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Video Update: Yellen’s speech sparks USD rally
31 Aug 2016
AM Bulletin: US dollar holds recent gains
31 Aug 2016
PM Bulletin: What next for the dollar?
30 Aug 2016
AM Bulletin: Investors revel in Fed’s “Goldilocks” worldview
30 Aug 2016
PM Bulletin: Yellen has spoken
26 Aug 2016
AM Bulletin: All eyes on Yellen
26 Aug 2016
PM Bulletin: BREXIT - THE NEXT CHAPTER The referendum and market reaction
25 Aug 2016
Holiday Schedule: Summer Bank Holiday
25 Aug 2016
AM Bulletin: Quiet start ahead of US Durable Goods/Jackson Hole
25 Aug 2016
Video Update: Look–ahead to Janet Yellen’s speech at Jackson Hole
24 Aug 2016
AM Bulletin: Investors edgy ahead of Yellen’s Jackson Hole speech
24 Aug 2016
PM Bulletin: Crude continues to slide
23 Aug 2016
Platform Tour: CFD Trading - How to Place a Trade
23 Aug 2016
AM Bulletin: Crude slide shrugged off by equities
23 Aug 2016
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22 Aug 2016
Weekly Bulletin: Jackson Hole Symposium in focus
22 Aug 2016
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19 Aug 2016
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19 Aug 2016
Video Update: The next Fed rate hike, the dollar and oil
18 Aug 2016
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18 Aug 2016
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17 Aug 2016
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17 Aug 2016
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16 Aug 2016
AM Bulletin: Yen stronger as investors de-risk
16 Aug 2016
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15 Aug 2016
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15 Aug 2016
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15 Aug 2016
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12 Aug 2016
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12 Aug 2016
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11 Aug 2016
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11 Aug 2016
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10 Aug 2016
AM Bulletin: US Crude Oil inventories eyed
10 Aug 2016
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09 Aug 2016
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09 Aug 2016
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08 Aug 2016
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08 Aug 2016
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08 Aug 2016
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05 Aug 2016
July: Non Farm Payrolls Out Today
05 Aug 2016
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05 Aug 2016
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04 Aug 2016
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04 Aug 2016
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03 Aug 2016
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03 Aug 2016
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02 Aug 2016
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02 Aug 2016
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01 Aug 2016
Doubts over European stress tests
01 Aug 2016
Monetary policy driving investor behaviour
01 Aug 2016
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 Friday 26 August 2016

AM Bulletin: All eyes on Yellen

 

 

Indices Update

Investors continue to hold back from taking on additional market exposure ahead of this afternoon’s speech from Janet Yellen at the Jackson Hole Economic Symposium. Few expect the Fed Chairman to say anything explicit about the likelihood or timing of what would be the US central bank’s first rate hike since December last year. Nevertheless, there are hopes that she may give some clues as to the Fed’s thinking over the state of the US economy, and indeed any risks facing the global economy as well. Last week we heard hawkish rhetoric from three Fed members. Then on Sunday Fed Vice Chairman Stanley Fischer provided an upbeat outlook for the US economy saying that he expected growth to pick up following a particularly weak second quarter (we get a revision to second quarter USGDP later today). Not only that, but he said that the Fed’s targets for inflation and unemployment (the dual mandate) were close to being hit. If Dr Yellen is similarly upbeat in her speech later today, then investors will price in an increased possibility of a September hike.

But despite all this chatter and speculation, it’s unlikely that Dr Yellen will want to paint herself into a corner over the direction of US monetary policy. Consequently, it could be that there’s little of substance in the speech. While we’ve had a clutch of Fed-heads out there trying to persuade investors that September is still “live” when it comes to a rate hike, the minutes from the last meeting in July showed that only one out of ten FOMC-voting members was in favour of tightening monetary policy. In addition, we’ll get a stack of fresh economic data ahead of the Fed’s next meeting, including Non-Farm Payrolls, Manufacturing and Non-Manufacturing PMIs and inflation numbers. There’s really no point in Yellen or the Fed committing to any course of action until they see these reports.

Finally, I don’t believe that the FOMC has the faintest idea what they should do at the next meeting, so if in doubt, do nowt. On top of this we have a central bank which pays too much attention to stock market movements and appears to relish its ability to influence short-term investor behaviour. It seems unlikely that they’ll risk market disruption by raising rates ahead of the US election.

Overall, I think there’s too much importance being attached to this speech. Jackson Hole was a fairly obscure event in years gone by. It only attained its current significance when Ben Bernanke used it as a forum for market manipulation in the wake of the 2008/9 financial crisis. It would be better for all if it went back to being what it used to be:  a boring conference for boring people.

