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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
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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
 
 
 Monday 04 January 2016

AM Bulletin: Chinese equities plunge

 

 

Indices Update

Overnight Chinese stocks plunged dramatically triggering a trading halt. There was general disappointment following the release manufacturing data which came in below expectations and registered contraction for the fifth consecutive month. The sell-off gathered pace as investors rushed to dump stocks in advance of the lifting of a ban on large investors selling stocks.

European stock indices have begun the day sharply lower with the FTSE100, German DAX and French CAC all down between 2 and 3%.

Global equity markets closed out 2015 with a whimper. Trading volumes were particularly light as most market participants took advantage of Christmas and New Year to take an extended break. Nevertheless, it was disappointing to see the major indices sell off ahead of New Year as the over-hyped “Santa Rally” failed to materialise. The weak performance meant that the S&P500 ended 2015 down around 0.7% - its worst performance since 2008. The Dow Jones Industrial Average fared even worse falling 2.2% on the year. However, the Nasdaq100 ended 2015 8.4% higher thanks in part to the FANGs – Facebook, Amazon, Netflix and Google (Alphabet). Apple was most decidedly out of favour – down 4.6% for the year while Netflix was the US’s star performer tacking on an impressive 134%.

As far as the major European indices were concerned, the FTSE100 struggled in 2015 ending just shy of 5% lower. Mining, oil and energy companies weighed on the index as oil and commodity prices fell throughout the year. Meanwhile, other European indices benefited from the ECB’s additional monetary stimulus measures. The German Dax rose 9.5% in 2015 while France’s CAC gained 8.5%.

Commodities Update

Crude oil popped higher ahead of New Year but is still hovering around multi-year lows. Just before the Christmas break West Texas Intermediate (WTI) hit its lowest level since February 2009 while Brent traded at levels last seen back in the summer of 2004. Over the course of the year WTI fell over 30% while Brent ended around 36% lower. This followed losses of 46% and 48% respectively over the previous year.

Throughout 2015 the dominant factors weighing on the oil price were supply and demand. These are likely to remain significant. OPEC output is expected to rise as in early December cartel members rejected production cuts and ditched the old 30 million barrels per day output ceiling. Iran reckons it will add between 500,000 and 1 million barrels per day to OPEC exports once sanctions are lifted. At the same time Iraqi and Libyan output looks set to rise. Meanwhile non-OPEC production is predicted to decline only modestly while global demand growth continues to rise moderately. Overall, supply should continue to outstrip demand by anything between 500,000 and 2 million barrels per day.

But geopolitics is once again returning as a contributing factor as tensions build across the Middle East and Iran. Crude prices jumped in early trade this morning after Saudi Arabia cut diplomatic ties with Iran. This came after protesters stormed the kingdom’s embassy in Teheran. Iranians have been angered by Saudi Arabia’s execution of a leading Shi’ite cleric.

Gold and silver bulls had yet another torrid twelve months. Both metals fell sharply in 2015 and are now retesting significant support as we start the New Year. Gold is hovering around $1,050 – a level which has proved to be a solid support area on a closing basis. Silver has managed to bounce off the $13.70/80 area on a number of occasions.

The trouble for gold and silver (and indeed most dollar-denominated commodities) is the ongoing strength of the greenback. The US Federal Reserve finally took the plunge and raised its headline interest rate off the zero-bound area in early December. At the same time the ECB extended the timeline for its monthly bond purchase programme and so increased monetary stimulus. As things stand it looks likely that other major central banks will prefer to follow the ECB with a looser monetary policy than take the Fed’s route of higher rates. This would suggest that the US dollar should strengthen further against other major currencies. If so, then gold and silver should continue to come under selling pressure. However, it’s possible that the market is expecting too much stimulus from the ECB and too many rate hikes from the Fed. If so, then gold and silver may have a decent run in 2016. It’s certainly well overdue.

Forex Update

FX trade was subdued in the lead-up to the Christmas and New Year break. The main EURUSD currency pair was trapped in a narrow range which offered little in the way of trading opportunities. For now it looks as if the pair is happy to trade within a relatively narrow range with resistance around the 1.1000 level (the 38.2% Fibonacci retracement of the August-December sell-off) and support at 1.0800 (the 23.6% retracement of the same move).Investors continue to adjust to the new paradigm of tighter monetary policy from the Fed and the prospect of further loosening from the ECB, PBOC and BoJ. However, the theme for 2016 will be attempting to predict the pace of tightening from the Fed and weighing this up against the ability of other central banks to ease monetary policy further. It is certainly possible that investors have overestimated both the US central bank’s appetite for rate rises and the ECB’s ability to provide additional stimulus. Much will depend on the robustness (or otherwise) of upcoming economic data releases. In this regard Friday sees the release of US Non-Farm Payrolls for December while Wednesday brings the minutes of the FOMC meeting which saw the first increase in US interest rates since June 2006.

Upcoming events

Today’s significant data releases include German CPI, Manufacturing PMIs from Spain, Italy, France, Germany, the UK and US. Also from the UK we have Net Lending, M4 Money Supply and Mortgage Approvals.


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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