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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 08 January 2016

AM Bulletin: China effect calms markets

 

 

Indices Update

Global stock indices slumped in early trade yesterday as the Chinese stock market hit its 7% circuit-breaker for the second time this week. Once again China’s brokers got to head home early as all dealing was halted soon after the open. The trigger for the renewed sell-off appears to have been the daily yuan fix by the People’s Bank of China (PBOC). The central bank set the yuan’s midpoint at 6.5646 to the dollar, 0.5% below Wednesday’s fix. Not only was this the biggest daily drop between fixings since the 3% devaluation in August, but it is also took the yuan to its lowest level against the US dollar for three and a half years.

However, sentiment began to change later in the day. Mid-way through the afternoon session the major indices rallied off their lows after the China Securities Regulatory Commission announced that they were suspending their circuit-breaker rules. This was undoubtedly positive news, irrespective of the initial reaction on China’s exchanges. The authorities seem to be learning the lesson that it’s better to let the markets do their thing rather than micro-manage. Trading halts can actually exacerbate downside moves as would-be buyers are unable to come in and purchase beaten-up stock. Rather, the halts add to panic as investors line up to sell to avoid being repeatedly locked out of the market.

Removing the trading halt seems to have had the desired effect. Despite a highly volatile overnight session, the key Shanghai Composite ended the day close to two percent higher. Also, the People’s Bank of China raised its yuan guidance rate for the first time in nine days and this has helped to reassure investors. European stock indices and US stock index futures are firmer this morning, and there are hopes that the worst may be over. However, we should expect further volatility until investors have some confidence that the sell-off is simply a correction rather than the start of a protracted bear market.

The FTSE 100 index closed at 5,954.1 down 119.3 points on the day or just under 2%

The German DAX fell 234.2 points or 2.3% to finish at 9,979.9

The US30 closed down 392.4 points to finish at 16,514.1 The S&P 500 ended at 1,943.1 down 47.2 points or 2.4% while the Nasdaq 100 fell 3.1% to close at 4,305.7

Equities Update

Yesterday’s headline news as far as the UK corporate sector was concerned was the resignation of Marc Bolland as Marks & Spencer (MKS) CEO – a position he has held for six years. The news followed the release of yet another poor set of trading numbers from the troubled retailer. Like-for-like general merchandise sales fell 5.8% in the thirteen weeks to 26th December. But unlike previous quarters M&S was not the only retailer to struggle in the run up to Christmas. Earlier this week retail darling Next (NXT) blamed warm weather for its disappointing fourth quarter performance. M&S Chairman Robert Swannell said that Mr Bolland’s departure had been planned and there had been no pressure on him to leave. Marks & Spencer ended the day at 439.2 up 0.1%.

Commodities Update

Crude made fresh multi-year lows yesterday. In early trade both Brent and WTI were closing in on the $30 per barrel level. The sell-off followed another torrid trading session in China where trading in stocks was halted after less than half an hour as the 7% circuit-breaker was hit. But prices bounced back later in the day after the China Securities Regulatory Commission announced that they were suspending their circuit-breaker rules. The mandatory trading halts are believed to have exacerbated the Chinese equity market sell-off. This is because investors have felt impelled to close out long positions rather than risk being repeatedly locked out of the market. In addition, the trading halt has prevented an equilibrium level being reached when buyers deem stocks cheap enough to risk going long. The news of the suspension led to a flurry of short-covering in oil as well as equities and this boosted overall risk appetite. Crude ended the day in positive territory for the first time in four sessions.

Gold pushed higher yesterday and ended in positive territory for the fourth successive session. It broke above $1,100 to trade at its best level since early November. Silver also managed to push higher, trading back above $14 per ounce. Both precious metals benefited from safe-haven buying as equities slumped in early trade. They were also supported by general weakness in the US dollar. However, both gold and silver pulled back from their intra-day highs as the trading session progressed. The reversal coincided with a bounce-back in equities and the dollar after China suspended its circuit-breaker rules.

It’s difficult to know how the two precious metals will now behave if the worst of the equity market sell-off is now over. If gold can consolidate above $1,080/85 then further gains are possible. However, it may struggle to push much higher in the absence of bad news. The same is true of silver although the area around $13.80 still offers good support. But it should be heartening for silver bulls to see that the metal managed to make decent gains even as copper hit fresh multi-year lows. This could indicate that silver is once again acting as an investment rather than purely an industrial metal.

Forex Update

The main feature of yesterday’s FX trade was US dollar weakness. The only currency to lose ground against the greenback was the British pound. The sell-off in the dollar began on Wednesday evening, following the release of minutes from the Fed’s FOMC meeting in mid-December. This was when the US central bank raised its headline fed funds interest rate making it the first increase since June 2006. The minutes showed that the decision to hike rates by 25 basis points was unanimous. However, they also suggested that the FOMC would exercise caution over the pace of future increases and would keep a close eye on incoming data releases and the wider global economic situation. Investors interpreted this as meaning that the 100 basis point rate increases pencilled in for 2016 may be overly hawkish. The possibility that the Fed may tighten at a slower pace led to a sell-off in the US dollar. This gathered pace early in the European trading session as dollar bulls reduced their exposure.

The Australian dollar continued to lose ground due to the country’s exposure to China. So far this week the Aussie is down around 4% against the US dollar and close to 6% against the Japanese yen. Meanwhile, the yen continued to appreciate against the greenback. Yesterday the USDJPY hit its lowest intra-day level since August last year at the height of the last Chinese stock market melt-down. But both the AUD and USDJPY have snapped back up sharply in early trade this morning. This follows a volatile yet positive session in China which saw the major Shanghai Composite end up on the day and the yuan fixed higher for the first time in nine days.

Upcoming events

All eyes will focus on today’s US Non-Farm Payroll release. The consensus expectation is for an increase of 202,000 jobs in December with an Unemployment Rate unchanged at 5%. Average hourly earnings are also expected to be unchanged showing a 0.2% month-on-month increase. Please note also that Chinese CPI and PPI are released on Saturday.

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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