08 Mar 2016
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08 Mar 2016
Weekly Bulletin: ECB expected to boost stimulus
07 Mar 2016
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07 Mar 2016
March: Non Farm Payrolls Out Today
04 Mar 2016
AM Bulletin: Markets quiet ahead of Non-Farms
04 Mar 2016
PM Bulletin: Meanwhile, over in silver...
04 Mar 2016
AM Bulletin: Equities consolidate
03 Mar 2016
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03 Mar 2016
AM Bulletin: Equities soar
02 Mar 2016
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02 Mar 2016
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01 Mar 2016
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01 Mar 2016
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 Wednesday 16 March 2016

AM Bulletin: All ears and eyes on FOMC

 

 

Indices Update

It was a quiet start to the European trading session this morning. There was a slightly firmer tone across equity markets as the oil price steadied. Investors are preparing themselves for tonight’s US Federal Reserve rate decision. According to the Federal Funds futures market there is no likelihood of another rate hike to follow on from December’s move. However, there is a feeling that the Federal Open Market Committee (FOMC) will deliver a hawkish statement and talk up the probability of a rate rise at its June meeting.

European equities began yesterday on the back foot and were unable to make back early losses. This was despite very little movement over in the US as investors appeared unwilling to take on too much exposure ahead of today’s FOMC rate decision, statement and latest economic projections.

Early yesterday the Bank of Japan kept its monetary policy unchanged. However, it downgraded its assessment of the economy, noting that exports and production "have been sluggish due mainly to the effects of the slowdown in emerging economies." The BOJ also pointed out that inflation expectations had weakened. But perhaps most surprising was a comment from BOJ member Takahide Kiuchi who said that negative rates impairs the function of financial markets. This suggests that the BOJ believes it made a policy error back in January when it adopted a negative interest rate. Nevertheless, most analysts now expect the BOJ to announce further stimulus measures at next month’s meeting.

The FTSE 100 index closed at 6,140 down 34.6 points on the day, or 0.6%

The German DAX fell 56.4 points or 0.6% to finish at 9,933.9

The US30 closed up 22.4 points to finish at 17,251.5 The S&P 500 fell 0.2% and closed at 2,015.9 while the Nasdaq 100 ended the day effectively unchanged at 4,367.1

Equities Update

Mining stocks got whacked again yesterday with four of the majors amongst the half-dozen biggest losers in the FTSE100. Anglo American (AAL) ended 10.8% lower. Investors responded to the news that the company had had such a bad year that CEO Mark Cutifani felt he had to take a bonus cut – things really must be bad. Meanwhile Billiton (BLT) closed 6.5% lower at 762.8 pence on a downgrade by Macquarie; Chilean miner Antofagasta (ANTO) lost 4.5% after reporting a fall in full year pre-tax profit of 83% to $259 million and cancelling its final dividend. Rio Tinto (RIO) closed 4% lower at 1,921.5 pence.

Commodities Update

Crude fell for a second day yesterday as producers continue to hedge by selling into the elevated oil price. Brent ended last week above $40 per barrel but has since pulled back, along with WTI, as concerns re-emerge over falling demand growth while the market remains over-supplied. On Monday OPEC said that oil demand in 2016 would be lower than it previously calculated.

Crude has staged a strong recovery over the last month or so with many investors convinced that the lows were hit earlier in the year. Prices were boosted following news that OPEC and non-OPEC producers had reached an agreement to freeze output at January levels. This followed a meeting between Saudi Arabia, Russia, Venezuela and Qatar. It was understood that other producers would gather on 20th March to discuss the proposal. However, this has now been postponed until April, and many observers doubt that this meeting will now take place. One of the major sticking points is Iran. The country is ramping up oil production after years of sanctions which have hit its economy hard. The last thing that Iran is ready to agree to now is an output ceiling based on January production levels.

Even then, a freeze will have little immediate impact on global inventories. The situation is particularly acute in the US where the combined storage at Cushing, Oklahoma and the Gulf Coast has reached 88% capacity. This has a significant influence on WTI prices, and historically prices struggle when capacity exceeds 80%.

However, as noted previously, much now depends on the trend in the US dollar. The Fed’s FOMC will release its rate statement and economic projections later today. The central bank isn’t expected to raise rates again this time round. But if they are more hawkish than expected the dollar may strengthen and oil prices could have further to fall.

Gold slipped again yesterday and spent most of the session trading underneath the significant $1,240 level. The question now is whether this is simply a burst of profit-taking ahead of tonight’s Fed meeting or something more serious? We’ll know more after the rate statement and Fed Chairman Janet Yellen’s press conference. Although it seems highly unlikely, a 25 basis point rate hike would hit gold hard. But it is unclear if a hawkish statement would damage gold’s outlook too much as that is fairly well priced in.

Gold has lost around 3% after hitting its highest level in a year just last week. If this does turn out to be a more protracted sell-off then support comes in around $1,220, then $1,200 and $1,180.

Forex Update

The EURUSD and Dollar Index traded in very narrow ranges yesterday. This was despite a sharp downward revision to January’s US Retail Sales number. Investors held back from adding to existing exposure ahead of this evening’s rate decision from the Federal Reserve. The futures market has discounted any possibility of a change in the headline Fed Funds rate. However, analysts will parse the accompanying statement for any signals over the timing (and direction) of a future move.

The FOMC’s quarterly Summary of Economic Projections is also a key release. Back in December this indicated that the majority of Fed members had pencilled in a full 1% rise in interest rates this year. At the time the implication was that there would be another 25 basis point hike at today’s meeting. However, the Fed was forced to backtrack from this prediction rather swiftly after the market ructions earlier this year. But now its members will have to explain why US economic growth is no longer robust enough to withstand a modest series of rate rises. At the same time they will have to reassure investors that the economy is on the right track. A failure to communicate this message properly could result in a burst of volatility even more extreme than that which followed last week’s ECB meeting.

Commodity currencies were the big losers yesterday. The Canadian dollar fell as oil declined for a second consecutive day. The Australian dollar also pulled back further from recent highs on commodity-related profit-taking.

Meanwhile, sterling lost ground against both the dollar and the euro. Investors were rattled by a poll which showed a clear majority for those in favour of the UK leaving the European Union. It was a perfect excuse to take profits following the British pound’s recovery since the end of last month.

The Japanese yen rose sharply after the Bank of Japan held off from announcing further stimulus measures and also appeared to pull away from the prospect of taking interest rates further into negative territory.

Upcoming events

Investors will be focusing on this evening’s FOMC rate decision, statement and economic projections which are all due out at 18:00 GMT. These will be followed at 18:30 GMT by Janet Yellen’s press conference. Other significant data releases include UK unemployment data and the Chancellor’s Budget. From the US we also have Building Permits, CPI, Housing Starts, Capacity Utilisation, Industrial Production and Crude Oil inventories.

Disclaimer:

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

Tagged: AM Bulletin

Category: AM Bulletin


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