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Dark clouds ahead?
29 Jul 2016
BOJ underwhelms – JPY soars
29 Jul 2016
PM Bulletin: BOJ look-ahead
28 Jul 2016
AM Bulletin: FOMC leaves rates unchanged
28 Jul 2016
PM Bulletin: Yen swinging wildly on stimulus talk
27 Jul 2016
AM Bulletin: Fed rate decision and FOMC statement in focus
27 Jul 2016
PM Bulletin: FOMC look-ahead (and Japanese stimulus talk)
26 Jul 2016
AM Bulletin: FOMC meeting begins today
26 Jul 2016
Platform Tours: CFD Trading - Check Open P & L
25 Jul 2016
PM Bulletin: EURUSD breaks below 1.1000
25 Jul 2016
Weekly Bulletin: Fed and BOJ in focus
25 Jul 2016
PM Bulletin: Sterling looking vulnerable again
22 Jul 2016
AM Bulletin: Stocks lower as oil weighs
22 Jul 2016
PM Bulletin: The EURUSD and the ECB
21 Jul 2016
AM Bulletin: ECB rate decision ahead
21 Jul 2016
PM Bulletin: ECB look-ahead
20 Jul 2016
AM Bulletin: Q2 earnings keep markets buoyant
20 Jul 2016
PM Bulletin: A look at the yen
19 Jul 2016
AM Bulletin: More records for US equities
19 Jul 2016
PM Bulletin: Precious metals pull back
18 Jul 2016
Weekly Bulletin: It’s all about stimulus
18 Jul 2016
PM Bulletin: European banks in trouble
15 Jul 2016
AM Bulletin: Sombre mood following Nice atrocity
15 Jul 2016
PM Bulletin: The BoE rate decision
14 Jul 2016
AM Bulletin: All eyes on Bank of England
14 Jul 2016
PM Bulletin: BoE Rate Decision in focus
13 Jul 2016
AM Bulletin: Equities drift lower after record US close
13 Jul 2016
PM Bulletin: Global indices pushing higher
12 Jul 2016
AM Bulletin: Equity rally powers on
12 Jul 2016
PM Bulletin: Fresh record high for S&P500
11 Jul 2016
Weekly Bulletin: The markets called, NFPs answered
11 Jul 2016
AM Bulletin: The calm before the storm; Markets await today’s NFPs
08 Jul 2016
PM Bulletin: Non-Farm Payroll look-ahead
07 Jul 2016
AM Bulletin: As the Fed turns dovish, the markets turn bullish
07 Jul 2016
AM Bulletin: Concerns continue as Sterling touches $1.27
06 Jul 2016
AM Bulletin: Markets open higher, weak UK Construction PMI data removes confidence
05 Jul 2016
Weekly Bulletin: Central Banks react to Brexit vote
04 Jul 2016
AM Bulletin: When Carney speaks, the markets listen
01 Jul 2016
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Indices Update

European equities and US stock index futures were off to a storming start this morning. It’s difficult to pin down a specific reason for this early strength as Wall Street ended only modestly higher while Asian Pacific markets were mixed overnight. There has been a pick-up in oil prices following yesterday’s tumble and the yen has fallen sharply indicating a pick-up in risk appetite.

Today’s main event is the Bank of England’s (BoE) post-Brexit rate decision. In the immediate aftermath of the referendum vote BoE Governor Carney said he expected some monetary easing would be required “over the summer”. As far as this meeting is concerned the consensus view is that the MPC will vote for a cut of 25 basis points to take the headline Bank Rate down to 0.25% from 0.50%. This would leave the BoE with some ammunition left for later on. There’s an outside chance that the MPC goes all-in and cuts to zero. Another scenario is that the Bank leaves rates unchanged giving the markets longer to price in Brexit uncertainties. This would make some sense as the Bank also publishes its quarterly inflation report next month. Overall, it feels as if a 0.25% cut is priced in. Anything more than this and sterling will come under further pressure although equities should rally. If the Bank leaves rates unchanged then expect sterling to rally and equities to pull back, initially at least.

It’s worth noting that the FTSE100 is now over 5% higher than it was prior to the Brexit vote. Even the broader-based, domestically-focused FTSE250 is only down 2.5% from its pre-referendum levels. That’s not to suggest that the all-clear has sounded, but it currently looks as if “Project Fear” was overdone.

The FTSE 100 index closed at 6,670.4 down 10.3 points on the day, or 0.2%

The German DAX slipped 33.4 points or 0.3% to end the day at 9,930.7

The US30 closed up 24.5 points to finish at 18,372.1. The S&P 500 rose 0.01% to close at 2,152.4 while the Nasdaq 100 fell 0.3% to close at 4,565.8

Equities

A number of companies released trading updates yesterday. In the UK we had JD Wetherspoons (JDW), Burberry (BRBY) and Barratt Developments (BDEV).  From the US we had Yum! Brands (YUM).

