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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
Trading Guides: How fast can you buy and sell with spread betting?
22 Aug 2016
Weekly Bulletin: Jackson Hole Symposium in focus
22 Aug 2016
PM Bulletin: Retailers bring earnings season towards a close
19 Aug 2016
AM Bulletin: Equities driven by oil and the Fed
19 Aug 2016
Video Update: The next Fed rate hike, the dollar and oil
18 Aug 2016
AM Bulletin: FOMC minutes read as dovish
18 Aug 2016
Trading Guide: How to choose a spread bet provider
17 Aug 2016
AM Bulletin: UK employment data and FOMC minutes in focus
17 Aug 2016
PM Bulletin: Dollar sell-off sends USDJPY below 100
16 Aug 2016
AM Bulletin: Yen stronger as investors de-risk
16 Aug 2016
Platform Tours: CFD Trading - How to Place Orders
15 Aug 2016
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15 Aug 2016
Weekly Bulletin: Summer “melt-up” continues
15 Aug 2016
PM Bulletin: Dow, S&P and NASDAQ hit all-time highs
12 Aug 2016
AM Bulletin: US indices hit fresh all-time highs
12 Aug 2016
PM Bulletin: Yen still strong, despite Japan’s stimulus
11 Aug 2016
AM Bulletin: Equities following oil
11 Aug 2016
PM Bulletin: Gold back within sight of multi-year highs
10 Aug 2016
AM Bulletin: US Crude Oil inventories eyed
10 Aug 2016
PM Bulletin: Sterling under pressure
09 Aug 2016
AM Bulletin: Stock markets calmer following last week’s rally
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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08 Aug 2016
Weekly Bulletin: US Fed: the last hawk standing
08 Aug 2016
PM Bulletin: Non-Farm Payrolls soar
05 Aug 2016
July: Non Farm Payrolls Out Today
05 Aug 2016
AM Bulletin: BoE adds stimulus; Payroll numbers in focus
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
CFD Trading - Closure and Partial Closure
01 Aug 2016
Doubts over European stress tests
01 Aug 2016
Monetary policy driving investor behaviour
01 Aug 2016
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Indices Update

Yesterday the Bank of England’s (BoE) Monetary Policy Committee (MPC) cut its headline interest rate to 0.25% from 0.50% and boosted to its Asset Purchase Facility by £60 billion to £435 billion. It also said it would purchase an additional £10 billion of corporate bonds and set up a new Term Funding Scheme worth up to £100 billion to protect bank margins.

There had been a widespread expectation that the BoE would cut its headline Bank Rate by 25 basis points. However, not everyone had anticipated an increase in quantitative easing (let alone the inclusion of corporate bonds into the mix) and this is what sent sterling lower and lifted the FTSE100. The BoE also released its Quarterly Inflation Report. In this it downgraded its outlook for UK growth in the biggest revision since 1993. It now predicts a cumulative 2.5% reduction in growth over the next 3 years with next year’s GDP expected to come in at +0.8% - down from its May projection of +2.3%.

In his press conference Governor Carney brushed aside concerns about the damage this rate cut will inflict on savers. Instead he said that the Bank had a clear mandate and he was more immediately concerned with the prospect of higher unemployment due to lower growth following the UK vote to leave the European Union. He also made it clear that he was against negative rates but the Bank was quite prepared to cut rates further towards zero.

All-in-all it was a pretty downbeat assessment of the UK’s economic outlook. Some analysts expressed surprise over the size of the stimulus package given that it followed on from just one month’s worth of PMI releases and a weak Retail Sales number. Others wondered what unleashing this large dose of monetary stimulus now meant about the likelihood of fiscal stimulus being announced at the Chancellor’s Autumn Statement. Nevertheless, the news saw the FTSE100 rally sharply as investors saw the bond purchases and weaker dollar as helping large multinationals.

