Incisive market commentary from David Morrison

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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


Indices Update

Global stock indices fell sharply yesterday, as weak manufacturing data from China, and a flare up in tensions between Saudi Arabia and Iran triggered a reduction in investor risk appetite. The slump in the Chinese market led to a trading halt which meant that Monday’s session was cut short. This led to worries that the sell-off would continue as soon as China’s exchanges reopened overnight. Investors were also cutting their exposure to Chinese stocks ahead of the expiration of a selling ban this Friday. Last summer the Chinese authorities imposed a six-month ban on large investors selling certain stocks. This was in an effort to contain the crash in China’s stock market.

The major European indices ended between 2 and 3% lower yesterday while the Dow30 and S&P500 dropped through significant levels of 2,000 and 17,000 respectively. However, the US indices rallied off their lows as buyers came back in to take advantage of the sell-off.

Overnight the People’s Bank of China said it was injecting 130 billion yuan ($20 billion) in to the banking system. Despite this the Shanghai Composite looked like losing another 3% on the open. However, someone (or something) put in a massive bid which forced the market up. The Shanghai Composite ended the session effectively unchanged and this has helped to steady European markets this morning.

The FTSE 100 index closed at 6,093.4 down 148.9 points on the day or 2.4%

The German DAX fell 459.6 points or 4.3% to finish at 10,283.4

The US30 closed down 276.1 points to finish at 17,148.9 The S&P 500 ended at 2,012.7 down 31.3 points or 1.5% while the Nasdaq 100 fell 2.1% to close at 4,497.9

Equities Update

There weren’t many winners yesterday as far as individual stocks were concerned as investors struggled to persuade themselves that anything was worth buying. The mining sector was hit hard again thanks to the continued contraction in Chinese manufacturing. Anglo American was the FTSE100’s biggest loser ending the day down 7.2% at 277.85 pence.

Commodities Update

Crude oil surged higher in early trade yesterday as geopolitical concerns fed into supply and demand fundamentals. Saudi Arabia cut diplomatic ties with fellow OPEC member Iran. This followed the news that protesters had stormed the Saudi embassy in Tehran. The mob was angry after Saudi Arabia announced that it had executed a senior Shi’ite cleric who had criticised the Kingdom. The news heightened sectarian divisions between predominately Shia Iran and Sunni Saudi Arabia. Investors are concerned that raised tensions between the two major Middle Eastern power-players could lead to supply disruptions. Certainly, there could be a danger that western-led sanctions against Iran could remain in place should the country respond aggressively to the Saudi move. Up until now the expectation had been that Iran was preparing to increase oil exports by between 500,000 and 1 million barrels per day once sanctions were lifted. This would be a significant addition to OPEC output and has been one factor keeping downward pressure on the oil price.

As far as both WTI and Brent are concerned, support comes in around the $36 per barrel level. Suddenly this looked as if it could be tested again as crude reversed direction sharply towards the European close as the US dollar shot higher. It also felt as if the continued contraction in Chinese manufacturing trumped rising tensions in the Middle East. Ultimately, China’s economic slowdown means a fall in oil demand growth.

Gold and silver shot higher yesterday, boosted by rising tensions across the Middle East and the sharp sell-off in equities which began overnight in China. Chinese investors cut back their stock market exposure following the release of disappointing manufacturing data. The sell-off gathered pace as investors rushed to dump equities ahead of the ban being lifted on large investors selling stocks. Both gold and silver got a lift from safe-haven demand. This was exacerbated by Saudi Arabia’s decision to sever diplomatic ties with Iran. The two countries have been at loggerheads since the Saudi kingdom announced that it had executed a prominent Shi’ite cleric on Saturday.

Gold and (to a lesser extent) silver could also be beneficiaries of some New Year asset reallocation. Any fund manager who has a portfolio which includes a set percentage of exposure to precious metals will be looking to make purchases now. This is due to the sell-off that both gold and silver experienced last year which means that in value terms holdings will be worth less now than they were twelve months ago.

As yesterday’s trading session progressed, the two precious metals gave back much of their early gains. This can be blamed on a rebound in the US dollar.

Forex Update

Two of yesterday’s biggest movers in FX were the Japanese yen and Australian dollar. The Aussie dollar sold off sharply ahead of the release of China’s Caixin Manufacturing PMI. The December number fell to 48.2 on expectations of a 48.9 print. This represented the 10th consecutive month of contraction in the broad-based manufacturing sector and followed on from last week’s official release which focuses on larger companies and also registered contraction. Australia’s fortunes are closely tied to those of China due to its role as a major commodity producer. The Aussie dollar struggled to make back its initial losses. The fact that the Australian currency sold off prior to the release suggests that the weak number was not only a surprise but that it had been leaked.

Meanwhile the Japanese yen soared on safe-haven demand. Investors tend to sell (borrow) the yen when risk appetite is high due to low Japanese interest rates and the deep liquidity in the currency. So there was a rush to buy back yen as the Chinese stock market went into meltdown and trading halts were triggered. Investors were unnerved further when the People’s Bank of China “fixed” the yuan at its lowest level in four and a half years against the US dollar. The final nail in the coffin as far as risk appetite was concerned was the news that Saudi Arabia had broken off diplomatic ties with Iran. This followed the storming of the Saudi embassy in Tehran by a mob protesting after Saudi Arabia announced that it had executed a leading Shi’ite cleric over the weekend.

Upcoming events

Today’s significant data releases include German Unemployment Change, UK Construction PMI, Euro zone CPI and US Total Vehicle Sales.

Written by David Morrison 


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Posted by David Morrison

Category: AM Bulletin

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