Incisive market commentary from David Morrison

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AM Bulletin: Markets rise for the second day ; back to pre-referendum levels, sterling still weak
30 Jun 2016
AM Bulletin: Confidence returns – but for how long?
29 Jun 2016
AM Bulletin: The onslaught continues – and we’re not just talking the football
28 Jun 2016
Weekly Bulletin: Investors rattled by Brexit vote
27 Jun 2016
PM Bulletin: Brexit - Referendum fallout
24 Jun 2016
AM Bulletin: We’re out! And so is Cameron
24 Jun 2016
Video Update: #AskSpreadCo - EU referendum
23 Jun 2016
AM Bulletin: Markets on tenterhooks ahead of UK vote
23 Jun 2016
Spread Betting Tips
22 Jun 2016
AM Bulletin: Risk assets waft higher
22 Jun 2016
PM Bulletin:Referendum and Market Reaction
21 Jun 2016
PM Bulletin: Gold and the referendum
21 Jun 2016
AM Bulletin: Yellen testimony in focus
21 Jun 2016
PM Bulletin: Janet Yellen’s testimony
20 Jun 2016
Weekly Bulletin: It’s all about the referendum
20 Jun 2016
Market Info Update: EU Referendum Margin Changes - CFDs
17 Jun 2016
Market Info Update: EU Referendum Margin Changes - Spread Betting
17 Jun 2016
PM Bulletin: Forecasting the referendum result
17 Jun 2016
AM Bulletin: Central banks leave rates unchanged
17 Jun 2016
PM Bulletin: FOMC post-mortem
16 Jun 2016
AM Bulletin: Yen, precious metals soar post FOMC/BOJ
16 Jun 2016
PM Bulletin: FOMC look-ahead
15 Jun 2016
AM Bulletin: FOMC meeting ahead
15 Jun 2016
PM Bulletin: European equities slide
14 Jun 2016
AM Bulletin: Stocks down on oil, growth fears and UK referendum
14 Jun 2016
Weekly Bulletin: FOMC and BOJ meetings in focus
13 Jun 2016
PM Bulletin: Markets rattled by slide in bond yields
10 Jun 2016
AM Bulletin: European stock indices drift lower
10 Jun 2016
PM Bulletin: WTI at $50 – thoughts on US production
09 Jun 2016
AM Bulletin: Precious metals soar
09 Jun 2016
PM Bulletin: S&P closes in on all-time high
08 Jun 2016
AM Bulletin: Investors in limbo ahead of Fed and UK vote
08 Jun 2016
PM Bulletin: Yellen and the jobs data
07 Jun 2016
PM Bulletin: Fresh polls send sterling lower
06 Jun 2016
Weekly Bulletin: Rate hike? What rate hike?
06 Jun 2016
PM Bulletin: A dismal Non-Farm Payroll number
03 Jun 2016
AM Bulletin: Non-Farm Payroll Friday
03 Jun 2016
PM Bulletin: Non-Farm Payrolls look-ahead
02 Jun 2016
AM Bulletin: OPEC, ECB, key data releases and central bank speakers
02 Jun 2016
PM Bulletin: OPEC and the oil price
01 Jun 2016
AM Bulletin: Manufacturing PMIs in focus
01 Jun 2016
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Indices Update

Global indices were trading sharply lower for most of yesterday following a slew of central bank meetings. The US Federal Reserve, Bank of Japan (BOJ), Bank of England (BOE) and Swiss National Bank (SNB) all kept monetary policy unchanged, as generally expected. US stock indices initially rallied on Wednesday as the Fed indicated there could be fewer rate hikes this year than previously thought. But they subsequently sold off as the market felt that the central bank was losing credibility due to its lack of coherence. Meanwhile, news that the BOJ has once again held back from further stimulus saw the yen and precious metals fly higher.

However, the sell-off in stock indices reversed suddenly mid-afternoon as news filtered through of the shocking murder of Labour MP Jo Cox. Ms Cox had been an ardent campaigner for remaining in Europe and there was some speculation that her tragic death would take the momentum out of the “Leave” vote. All campaigning has been suspended today and possibly through the weekend.

The Dow had a low-to-high swing of 300 points. European indices are currently playing catch-up although US stock index futures were effectively unchanged in early trade Friday.

Looking back at those central bank meetings - there’s a growing feeling that the Fed has lost the plot when it comes to monetary policy. The US central bank switches from dovish to hawkish and back again with worrying regularity and appears to overreact to single events and data releases. Yet it many ways it has thrown the notion of “data dependence” out of the window as it previously failed to raise rates when unemployment hit its target and as inflation showed signs of accelerating. It is becoming obvious to an increasing number of investors that the Fed cannot bring itself to raise rates, yet is taking all measures to attempt to hide this fact from the market. It’s in a corner where hiking raises the prospect of a violent stock market sell-off, whereas a failure to tighten monetary policy suggests deep-rooted economic problems.

Meanwhile the BOJ kept monetary policy steady and lowered its inflation forecast. The BOJ predicts that the consumer price index is likely to be flat or even slightly negative for the time being. The USDJPY slumped below 104.00 on the news. The nearer it gets to 100.00 the greater the speculation that Japanese policymakers will intervene to halt the strengthening currency.

