NEWS AND ANALYSIS

Incisive market commentary from David Morrison

Stay ahead with our market commentary and webinars from our in house market strategist

Open a Live AccountOpen a Demo Account
 
+ Show blog menu

Categories

Menu

Expand 2017 <span class='blogcount'>(342)</span>2017 (342)
Collapse 2016 <span class='blogcount'>(483)</span>2016 (483)
Expand December <span class='blogcount'>(23)</span>December (23)
Expand November <span class='blogcount'>(41)</span>November (41)
Expand October <span class='blogcount'>(37)</span>October (37)
Expand September <span class='blogcount'>(41)</span>September (41)
Collapse August <span class='blogcount'>(52)</span>August (52)
Video Update: Yellen’s speech sparks USD rally
31 Aug 2016
AM Bulletin: US dollar holds recent gains
31 Aug 2016
PM Bulletin: What next for the dollar?
30 Aug 2016
AM Bulletin: Investors revel in Fed’s “Goldilocks” worldview
30 Aug 2016
PM Bulletin: Yellen has spoken
26 Aug 2016
AM Bulletin: All eyes on Yellen
26 Aug 2016
PM Bulletin: BREXIT - THE NEXT CHAPTER The referendum and market reaction
25 Aug 2016
Holiday Schedule: Summer Bank Holiday
25 Aug 2016
AM Bulletin: Quiet start ahead of US Durable Goods/Jackson Hole
25 Aug 2016
Video Update: Look–ahead to Janet Yellen’s speech at Jackson Hole
24 Aug 2016
AM Bulletin: Investors edgy ahead of Yellen’s Jackson Hole speech
24 Aug 2016
PM Bulletin: Crude continues to slide
23 Aug 2016
Platform Tour: CFD Trading - How to Place a Trade
23 Aug 2016
AM Bulletin: Crude slide shrugged off by equities
23 Aug 2016
Trading Guides: How fast can you buy and sell with spread betting?
22 Aug 2016
Weekly Bulletin: Jackson Hole Symposium in focus
22 Aug 2016
PM Bulletin: Retailers bring earnings season towards a close
19 Aug 2016
AM Bulletin: Equities driven by oil and the Fed
19 Aug 2016
Video Update: The next Fed rate hike, the dollar and oil
18 Aug 2016
AM Bulletin: FOMC minutes read as dovish
18 Aug 2016
Trading Guide: How to choose a spread bet provider
17 Aug 2016
AM Bulletin: UK employment data and FOMC minutes in focus
17 Aug 2016
PM Bulletin: Dollar sell-off sends USDJPY below 100
16 Aug 2016
AM Bulletin: Yen stronger as investors de-risk
16 Aug 2016
Platform Tours: CFD Trading - How to Place Orders
15 Aug 2016
Trading Guides: What is spread betting?
15 Aug 2016
Weekly Bulletin: Summer “melt-up” continues
15 Aug 2016
PM Bulletin: Dow, S&P and NASDAQ hit all-time highs
12 Aug 2016
AM Bulletin: US indices hit fresh all-time highs
12 Aug 2016
PM Bulletin: Yen still strong, despite Japan’s stimulus
11 Aug 2016
AM Bulletin: Equities following oil
11 Aug 2016
PM Bulletin: Gold back within sight of multi-year highs
10 Aug 2016
AM Bulletin: US Crude Oil inventories eyed
10 Aug 2016
PM Bulletin: Sterling under pressure
09 Aug 2016
AM Bulletin: Stock markets calmer following last week’s rally
09 Aug 2016
Platform Tours: Spread Betting - How to Place a Trade
08 Aug 2016
Platform Tours: Spread Betting - Closure and Partial Closure
08 Aug 2016
Platform Tours: Spread Betting - Check Open P & L
08 Aug 2016
PM Bulletin: FTSE 100 chart
08 Aug 2016
Weekly Bulletin: US Fed: the last hawk standing
08 Aug 2016
PM Bulletin: Non-Farm Payrolls soar
05 Aug 2016
July: Non Farm Payrolls Out Today
05 Aug 2016
AM Bulletin: BoE adds stimulus; Payroll numbers in focus
05 Aug 2016
PM Bulletin: Non-Farm Payroll look-ahead
04 Aug 2016
AM Bulletin: BoE rate decision in focus
04 Aug 2016
PM Bulletin: BoE look-ahead
03 Aug 2016
AM Bulletin: Earnings and Services PMIs in focus
03 Aug 2016
PM Bulletin: JPY rallies on stimulus disappointment
02 Aug 2016
AM Bulletin: JPY strengthens as Abe disappoints
02 Aug 2016
CFD Trading - Closure and Partial Closure
01 Aug 2016
Doubts over European stress tests
01 Aug 2016
Monetary policy driving investor behaviour
01 Aug 2016
Expand July <span class='blogcount'>(38)</span>July (38)
Expand June <span class='blogcount'>(42)</span>June (42)
Expand May <span class='blogcount'>(42)</span>May (42)
Expand April <span class='blogcount'>(45)</span>April (45)
Expand March <span class='blogcount'>(41)</span>March (41)
Expand February <span class='blogcount'>(42)</span>February (42)
Expand January <span class='blogcount'>(39)</span>January (39)
 