The FTSE 100 index closed up 105.8 points, or 1.6%, to end the day at 6,740.2

The German DAX rose 57.7 points or 0.6% to end the day at 10,227.9

The US30 closed down 3 points to finish at 18,352. The S&P 500 rose 0.5% to close at 2,164.3 while the Nasdaq 100 finished 0.2% higher at 4,743.8

Equities

Tesla (TSLA) remains a Wall Street favourite despite being dogged by controversy. Not least being its proposed merger with Elon Musk’s other troubled company SolarCity (SCTY). On Wednesday night Tesla reported a second-quarter adjusted loss of $1.06 per share on $1.56 billion in sales. This was well below the consensus estimates of a loss of $0.52 cents a share on revenues of $1.62 billion. Nevertheless the company said it was still on track to produce 50,000 vehicles in the second half of the year. Investors are now focusing on the new Model 3 (a more affordable version of its previous cars) which is set for production later this year. The company is also pushing ahead with developing autonomous driving with technology which will “blow people’s minds”. The stock ended 2.1% higher yesterday at $230.61

Commodities Update

Crude oil was sharply higher in early trade yesterday as investors rushed to cover short positions. The catalyst for the move appeared to come from the latest update on US inventories from the Energy Information Administration (EIA). The headline number showed a build in crude of 1.4 million barrels against an expectation of a drawdown of 1.6 million. This led to a sudden sell-off. However, this reversed quickly as investors focused on a large drawdown in gasoline stocks along with reports of a slowdown in US production last week. But while the latter two points may have provided the trigger for a bounce in crude, it doesn’t fully explain the speed and extent of the rally. This was more a result of excessive speculative short positioning in both Brent and WTI. This unwound as the oil sell-off stalled just below significant support levels and as the two contracts registered a 20% pull-back from the highs hit in early June, giving speculators good reason to cover shorts. We’ll now see if this rally has legs or if it simply gives traders some attractive levels to go short once again. The key support levels remain $42 and $40 for Brent and WTI respectively.

The recent recovery in the US dollar gave investors the perfect excuse to book profits on long positions in gold and silver. Both metals were sharply lower in early trade yesterday with silver once again bearing the brunt of the sell-off. The bounce-back in crude also helped to restore investor risk appetite which meant less safe-haven demand for precious metals. But the two precious metals staged a recovery following the Bank of England’s decision to cut its headline interest rate, increase its Asset Purchase Facility and introduce a Term Funding Scheme for banks. Not only that, but the Bank reduced its growth outlook for next year from +2.3% to +0.8%, warning that unemployment was likely to head higher and that it was prepared to cut rates again to just above the zero bound should it deem such a move necessary.

So now the BoE joins the ECB, the Bank of Japan and People’s Bank of China as the major global central banks taking an outright dovish stance. Meanwhile, the US Federal Reserve continues to dither over the timing of its next rate hike. All this should help to underpin precious metals as this low interest rate environment reduces the lost opportunity costs of holding gold and silver which are essentially non-yielding monetary assets.

Forex Update

There were some big moves in FX markets yesterday with the US dollar the stand-out winner and the booby prize going to sterling. The big news was the additional monetary stimulus unleashed by the Bank of England (BoE). In contrast to recent meetings from major central banks such as the ECB and BOJ, the surprise came with what the BoE did do, rather than what it didn’t. The Bank’s Monetary Policy Committee (MPC) surprised few observers when it cut its headline interest rate by 25 basis points. However, it followed this up by adding £70 billion to its Asset Purchase Facility (£60 billion in gilts and £10 billion in corporate bonds). It also set up a new Term Funding Scheme worth up to £100 billion to protect bank margins. The Bank revised down sharply its forecasts for future economic growth and said that it expects a pick-up in unemployment. It said it was prepared to cut rates further towards the zero-bound if required.

The news sent sterling sharply lower. The GBPUSD fell back towards 1.3100 although it was still some way above its post-Brexit low of when it briefly dipped under 1.2800. Meanwhile the EURGBP came within a few ticks of 0.8500 but again fell short of its post-Brexit high above 0.8600. The next couple of days will be pivotal in seeing whether the lows are in for sterling or if there’s more selling to come.

Meanwhile the US dollar made back a fair proportion of its recent losses and making gains against most of the majors. The only exception was against the Canadian dollar. The “Loonie” got a boost thanks to the ongoing bounce-back in crude oil.

Upcoming events

Today’s main event is the release of the latest update on US Non-Farm Payrolls along with the Unemployment Rate and Average Hourly Earnings. We also have Italian Industrial Production, the Canadian Trade Balance and Unemployment Rate.


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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