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Weekly Bulletin: Equity rally continues
29 Feb 2016
PM Bulletin: Chart for the EURUSD
29 Feb 2016
AM Bulletin: Auction postponement linked to risk rally
26 Feb 2016
PM Bulletin: FOMC members add to confusion over monetary policy
26 Feb 2016
AM Bulletin: US stock indices rebound
25 Feb 2016
PM Bulletin: Lloyds Banking Group
25 Feb 2016
AM Bulletin: Stocks slip on lower crude
24 Feb 2016
PM Bulletin: Gold
24 Feb 2016
PM Bulletin: Crude oil, yen and equities
23 Feb 2016
AM Bulletin: Equities slip after strong start to week
23 Feb 2016
Sterling dumps on Brexit fears
22 Feb 2016
AM Bulletin: Stronger start for global equities
22 Feb 2016
AM Bulletin: Netflix leads Nasdaq lower
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PM Bulletin: FTSE revisited
18 Feb 2016
AM Bulletin: Oil still leading equities
18 Feb 2016
PM Bulletin: The yen, Nikkei and negative interest rates
17 Feb 2016
AM Bulletin: Oil and FOMC minutes in focus
17 Feb 2016
PM Bulletin: WTI and Brent
16 Feb 2016
AM Bulletin: Equities, USD, oil rally while precious metals slide
16 Feb 2016
Weekly Bulletin: Yellen keeps us guessing
15 Feb 2016
PM Bulletin: A multi-year look at the FTSE100
15 Feb 2016
PM Bulletin: Andrews’ Pitchfork on S&P500
12 Feb 2016
AM Bulletin: Equities remain vulnerable to further selling
12 Feb 2016
PM Bulletin: EURUSD – what now?
11 Feb 2016
AM Bulletin: Yellen fails to calm nerves
11 Feb 2016
PM Bulletin: Yellen steers through Clashing Rocks
10 Feb 2016
AM Bulletin: Yellen testimony in focus
10 Feb 2016
PM Bulletin: Japanese sell-off spooks investors
09 Feb 2016
AM Bulletin: Investors nervous as crude flirts with $30
09 Feb 2016
PM Bulletin: Big “risk-off” moves to start the week
08 Feb 2016
Weekly Bulletin: Investor jitters raises volatility
08 Feb 2016
February: Non Farm Payrolls Out Today
05 Feb 2016
PM Bulletin: Big miss for Non-Farm Payrolls
05 Feb 2016
AM Bulletin: Non-Farm Friday
05 Feb 2016
PM Bulletin: Non-Farm Payroll look-ahead
04 Feb 2016
AM Bulletin: Dollar slumps; oil spikes
04 Feb 2016
PM Bulletin: Tomorrow’s MPC press conference in focus
03 Feb 2016
AM Bulletin: Weaker crude weighs on equities
03 Feb 2016
PM Bulletin: A look at the EURUSD
02 Feb 2016
AM Bulletin: Google can’t lift indices
02 Feb 2016
PM Bulletin: Charts for USDJPY
01 Feb 2016
Weekly Bulletin: Central banks respond to sell-off
01 Feb 2016
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 Thursday 04 February 2016

AM Bulletin: Dollar slumps; oil spikes

 

 

Indices Update

European equities and US stock index futures were firmer in early trade this morning. US markets continued the rally which began in earnest yesterday afternoon.

Yesterday brought some confusing market behaviour with stocks particularly volatile. It was a relatively quiet start with European equities weaker in response to Tuesday’s sharp sell-off on Wall Street. However, all the major indices bounced off their lows as crude oil and the dollar steadied.

US stock index futures got an additional lift ahead of the Wall Street open. The ADP Non-Farm Employment Change came in above expectations and there was a decent upward revision to the previous month’s number. The ADP data is watched closely as it is released two days ahead of the official Non-Farm Payrolls. While the ADP number has a patchy record when it comes to predicting Non-Farms, the positive correlation has been fairly good recently. Consequently, yesterday’s release boosted hopes for a good number on Friday.

But later on equities gave up earlier gains while the US dollar also fell sharply. The catalyst appears to have been the release of US ISM Non-Manufacturing PMI. This came in at 53.5 which was well below the consensus expectation of 55.1 and also the prior reading of 55.3

After the European close US equities surged back into life. Finally a coherent narrative emerged: the dollar was down on expectations that the Fed will be less aggressive than expected when it comes to monetary tightening. Oil shot higher and that lifted equities.