 
 

 

Indices Update

Investors kicked off Tuesday in a more upbeat mood than they were in yesterday. European equities and US stock index futures all began this morning in positive territory. This was despite a further sell-off in crude oil which has seen both Brent and WTI pull back further from the $50 mark. The negative effect of the falling oil price has been offset to some extent by the dollar which has given back some of yesterday’s gains. The dollar’s fortunes are tied in closely to US interest rate speculation as higher relative rates are generally positive for a country’s currency. Investors are busy tempering their expectations for a September rate hike from the US central bank despite a slew of hawkish comments from various Fed members. We can expect the greenback to swing about now as investors position themselves ahead of Janet Yellen’s Jackson Hole speech this Friday.

Yesterday investors had to struggle with a stronger dollar following hawkish comments from Federal Reserve Vice Chairman Stanley Fischer and a sharp sell-off in crude oil. These factors combined to assert some downside pressure on US and European equity markets.

The FTSE 100 index closed at 6,828.5 down 30.4 points on the day, or 0.4%

The German DAX fell 50 points or 0.5% to end the day at 10,494

The US30 closed down 23.2 points to finish at 18,529.4. The S&P 500 fell 0.06% to close at 2,182.6 while the Nasdaq 100 rose 0.05% to close at 4,808.6

Equities

Fresnillo (FRES) was amongst the biggest losers in the FTSE100. The Mexican silver miner closed down 5.9% on the day at 1,825 pence as the price of physical silver slumped by over 2% at one stage. The main reason for the sell-off was the dollar which spiked higher first thing after hawkish comments from Federal Reserve Vice Chairman Stanley Fischer on Sunday. However, spot silver also traded below some technically important support levels which kept the metal under pressure even after the dollar gave back early gains. Miners are typically highly leveraged to the price of the commodities they produce.

Commodities Update

Crude oil slumped in early trade yesterday. There were a number of possible reasons for this, so it’s most likely the sell-off was as a combination of the following: the US dollar was sharply higher in early trade following hawkish comments from Federal Reserve Vice Chair Stanley Fischer. China reported soaring exports of refined products suggesting there’s no let-up in the global supply glut. For July China’s exports of diesel and gasoline rose 1.53 million tonnes and 970,000 tonnes respectively (or 180% and 145%) compared with the same month last year. Then the main Nigerian Delta militant group said it was prepared to order a ceasefire and enter into dialogue with the government. Hopefully this means that there could be an end in sight to the attacks on Nigeria’s oil infrastructure. In addition, as both Brent and WTI close in on their multi-year highs from June, it now feels as if the worst of the short-covering rally which began earlier this month could now be over. Certainly, much of the ridiculous speculation suggesting that the world’s major oil producers could agree to freeze output when they meet in Algeria next month has now died down. As a number of analysts have pointed out, it would take a substantial production cut to make any dent in the oil market which is currently oversupplied to the tune of 300,000 barrels per day (according to recent figures from the International Energy Agency). Anyway, there’s too much bad feeling between OPEC-members Saudi Arabia and Iran for a deal to happen. Not only that but OPEC’s biggest members Saudi Arabia, Iran, Iraq and non-member Russia are producing at, or close to, maximum capacity, according to former OPEC President Chakib Khelil. Iraq, OPEC's second-largest oil producer, plans to boost exports 5%, or 150,000 barrels a day, in the next few days. Meanwhile, there has been an upsurge in US shale oil drilling as prices have climbed. Last week Baker Hughes reported an increase in the rig count for the eighth consecutive week.