The FTSE 100 index closed at 6,816.9 down 18.9 points on the day, or 0.3%

The German DAX fell 93.4 points or 0.9% to end the day at 10,529.6

The US30 closed down 33.1 points to finish at 18,448.4. The S&P 500 fell 0.1% to close at 2,172.5 while the Nasdaq 100 fell 0.2% to close at 4,775.4

Equities

ITV (ITV) pulled its bid for Entertainment One (ETO) the company behind the Peppa Pig animation series, amongst other productions. In a move designed to beef up its production business, ITV offered £2.36 per share for Entertainment One earlier this month, valuing the production company at £1.2 billion. However, ETO rejected the bid and it seems that some of the company’s major shareholders acquired stakes last year at prices substantially higher than ITV’s bid price. Some investors wanted £2.84 which is far more than ITV is prepared to pay. ITV still seems keen to build up the production side of its business even though some of the company’s shareholders questioned the wisdom of such a deal. ITV ended the day 0.5% higher at 202.8 pence while ETO closed at 215.1 pence down 14.2%

Commodities Update

Oil inched higher in early trade yesterday, in a partial recovery following its sell-off on Wednesday. This week we’ve seen two updates on US inventories, both which showed unexpectedly large builds in US crude stockpiles. On Wednesday afternoon oil fell sharply following the latest US inventory data from the Energy Information Administration (EIA). The EIA reported a 2.5 million barrel build in crude stockpiles against expectations of a 500,000 drawdown. The Administration also said there were builds in gasoline and distillate stocks. This followed on from the data released late on Tuesday from the American Petroleum Institute (API). This showed that crude stockpiles rose by 4.46 million barrels against an expected draw of 850,000. There was also a bigger-than-expected build (417,000 versus 200,000) at the Cushing, Oklahoma hub. The news overshadowed the 2.2 million drawdown in gasoline stocks (larger than the 1.7 million draw expected) while distillates came in in line.

Crude oil has been amongst the most volatile markets this week as investors prepare themselves for Janet Yellen’s speech at the Jackson Hole Economic Symposium. On Tuesday crude whipsawed from negative to positive territory on a story that Iran was prepared to 'support joint action to prop up the oil market'. However, this headline missed out on another crucial quote from the (anonymous) source which said that even if an agreement was reached to freeze output, there was very little chance that anyone would stick to it. This latter point is entirely consistent with previous attempts by OPEC members to manipulate the oil market. Even in the days when the group operated as a cartel (rather than the fractured and dysfunctional organisation it is now) and brought in quotas for members, nobody stuck to them. In another twist to the story it was reported later that an Iranian oil ministry official wasn’t prepared to confirm that Iran would even attend the meeting in Algeria next month. This is reminiscent of April’s disastrous price freeze talks in Doha when Iran refused to attend.

Along with other markets gold and silver continued to tread water ahead of Janet Yellen’s keynote speech later today.  However, it was worth noting that neither metal has so far been able to make back the sharp losses from Wednesday’s trade. Back then, both precious metals slumped on the open of the US futures exchanges. The sell-off was caused by an unusually large sell order of over 11,000 lots representing $1.5 billion dollars’ worth of gold. This sent the price down $10 in the space of a few minutes. As noted in yesterday’s report it’s unclear why anyone would want to dump that much onto the market in a single trade rather than working the order gently to get a better average price. But it was fodder for the conspiracy theorists who felt this was yet another attempt to scare leveraged longs out of their positions, trigger stops and generally destabilise the market.

Yesterday gold briefly broke below $1,320 although the really significant support level comes in around $1,300. If gold were to break below and close below here for a few sessions then it could signal further weakness. As far as silver is concerned, critical support comes in around $18.

Forex Update

Yesterday brought another uneventful trading session in FX, although some minor fluctuations followed the day’s major data releases.

The German Ifo Institute's Business Climate survey dropped to 106.2 in August from 108.3 in July. This was a long way short of the 108.5 consensus expectation. Ifo reported that, “The business climate index fell in nearly all industry branches, most clearly, however, in the chemical and electrical industries," adding that "The economy has fallen into a summer slump." While that’s quite likely, it could also be a sign that Germany is suffering some post-Brexit blues. It could be that the UK flourishes outside the EU while it’s the EU that loses out from the UK leaving.

Later on, the dollar briefly popped higher following the release of US Durable Goods for July. Core Durable Goods (excluding transportation) rose 1.5% month-on-month, well above the +0.4% expected and much stronger than the prior reading of -0.4%. Core Durable Goods were also much better than expected and way above June’s number. But the greenback gave back its gains later in the session as investors flattened their positions ahead of Janet Yellen’s speech later today.

Considering FX moves over a longer horizon, in many ways it’s surprising that the dollar has failed to break out of its trading ranges. After all, the Federal Reserve is the only major central bank to hike rates since the financial crisis of 2008/9. All the others are either on hold or easing further. Yet while the US dollar rose around 25% against the euro between June 2014 and March 2015, it has traded in a range ever since. Over the past eighteen months the EURUSD has rarely fallen below 1.0800 or risen above 1.1400. Meanwhile, the Dollar Index has spent most of this time between 100 and 94. The ongoing divergence in central bank monetary policy would suggest that the greenback should be strengthening further now. Yet if anything, it’s trading close to the lows of its multi-month trading ranges. This may be because investors realise that even if the Fed tightens monetary policy further, this will be at a much slower pace than during previous rate hiking cycles. In addition, when looking at real rates (interest rate minus inflation) it could be argued that the US has been running a looser monetary policy than Japan. Japan doesn’t have any inflation while by some measures it’s running at   over 2% in the US. This helps to explain why the yen is strengthening. It also makes one consider that the dollar may have limited upside, even if the Fed does tighten before the end of the year.

Upcoming events

Today’s big event is Fed Chairman Janet Yellen’s speech at the Jackson Hole Economic Symposium which is scheduled for 15:00 BST. Other significant economic data releases include Gfk German Consumer Climate survey and Euro zone M3 Money Supply. From the UK we have the second estimate of second quarter GDP, Business Investment and Index of Services. From the US we have preliminary GDP, the GDP Price Index, Goods Trade Balance, Consumer Sentiment and Inflation Expectations. 


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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