The FTSE 100 index closed at 5,837.1 down 84.9points on the day or 1.4%

The German DAX fell 146.2 points or 1.5% to finish at 9,434.8

The US30 closed up 183.1 points to finish at 16,336.7 The S&P 500 ended at 1,912.5 up 9.5 while the Nasdaq 100 fell 0.5% to close at 4,172

Equities Update

China National Chemical Corp (ChemChina) is offering to buy Switzerland's pesticide and seeds maker Syngenta AG in a deal worth more than $43 billion. If successful, this would be the largest international takeover by a Chinese company. Syngenta's board endorsed the CHF 480 (roughly $470) per share deal represents a 20% premium on Tuesday's closing price. The deal is expected to close before the end of the year and is likely to be protracted due to US political opposition. But if it is successful it would turn ChemChina into the world's biggest supplier of pesticides and agrochemicals.

Commodities Update

Crude oil was steadier in early trade yesterday. WTI briefly broke back below $30 but recovered early in the European session. But both contracts headed higher early in the US session. The initial move came as the US dollar first drifted and then shot lower. Then the rally in crude reversed following the release of a disappointing US ISM Non-Manufacturing PMI. However, crude turned once again and soared following the release of the latest US inventory data from the Energy Information Administration. This showed a build of 8.4 million barrels for the week ending 29th January which was well above the consensus estimate of 3.8 million. This brought total inventory up to 502.7 million barrels, exceeding 500 million barrels for the first time ever. Of course, this should have been negative for crude prices. But a look at a 5 minute chart gives a fuller picture. Initially WTI slumped back below $30 per barrel. It was from here that prices bounced so strongly. My best guess is that there were a heap of “buy” orders lined up under $30 and that a short squeeze did the rest of the damage. The slump in the dollar added impetus to the rally.

It was another quiet start for gold and silver. Silver had a better morning than gold and it spent all of the early European session in positive territory. It was supported by the US dollar which drifted lower as the US open approached. But gold repeatedly butted up against resistance around the $1,130 level. This marked the 61.8% Fibonacci Retracement of the Nov-Dec sell-off. However, both metals then flew higher in the afternoon session as the dollar slumped. Gold sliced through resistance and closed in on $1,140. Meanwhile silver bounced off support around $14.30 (the 23.6% Fib Retracement of its Oct-Dec sell-off) and didn’t stop until it tested resistance around $14.70, the 38.2% retracement of the same move. The two precious metals may now need to consolidate after yesterday’s moves. However, sometimes momentum can lead to extended rallies – particularly when the dollar falls so violently.

Forex Update

The US dollar fell for a third consecutive day against the euro and the currencies in the Dollar Index. Once again it was a case of investors reassessing the outlook for US rate increases. The feeling is that the Fed will soon dial back its projections for rate hikes in 2016. The FOMC’s Economic Projections (released in December when the Fed hiked rates) suggested that there could be an increase of 100 basis points in fed funds over the course of this year. This is looking very unlikely in the current economic situation. On Monday Stanley Fischer, the Vice-Chairman of the Federal Reserve, said: "The U.S. central bank was worried the global market selloff could sap the strength of the U.S. economy, suggesting the market's expectations of barely any interest rate hikes this year could turn out to be right."

The yen soared against the US dollar despite Bank of Japan governor Haruhiko Kuroda assuring investors that there were no limits to additional monetary stimulus. Investors were bailing out of high-risk assets such as equities and buying back their borrowed yen. Meanwhile the British pound strengthened against both the euro and US dollar. The moves came ahead of today’s Bank of England rate decision and Inflation Report. While no one expects any change in rates or asset purchases, there is always the possibility that the MPC’s message could turn out to be more hawkish than anticipated. Given the sell-off in sterling since the last inflation report in November, many traders decided it would be sensible to book profits and reduce their short positions on the pound.

Upcoming events

Today’s main event is the Bank of England’s (BoE) rate decision together with its Inflation Report and Monetary Policy Summary. BoE Governor Mark Carney and other MPC members will hold a press conference to discuss the inflation report at 12:45 GMT. Significant data releases include the ECB Economic Bulletin and Euro zone Retail PMI. From the US we have Challenger Job Cuts, Weekly Jobless Claims and Factory Orders.

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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