The FTSE 100 index closed down 16.3 points or 0.3% at 5,950.5

The German DAX fell 56.2 points or 0.6% to end the day at 9,550.5

The US30 closed up 92.9 points to finish at 17,733.1. The S&P 500 rose 0.3% to close at 2,078 while the Nasdaq 100 rose 0.3% to close at 4,424.2  


Luxury goods maker Mulberry (MUL) reported a bounce-back in profits yesterday. The improved trading picture comes after the brand overhauled its product lines and cut prices in an effort to win back customers. Pre-tax profits came in at £6.2 million for the twelve months to the end of March. This was a significant improvement from last year’s £1.9 million. Retail sales rose 8% to £118.7 million, although wholesale revenues fell slightly. The stock ended the day 1.2% higher at 1,037.5 pence. 

Commodities Update

Crude fell sharply yesterday ending lower for the sixth consecutive session. However, it bounced strongly off its lows from earlier in the day. This followed a bout of short-covering and dollar sell-off after news of the tragic killing of Labour MP (and Remain campaigner) Jo Cox. There is some speculation that this shocking event may end up derailing the Brexit campaign.

Before yesterday’s bounce, WTI and Brent had lost around 10% over the past week, pulling back from multi-month highs. There have been recent concerns over the possibility of a global glut in oil despite a report earlier this week from the International Energy Agency (IEA) which said the oil market is coming back into balance after two years of surpluses. The issue now seems to be some uncertainty over future demand growth. Investors are increasingly concerned about the global economic outlook with questions being raised about the strength of both the Chinese and US economies. This is particularly of concern seeing the US Federal Reserve’s reluctance to commit to raising rates off historically low levels. This situation has been brought into sharp focus as the yield on 10-year German bunds went negative for the first time ever. There are now around $10 trillion-worth of government bonds worldwide offering up negative yields.  This is hardly a ringing endorsement for global economic health.

Gold and silver both soared on Wednesday evening following the release of the Fed’s statement and economic projections. Gold flew above $1,300 per ounce and traded up to its highest level in close to 2 years. The Fed signalled a more dovish stance which lifted the two precious metals. The buying continued yesterday morning following the BOJ’s decision to hold back from further stimulus. This caused the yen to soar as investors went into “risk-off” mode.

However, both metals sold off heavily, giving back all yesterday’s early gains and more. This followed the news of the murder of MP and Remain backer Jo Cox. There is a feeling that her shocking death may derail the Brexit campaign.

Overall the prospect of lower interest rates for longer is particularly positive for the two precious metals as both become attractive assets to hold in a low interest rate world. This is because the lost-opportunity cost of holding gold or silver is reduced when other assets yield nothing – or have negative yields as is currently the case with $10-11 trillion of global government debt.

But in addition to this there are concerns that the Fed has lost the plot when it comes to assessing the outlook for the US, let alone the global, economy. The central bank has switched between being dovish and hawkish and back again on numerous occasions this year alone. Many analysts now believe that the Fed probably can’t risk a rate hike this year, let alone next month.

Finally, precious metals are still getting a boost from safe-haven buying ahead of next week’s UK referendum on EU membership. Yesterday saw the previously strong negative correlation between gold and the US dollar break down abruptly. Usually gold (and silver) decline when the dollar rallies. But all pushed higher yesterday on strong safe-haven buying. 


Forex Update

We saw further evidence of long-term correlations breaking down yesterday following a rash of central bank meetings and ahead of next week’s UK referendum on EU membership. The dollar flew higher against most of the majors despite an initial plunge following Wednesday night’s dovish Fed statement and economic projections. It really was a day when investors were rushing into safe havens. Gold and silver made strong gains along with the dollar – something we rarely see.

The shocking murder of Labour MP and prominent Remain campaigner Jo Cox caused a significant market disruption. Sterling and the euro both flew higher while the dollar pulled back sharply from earlier highs. The yen also lost some ground. This was all part of a risk-off move as there was speculation that Ms Cox’s killing would disrupt the “Leave” campaign’s upside momentum. Both sides have agreed to pause their campaigns (possibly until Monday) as a mark of respect for Jo Cox and her family.

The Japanese yen also soared higher. This followed news that the Bank of Japan (BOJ) kept monetary policy steady and lowered its inflation forecast. The USDJPY slumped below 104.00 on the news as there was some surprise that the central bank failed to hint that further monetary stimulus was being considered. The nearer the USDJPY gets to 100.00 the greater the speculation that Japanese policymakers will intervene to halt the strengthening currency. This is unsettling markets generally as it suggests a policy misstep from the BOJ. The yen is another currency that benefits when investors go into “risk off” mode.

With just a week to go until the UK’s referendum on EU membership, the BOE kept its Bank Rate unchanged at 0.5% where it's been for over seven years. The Bank warned that a vote to leave the EU would hurt the global economy. It also said sterling was likely to fall further on a Brexit vote and the referendum was not only the biggest immediate risk to UK markets, but global ones too. Sterling fell sharply against the dollar coming within a whisker of 1.4000. However it was little-changed against the euro.

The Swiss National Bank (SNB) left its negative interest rates unchanged at record lows. The SNB repeated its warning that the franc is significantly overvalued, but chose to hold off from taking any action to keep its powder dry ahead of the UK referendum next week.

Meanwhile US headline CPI slipped to +0.2% mom from +0.4% previously. Core was unchanged at +0.2%. Weekly Jobless Claims jumped to 277k on expectations of a 267k rise – more evidence that the US employment situation is deteriorating. The Philly Fed Manufacturing index jumped to 4.7 from -1.8 last month

Upcoming events

Today’s significant data releases and events include ECOFIN meetings, Canadian CPI and a speech from ECB President Mario Draghi. From the US we have Building Permits and Housing Starts. 


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Posted by David Morrison

Category: AM Bulletin

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