NEWS AND ANALYSIS

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Weekly Bulletin: Equity rally continues
29 Feb 2016
PM Bulletin: Chart for the EURUSD
29 Feb 2016
AM Bulletin: Auction postponement linked to risk rally
26 Feb 2016
PM Bulletin: FOMC members add to confusion over monetary policy
26 Feb 2016
AM Bulletin: US stock indices rebound
25 Feb 2016
PM Bulletin: Lloyds Banking Group
25 Feb 2016
AM Bulletin: Stocks slip on lower crude
24 Feb 2016
PM Bulletin: Gold
24 Feb 2016
PM Bulletin: Crude oil, yen and equities
23 Feb 2016
AM Bulletin: Equities slip after strong start to week
23 Feb 2016
Sterling dumps on Brexit fears
22 Feb 2016
AM Bulletin: Stronger start for global equities
22 Feb 2016
AM Bulletin: Netflix leads Nasdaq lower
19 Feb 2016
PM Bulletin: FTSE revisited
18 Feb 2016
AM Bulletin: Oil still leading equities
18 Feb 2016
PM Bulletin: The yen, Nikkei and negative interest rates
17 Feb 2016
AM Bulletin: Oil and FOMC minutes in focus
17 Feb 2016
PM Bulletin: WTI and Brent
16 Feb 2016
AM Bulletin: Equities, USD, oil rally while precious metals slide
16 Feb 2016
Weekly Bulletin: Yellen keeps us guessing
15 Feb 2016
PM Bulletin: A multi-year look at the FTSE100
15 Feb 2016
PM Bulletin: Andrews’ Pitchfork on S&P500
12 Feb 2016
AM Bulletin: Equities remain vulnerable to further selling
12 Feb 2016
PM Bulletin: EURUSD – what now?
11 Feb 2016
AM Bulletin: Yellen fails to calm nerves
11 Feb 2016
PM Bulletin: Yellen steers through Clashing Rocks
10 Feb 2016
AM Bulletin: Yellen testimony in focus
10 Feb 2016
PM Bulletin: Japanese sell-off spooks investors
09 Feb 2016
AM Bulletin: Investors nervous as crude flirts with $30
09 Feb 2016
PM Bulletin: Big “risk-off” moves to start the week
08 Feb 2016
Weekly Bulletin: Investor jitters raises volatility
08 Feb 2016
February: Non Farm Payrolls Out Today
05 Feb 2016
PM Bulletin: Big miss for Non-Farm Payrolls
05 Feb 2016
AM Bulletin: Non-Farm Friday
05 Feb 2016
PM Bulletin: Non-Farm Payroll look-ahead
04 Feb 2016
AM Bulletin: Dollar slumps; oil spikes
04 Feb 2016
PM Bulletin: Tomorrow’s MPC press conference in focus
03 Feb 2016
AM Bulletin: Weaker crude weighs on equities
03 Feb 2016
PM Bulletin: A look at the EURUSD
02 Feb 2016
AM Bulletin: Google can’t lift indices
02 Feb 2016
PM Bulletin: Charts for USDJPY
01 Feb 2016
Weekly Bulletin: Central banks respond to sell-off
01 Feb 2016
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Indices Update

US stock index futures see-sawed during yesterday’s European session, but with more of an upside bias. Crude oil dipped lower as Europe closed and the major US indices lost much of their upside momentum. However, an hour or so later both were soaring with commentators struggling to come up with a reason. According to influential financial blogger Zerohedge, it looks as if the “risk on” buying was linked to the postponement of yesterday’s 7-year Treasury auction.

Yesterday morning European stock indices completely ignored a 6.4% slump on the Shanghai Composite Index. Investors piled back into stocks following a turnaround in US equities the night before. On Wednesday the S&P 500 rallied 2.5% from its lows earlier in the day to end just shy of 0.5% higher. Meanwhile, the tech-heavy closed 3.5% above its Wednesday low.

Yesterday morning’s sell-off on the Chinese index means it is now down over 20% since the start of this year as money-market rates flew higher signalling tighter liquidity and the offshore yuan weakened for a fifth consecutive day.

Meanwhile, in a report prepared ahead of today's gathering of G20 finance ministers and central bank chiefs, the IMF has warned that policymakers should: “…plan now for coordinated demand support using available fiscal space to boost public investment." The IMF is concerned that general market turbulence, the pace of China's slowdown and falling commodity and asset prices are all major headwinds that could derail a global recovery.

