NEWS AND ANALYSIS

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AM Bulletin: Troubles at Deutsche rile investors
30 Sep 2016
AM Bulletin: OPEC “deal” sends oil soaring
29 Sep 2016
Video Update: Trouble at Deutsche Bank
28 Sep 2016
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28 Sep 2016
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27 Sep 2016
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27 Sep 2016
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26 Sep 2016
Weekly Bulletin:Fed rate hike: postponed or cancelled?
26 Sep 2016
AM Bulletin: Equities dip after central bank-driven rally
23 Sep 2016
Video Update: FOMC keeps rates on hold
22 Sep 2016
AM Bulletin: Fed loses the (dot) plot
22 Sep 2016
PM Bulletin: FOMC in focus
21 Sep 2016
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21 Sep 2016
PM Bulletin: BOJ look-ahead
20 Sep 2016
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20 Sep 2016
Trading Guide:Fundamentals - Developing trading ideas
19 Sep 2016
Weekly Bulletin: All eyes on the Fed and BOJ
19 Sep 2016
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16 Sep 2016
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16 Sep 2016
Video Update: What to expect from the Fed
15 Sep 2016
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15 Sep 2016
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14 Sep 2016
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14 Sep 2016
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13 Sep 2016
AM Bulletin: Fed keeps us guessing
13 Sep 2016
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12 Sep 2016
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12 Sep 2016
Comparing major Central Banks
09 Sep 2016
AM Bulletin: ECB disappoints
09 Sep 2016
Video Update: Is the Fed really data-dependent
08 Sep 2016
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08 Sep 2016
Video Update: ECB Look- ahead
07 Sep 2016
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07 Sep 2016
PM Bulletin: EURUSD – still range bound
06 Sep 2016
AM Bulletin: Traders back after long US weekend
06 Sep 2016
Weekly Bulletin: Poor NFP suggests no September rate hike
05 Sep 2016
PM Bulletin: Non-Farm Payrolls disappoint
02 Sep 2016
Holiday Schedule: Labour Day, 5th September 2016
02 Sep 2016
AM Bulletin: All eyes on US Non-Farm Payrolls
02 Sep 2016
Video Update: Look-ahead to Friday's Non-Farm Payrolls
01 Sep 2016
AM Bulletin: Stock indices bounce back
01 Sep 2016
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Indices Update

All eyes are on today’s Non-Farm Payroll release at 13:30 BST. This is particularly important as it is the last big US employment update before the Fed’s FOMC meeting on 20th/21st September. This meeting has gained in significance since Janet Yellen’s speech last Friday when she said the case for raising the fed funds rate had strengthened over the last few months. This has led to speculation that the US central bank may take the opportunity to hike rates at this meeting rather than holding off until December. If we get a strong payroll number (say, 180,000 or above) then this would strengthen the argument for monetary tightening later this month. A poor number (say 140,000 or below) would effectively kill off all speculation of a September hike. Anything in between means another three weeks of uncertainty, although if in any doubt, it seems more likely that the Fed would hold back from raising rates ahead of the US Presidential Election which is on 8th November.

European equities and US stock index futures were firmer in early trade yesterday. The morning saw the release of a clutch of Manufacturing PMIs from China and across the Euro zone. These were fairly mixed with a few hits and misses. But overall the data releases came in much as expected. The big early surprise came from the UK as the August Manufacturing PMI came in at 53.3. This was considerably stronger than the prior month’s reading of 48.3. It was also well above the consensus expectation of 49.1. This took the PMI to its highest level for ten months and also meant that the UK’s manufacturing sector was once again expanding after two months of contraction. The news helped to keep a bid under UK and European equities.

But there was a big turnaround later in the day following the release of the US ISM Manufacturing PMI. The August PMI fell back below 50 indicating contraction and at 49.4 was well below the consensus expectation of 52 and July’s reading of 52.6. Construction Spending came in flat for July after rising 0.9% in June while Manufacturing Prices also slipped suggesting a decline in inflationary pressures. Put together, the data suggested a less optimistic outlook for the US economy and investors took the opportunity to sell equities.

The FTSE 100 ended the day 35.5 points lower at 6,746

The German DAX fell 58.4 points or 0.6% to end the day at 10,534.3

The US30 rose 18.4 points to finish at 18,419.3. The S&P 500 was effectively unchanged and closed at 2,171 while the Nasdaq 100 rose 0.3% to close at 4,783.9

Equities

UK housebuilders continued to rally yesterday, having got a boost on Wednesday following the release of the latest house price survey from Nationwide. The survey showed a slight pick-up in August house price growth of +0.6% compared to July. This was welcome news for the sector which got smashed after the UK voted to leave the EU back in June. Nationwide reported year-on-year house price rise of 5.6%.