Silver fell sharply yesterday, trading down over 2% for much of the session. The initial bounce in the dollar was the catalyst for the sell-off which gathered pace after the contract dropped below support around $19.60 last week and $19.20/30 this morning. The next significant support level comes in around $18.00. Gold was also weaker in early trade although its losses were more contained than silver’s.

The two precious metals came under selling pressure at the end of last week after a succession of Federal Reserve members hinted that the central bank could look to tighten monetary policy this year. Gold and silver are highly sensitive to the prospect of higher US interest rates. Not only does tighter monetary policy increase the lost-opportunity cost of holding the two precious metals, but it also boosts the dollar. A stronger dollar makes gold and silver more expensive for non-dollar holders.

On Sunday Federal Reserve vice President Stanley Fischer said that the data for US employment and inflation were close to the Fed’s targets. His comments were viewed as hawkish and added to those from other Fed members Bill Dudley, Dennis Lockhart and John Williams. Earlier last week the dollar lost ground against all of the majors following the release of minutes from the US Federal Reserve’s July FOMC meeting. These were considered dovish as they revealed that 9 out of the 10 voting members of the FOMC wanted to hold off from tightening monetary policy at the July meeting. They also expressed their concerns over the possibility of a slowdown in economic growth across Europe due to the UK’s Brexit vote together with worries about the Italian banking sector. However, we have seen fresh data since then, a dialling down in Brexit fears and the European Central Bank’s stress test results which all go some way to explaining the apparent shift in the Fed’s attitude.

Forex Update

The US dollar began yesterday sharply higher. The rally followed comments made on Sunday by Stanley Fischer, Vice Chairman of the US Federal Reserve. Mr Fischer joined fellow Fed members Bill Dudley, Dennis Lockhart and John Williams in suggesting that a rate hike in 2016 was still a possibility. He said that the data for employment and inflation were close to the Fed’s targets. Mr Fischer was upbeat in his outlook for the US economy saying that he expected growth to pick up following a particularly weak second quarter. His comments come less than a week before Fed Chair Janet Yellen is due to speak at the Jackson Hole Economic Symposium in Wyoming. Dr Yellen’s speech this Friday is keenly anticipated although no one really expects her to offer any clues over the timing over the Fed’s next rate hike. Nevertheless, the Fed is desperately trying to persuade investors that September is “live” in terms of a rate hike. Consequently, if Dr Yellen is upbeat in her view of the US economy and plays down concerns about Brexit and Italian banks, then we could see the dollar pick up again.

But yesterday the dollar gave up its early gains as the US stock market opened. Chart-wise, the greenback still appears to be in a downtrend when we look at the USDJPY, EURUSD and Dollar Index. However, there’s support for the dollar around 94.00 on the Dollar Index, corresponding with resistance on the EURUSD around 1.1400. But as far as the USDJPY is concerned, a break of 100.00 opens up the possibility of a move towards 95.00. It had been assumed that Japanese policymakers would look to intervene and try to weaken the yen if the USDJPY dropped below 100.00. Now it has been suggested that they are prepared to keep their powder dry in the hope that the markets will do the heavy lifting for them. Unfortunately, it looks as if investors are prepared to test Japan’s resolve with some analysts now expecting the USDJPY to fall to 95.00 before we see unilateral intervention from Japan.

Upcoming events

Today’s significant economic events include the release of Flash Manufacturing and Services PMIs from France, Germany, the Euro zone and US. We have CBI Industrial Order Expectations from the UK and Euro zone Consumer Confidence. From the US we also have New Home Sales and the Richmond Manufacturing Index.

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


Add a comment Add comment            

 

 
© 2017 Spread Co Limited. All Rights Reserved.

Spread Co Limited is a limited liability company registered in England and Wales with its registered office at 22 Bruton Street, London W1J 6QE. Company No. 05614477. Spread Co Limited is authorised and regulated by the Financial Conduct Authority. Register No. 446677.

Spread betting and CFD trading are leveraged products and can result in losses that exceed your deposits. Ensure you understand the risks.

Losses can exceed deposits. Click here to learn more.