Pub operator Wetherspoons reported an increase of 4.0% in like-for-like sales for the 11 weeks to 10 July 2016 and said it anticipates "a modestly improved outcome for this financial year". The stock ended the day up 1.4% at 755.5 pence.

Luxury fashion brand Burberry said retail revenues were flat in the three months to June 30 and warned wholesale revenue would be weaker than previously expected. Nevertheless the shares rallied as the overall retail sales performance was better than expected. They ended the day 6.3% higher at 1,279 pence.

Meanwhile UK housebuilder Barratt Developments said pre-tax profit for the year to the end of June was up 20% and said it remains confident in the positive fundamentals of both the housing sector and its business. Barratt’s share price (along with other UK housebuilders) has fallen sharply since the Brexit vote. It has picked up over the last few days but closed 2% lower at 404.8 pence.

Yum! Brands reported after last night’s US close. The parent company to KFC, Pizza Hut and others had a mixed second quarter. Earnings came in at $0.75 per share, slightly above the $0.74 expected. But the company missed on revenues which came in at $3.01 billion against £3.09 billion expected. Nevertheless, the stock stormed higher rising 4.5% in after-hours trading.

               

Commodities Update

We had two consecutive updates on US crude inventories which helped to send oil prices sharply lower yesterday. Late on Tuesday the American Petroleum Institute (API) reported that supplies rose by 2.2 million barrels for the week ended 8th July. This was on expectations of a 3 million barrel drawdown and was the biggest build in 10 weeks. Then yesterday afternoon the Energy Information Administration (EIA) released its latest update for the same period. The EIA reported a slightly larger than expected drop in crude inventories at 2.5 million compared to 2.3 million. However, distillates showed their largest build in 6 months and overall production showed its biggest increase since October 2015.

Meanwhile the International Energy Agency (IEA) said that US oil production had slid by 140,000 barrels per day (bpd) in June to 12.45 million. However, OPEC’s output climbed to an eight year high with total output in June up 400,000 bpd coming in at over 33 million bpd. The agency also said that while supply and demand were mostly in balance in the second quarter, bloated stockpiles “remain a dampener on oil prices.” The IEA went on to say that there were some signs that demand growth was slowing a touch which should also help to keep a lid on the oil price.

Gold recovered some lost ground yesterday and spent most of the European session back above $1,340. Silver also spent most of yesterday in positive territory and appears to be consolidating quite happily above $20 per ounce. The most obvious reason for the recovery in prices was the US dollar which fell against a number of majors including the euro, yen, Swiss franc and Canadian dollar. However, it’s also fair to say that the constant chatter about additional central bank stimulus and the prospect of the US Federal Reserve keeping rates on hold for the foreseeable future is also helping. Early yesterday FOMC member Loretta Mester said in an interview on Australia’s ABC said that “helicopter money” could be considered to stimulate America's economy if conventional monetary policy fails. This was quite a surprising comment coming from an FOMC member known for her hawkish views.

Forex Update

It was a relatively quiet day in FX on Wednesday, at least when compared to recent market movements. It may be too early to say the Brexit volatility is completely behind us but it does feel as if most currency pairs have reset and are now consolidating at their new levels. This seems particularly the case when looking at a chart of the EURUSD. The euro slumped below a long-term upward-sloping trend line in the immediate aftermath of the referendum which offered support around the 1.1200 level. Now 1.1000 is the next obvious support level and so far the EURUSD has held above here on a closing basis. As the US Federal Reserve now looks unlikely to hike rates further in the foreseeable future (or at least this year) all eyes and ears will now turn to the ECB. It could be that the European Central Bank takes further measures in an attempt to boost growth and stave off deflation, especially in the aftermath of the Brexit vote. If so, then the EURUSD should come under further downside pressure. However, the bank doesn’t have much form when it comes to take pre-emptive action.

Sterling slipped back yesterday after a couple of positive sessions. Cable is still comfortably above 1.3000 but now all eyes are on today’s BoE MPC rate decision where the consensus expectation is that the Bank will cut its headline rate by 25 basis points to 0.25%.

The Japanese yen made back some of this week’s losses yesterday as the USDJPY pulled back from the 105.00 area. However, this looked like little more than profit-taking following a 5% rally in the USDJPY since Friday. The yen has weakened again this morning against all the majors and it seems to be caught up in a general “risk-on” move by investors. Typically, market participants borrow (sell) the yen to fund riskier and higher yielding financial instruments when they are in bullish mode. That certainly seems to be the case now. Meanwhile, there is much speculation over the possibility of Japan being the first country to adopt “helicopter money.” This is where the government issues large amounts of debt (bonds) which the central bank immediately purchases with freshly printed money. In this way the government can spend the cash on large infrastructure projects and so put money directly into the system, rather than relying on banks as with QE.

Upcoming events

In addition to the Bank of England rate decision, today’s significant economic events include the release of US PPI and Weekly Jobless Claims.

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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