Barratt Developments (BDEV) ended the day 1.2% higher while Taylor Wimpey (TW) rose 2.7%. However, shares in Berkeley Group (BKG) closed up 3.9% despite the company losing its place in the FTSE 100. 

Commodities Update

It was another interesting session for the oil market yesterday. Crude oil rallied in early trade making back some of its losses from Wednesday. However, it was unable to build on these gains and turned sharply lower soon after midday London time. Technically, yesterday’s sell-off meant that both Brent and WTI have broken below their respective 50% retracements of the rally which took place over the first two weeks of August.

One month ago, oil hit a low point having pulled back sharply from the multi-month highs made at the beginning of June. However, the sell-off suddenly reversed as a number of junior OPEC members restarted speculation of a producer output freeze. This triggered a wave of short-covering which saw Brent trade back above $50 a barrel. But despite the strength of this rally neither Brent nor WTI was able to take out their June highs. Now, with doubts being cast over the potential of any meeting to bring about a production freeze, together with some unexpectedly-large US inventory builds and fears of a slow-down in global crude demand growth, oil prices are coming under pressure once again.

Gold and silver drifted lower in early trade yesterday as the dollar continued to rally. However, both precious metals rallied sharply later in the session following the release of the US’s ISM Manufacturing PMI. This came in at its lowest level since the beginning of this year, registering contraction in the sector for the first time in six months. The unexpected news led to a sharp sell-off in the dollar as investors dialled back their expectations for a rate hike from the US Federal Reserve when it meets later this month.

Gold has fallen sharply since last Friday afternoon. It traded up to $1,340 as Federal Reserve Chairman Janet Yellen began her speech at the Jackson Hole Economic Symposium. However, by yesterday morning it had come within a whisker of $1,300 for a high-low sell-off of just under 3%. The decline in gold corresponded to a sharp rally in the US dollar. Dr Yellen delivered a hawkish speech in which she said that the case for raising rates had strengthened over the last few months. She also said that the US economy continued to expand and was nearing the Fed’s targets for maximum employment and price stability. All this has given the dollar a lift and led investors to trim their positions in precious metals. The prospect of higher US interest rates increases the lost-opportunity costs of owning gold and silver as investors can get a “risk-free” return on interest-bearing assets.

Forex Update

Yesterday brought the release of Manufacturing PMIs from across Europe, China, the UK and US. As far as Forex markets were concerned, it was numbers from the UK and US which had the biggest effects. The British pound soared after the UK’s Manufacturing PMI came in at 53.3 for August. This was considerably stronger than the prior month’s reading of 48.3. It was also well above the consensus expectation of 49.1. This took the PMI to its highest level for ten months and also meant that the UK’s manufacturing sector was once again expanding after two months of contraction. This came as something of a shock to many economists who had confidently predicted a recessionary slump should the UK vote to leave the European Union. Sterling continued to push higher as the trading session progressed as short-sellers were forced to cover.

There was another surprise later in the day following the release of the US ISM Manufacturing PMI. The August PMI fell back below 50 indicating contraction and at 49.4 was well below the consensus expectation of 52 and July’s reading of 52.6. Construction Spending came in flat for July after rising 0.9% in June while Manufacturing Prices also slipped suggesting a decline in inflationary pressures. Put together, the data suggested a less optimistic outlook for the US economy and this dampened speculation of a Fed rate hike later this month. The US dollar pulled back accordingly.

Despite this, the greenback is still well above levels from this time last week. Investors cut the odds on a September rate hike from the Fed following Janet Yellen’s speech at the Jackson Hole Economic Symposium last Friday. Dr Yellen said that the case for raising rates had strengthened over the last few months and that the Fed’s targets for unemployment and inflation were close to being hit. Consequently, investors are paying close attention to this afternoon’s Non-Farm Payroll release.

Upcoming events

Today’s main event is the release of US Non-Farm Payrolls for August. We’ll also get an update on the Unemployment Rate and Average Hourly Earnings. Other significant economic data releases include UK Construction PMI, Euro zone PPI and Canadian Trade Balance. From the US we also have the Trade Balance and Factory Orders. In addition, the G20 will hold a series of meetings over Sunday and Monday in Hangzhou, China. Finally, US markets will be closed on Monday for Labor Day.

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: Bulletin

Category: AM Bulletin


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