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PM Bulletin: Gold
29 Jan 2016
AM Bulletin: BOJ takes rate negative
29 Jan 2016
PM Bulletin: BOJ in focus
28 Jan 2016
AM Bulletin: FOMC disappoints, but earnings offer support
28 Jan 2016
PM Bulletin: Facebook reports after the close
27 Jan 2016
AM Bulletin: Crude still driving equities
27 Jan 2016
PM Bulletin: Tomorrow’s FOMC meeting
26 Jan 2016
AM Bulletin: Equities slide on crude sell-off
26 Jan 2016
PM Bulletin: Silver chart
25 Jan 2016
Weekly Bulletin: Promise of further stimulus halts equity slide
25 Jan 2016
PM Bulletin: EURUSD chart
22 Jan 2016
AM Bulletin: Equities rally on ECB and oil
22 Jan 2016
PM Bulletin: Dovish Draghi triggers euro sell-off
21 Jan 2016
AM Bulletin: ECB meeting in focus
21 Jan 2016
PM Bulletin: Crude makes fresh multi-year lows
20 Jan 2016
AM Bulletin: Stocks slide as oil slumps
20 Jan 2016
PM Bulletin: Bank of Canada rate decision
19 Jan 2016
AM Bulletin: Equities surge on relief rally
19 Jan 2016
PM Bulletin: Crude oil - long-term charts
18 Jan 2016
Weekly Bulletin: China and oil weigh on equities
18 Jan 2016
PM Bulletin: Long-term gold bullion chart
15 Jan 2016
AM Bulletin: More woe from China
15 Jan 2016
Holiday Schedule: Martin Luther King Day Monday 18th January 2016
14 Jan 2016
PM Bulletin: Equities: bull or bear?
14 Jan 2016
AM Bulletin: Investors remain jittery
14 Jan 2016
PM Bulletin: The Bank’s rate decision
13 Jan 2016
AM Bulletin: Oil rebound lifts stocks
13 Jan 2016
PM Bulletin: Saudi Aramco’s IPO
12 Jan 2016
AM Bulletin: Crude closes in on $30
12 Jan 2016
PM Bulletin: US Fourth Quarter Earnings Season
11 Jan 2016
Weekly Bulletin: 2016: Trouble ahead?
11 Jan 2016
January: Non Farm Payrolls Out Today
08 Jan 2016
PM Bulletin: Another blow-out payroll number
08 Jan 2016
AM Bulletin: China effect calms markets
08 Jan 2016
PM Bulletin: Non-Farm Payroll look-ahead
07 Jan 2016
AM Bulletin: Equities slump after 2nd China trading halt
07 Jan 2016
AM Bulletin: Investors remain jittery
06 Jan 2016
AM Bulletin: China steadies and Europe rallies
05 Jan 2016
AM Bulletin: Chinese equities plunge
04 Jan 2016
 
 
 Friday 29 January 2016

AM Bulletin: BOJ takes rate negative

 

 

Indices Update

Overnight the Bank of Japan (BOJ) took interest rates negative for the first time in its history. From 16th February it will apply a rate of minus 0.1% to excess reserves that financial institutions place at the bank. There are other developed world countries that currently have negative rates, but Japan, with the world’s third largest economy, is the most significant, if one discounts the ECB’s negative Deposit Rate for Euro zone banks. The BOJ kept its program to buy government bonds and exchange traded funds unchanged at 80 trillion ($670 billion) yen per annum. Global stock indices flew higher on the news although they have pulled back from their best levels.

Volatility continues to be a feature of financial markets whether they are equities, bonds, commodities or FX. Once again it was movements in crude oil which catalysed other markets yesterday. Oil soared in afternoon trade after Reuters reported that Russia’s energy minister said Saudi Arabia was proposing a 5% output cut from all OPEC members. The news led to a sharp rally in European and US stock indices. But this was quickly reversed when OPEC delegates said there was as yet no plan for meeting with Russia. Apparently a meeting with non-OPEC Russia is a prerequisite of an OPEC production cut. I’m having trouble figuring that one out.

The Italian MIB was the worst performing European stock index by far, ending yesterday 3.5% lower. There are serious concerns over the health of the country’s banks as they struggle to deal with a mountain of bad and non-performing loans. A particular worry is the amount of banking bonds held by private investors. It is unclear what protection they would have should there be significant write-offs.