The FTSE 100 index closed at 6,012.8 up 145.6 points on the day, or around 2.5%

The German DAX rose 163.7 points or 1.8% to finish at 9,331.5

The US30 closed up 212.3 points to finish at 16,697.3. The S&P 500 rose 21.9 to close at 1,951.7 while the Nasdaq 100 rose just under 1% to close at 4,241.1

Equities Update

Shares in BT Group (BT) crept higher yesterday following a favourable ruling from OFCOM, the telecoms industry watchdog. The regulator was responding to complaints from BT’s rivals concerning its cable network Openreach. BT narrowly avoided having to spin off Openreach into a separate company. However, BT has been ordered to reform the phone and broadband division and give competitors greater access to its network. OFCOM has also left the door open to a complete separation and said it would provide more detailed proposals later this year. BT closed 4.7% higher at 479.8 pence.

Lloyds Banking Group (LLOY) shot higher yesterday after it surprised investors with its first dividend in six years. The lender announced a £2 billion pay-out which underpins its determination to become the biggest dividend payer amongst the UK banks. This was the position it regularly held prior to the banking crisis before (as Lloyds TSB) it acquired the troubled HBOS. The stock ended the day at 70.64 pence up 13.6%

Commodities Update

Crude oil was mixed for most of yesterday’s European session. It had rallied sharply on Wednesday following the release from the Energy Information Administration (EIA). This showed an increase in US crude inventories of 3.5 million barrels, well above the 2 million expected. This appeared to confirm Tuesday’s API data when inventories were close to double expectations. But crude shot higher following the release as other data showed that oil refinery inputs, US imports and gasoline inventories were all down on the previous week.

Oil prices turned negative as the European close approached. This followed the release of another US inventory update which suggested that the Cushing storage hub will, at current inventory build rates, reach 100% capacity in just a few more months. However, there was a violent price surge around 18:00 GMT. Crude oil flew higher along with equities while the yen fell – a classic “risk on” move. There had been no releases directly related to oil, but financial blog “Zerohedge” attributes the move to the postponement of last night’s US Treasury 7-year auction. The blog had previously made a connection between Wednesday’s sudden price ramp and the Fed’s cancellation of open market operations to purchase mortgage-backed securities. The cancellation led to a series of trades including a sell-off in fixed income and a rush to buy riskier assets (perhaps short-covering?) – all very confusing.

It feels as if gold just doesn’t want to go down anymore. Every time sellers come in and try to push it back below $1,200 it just pops back up again. This certainly feels like a positive round of consolidation to me. Granted, a break below $1,200 would now do some damage to sentiment, but I still feel that support around $1,180 is fairly strong. As noted yesterday, the $1,250 is a level worth watching to the upside. This marks the 23.6% Fibonacci Retracement of the four-year sell-off from the September 2011 high to December 2015’s low and so far it is acting as resistance. From a fundamental perspective, negative interest rates are really helping gold’s cause. Not only has Japan joined Switzerland, Sweden and Denmark in “going negative,” we heard recently that it has been a topic of conversation over at the Fed. That’s not to say that the Fed would go down that route, but it does suggest that the doves on the FOMC are cooing again. However, it is worth remembering that there are still Fed members saying (in public anyway) that a March rate hike is still on the table. That seems very far-fetched, but stranger things have happened.

Forex Update

Yesterday was relatively uneventful in terms of FX trading. The British pound finally found some buying interest after plunging on fears that the campaign for the UK to leave the EU was building some momentum. Much has been said about how the sell-off in cable means a Brexit would be bad for Britain. It may, or it may not. However, all it really says is that markets dislike uncertainty. Investors tend to sell first and ask questions later. As to yesterday’s price action, sterling was looking oversold and now there’s been some short-covering. Cautious traders should wait to see whether this is the beginning of a bigger rally, or merely a pause before the pound continues to decline. As mentioned before, support for GBPUSD comes in around 1.3700 and 1.3500. However, a 20-year chart shows that cable rarely strays below 1.4000 for long. Could this time be different?

The Japanese yen weakened against all the majors, and so maintained its close inverse correlation with US equity markets. Wednesday’s oil-inspired stock market rally saw investors rush to sell (borrow) the low yielding yen a leverage up the proceeds into equities. This is the usual ebb-and-flow so it’s probably not worth reading too much into it.

Meanwhile, the US dollar was fairly quiet although it still appears to be in the upward trend which began in the second week of February. It was helped yesterday by better-than-expected US Durable goods numbers. As far as the EURUSD is concerned, there is some mild support around 1.1000 but this is stronger around the 1.0950 area.

Upcoming events

Today’s significant data releases include German, French and Spanish PMIs. From the US we have the second look at fourth quarter GDP, Personal Spending, Personal Income, Consumer sentiment and Inflation Expectations. FOMC-voting members Jerome Powell and Lael Brainard are scheduled to deliver separate speeches. There is also a General Election in the Republic of Ireland and G20 meeting in Shanghai.

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

Category: AM Bulletin


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