After Wednesday’s close Facebook (FB) updated the market with its fourth quarter results. These smashed above even the most optimistic predictions for earnings and revenue and the stock soared 12% in after-hours trade. The move helped to lift the other FANG members with Amazon (AMZN), Netflix (NFLX) and Google (GOOG) all posting strong pre-market gains.

The FTSE 100 index closed at 5,931.8 down 58.6 points on the day or 1.0%

The German DAX fell 241.2 points or 2.4% to finish at 9,639.6

The US30 closed up 125.2 points to finish at 16,069.6 The S&P 500 ended at 1,893.4 up 10.4 points while the Nasdaq 100 rose 1.4% to close at 4,186.1

Equities Update

Amazon (AMZN) reported last night after the US close. The stock had rallied ahead of its results thanks in no small part to Facebook’s (FB) knock-out numbers the day before. The consensus expectation was for Amazon to post earnings of $1.56 per share (up from $0.45 for the fourth quarter last year) on revenues of $35.93 billion, an increase of 23% from last year’s sales of $29.3 billion. But the shares plunged as soon as the results were posted. Earnings were up on the quarter to $1.00 per share, but well below expectations. Revenues came in a touch lighter than expected at $35.75 billion. Amazon slumped around 15% in the immediate aftermath of the report and not managed to recover, despite a firmer tone to US stock index futures thanks to the Japanese rate cut.

Commodities Update

Oil had been relatively subdued in early trade yesterday, spending the morning session little-changed. But it shot higher ahead of the US open following a story that Saudi Arabia had made a proposal that OPEC members cut production by as much as 5%. This led to a buying surge which was exacerbated by short-covering. However, there was considerable confusion concerning the story which came from Reuters sourcing the Russian energy minister, Alexander Novak. Other newswires were more circumspect, saying that Saudi MAY make such a proposal. Crude oil pulled back from its best levels (Brent had been up over 7% at one stage) but is still trading comfortably above $30 per barrel. This does appear to be the “line in the sand” as far as traders in equities are concerned.

On Wednesday evening gold and silver shot higher straight after the release of the FOMC statement. The US dollar slipped as the statement was interpreted as being broadly dovish in tone. Gold came within a whisker of $1,128 while silver topped $14.50. Both metals then pulled back off their best levels. Gold spent most of yesterday morning hovering around its 200-day moving average near $1,120 while silver found support around $14.40.

But then both slumped as traders watched oil and equities scream higher. This was down to the report that Saudi Arabia was set to propose a 5% output cut to OPEC members. The report was toned down as the day went on but the damage had been done to the two precious metals. However, this could be viewed as a healthy correction if gold can hold above $1,100/05 – its 100-day moving average and silver can steady around $14.20

Forex Update

The dollar continued its decline yesterday as investors absorbed the implications of Wednesday evening’s FOMC statement. Equity investors chose to read the FOMC’s comments as hawkish. No doubt as the Committee chose not to assure them that 100 basis-points worth of rate hikes were no longer projected for 2016. But currency traders are nothing if not pragmatic. They could appreciate the statement’s dovish undertones as it emphasised the fact that the FOMC would be paying close attention to future global and financial developments. This was all they needed to see that the FOMC was creating an escape route for itself.

Trade in the USDJPY was relatively quiet ahead of this morning’s Bank of Japan meeting. The yen has strengthened appreciably this year thanks to a massive loss of risk appetite. The USDJPY fell to 116.00 last week although the US dollar has recovered since. Nevertheless the USDJPY had run into resistance around 118.80/119.00, marking the 38.2% Fibonacci Retracement of the 18th December/20th January sell-off. However that level was smashed through earlier this morning when the BOJ made its surprise announcement and adopted negative interest rates. The USDJPY came close to breaking above its 200-day moving average around 121.50. It is currently consolidating around 120.70 the 61.8% Fibonacci retracement of its Dec-Jan sell-off.

Upcoming events

Today’s significant data releases include Euro zone M3 Money Supply and CPI. From the US we have fourth quarter Advance GDP, the Employment cost Index, Chicago PMI, 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

Category: AM Bulletin


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