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PM Bulletin: Exxon Mobil - a proxy for crude?
29 Apr 2016
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29 Apr 2016
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28 Apr 2016
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28 Apr 2016
Holiday Schedule: Early May Bank Holiday
27 Apr 2016
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27 Apr 2016
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27 Apr 2016
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26 Apr 2016
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26 Apr 2016
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25 Apr 2016
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25 Apr 2016
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22 Apr 2016
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22 Apr 2016
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21 Apr 2016
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21 Apr 2016
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20 Apr 2016
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20 Apr 2016
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19 Apr 2016
AM Bulletin: Dow tops 18,000
19 Apr 2016
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18 Apr 2016
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18 Apr 2016
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15 Apr 2016
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15 Apr 2016
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14 Apr 2016
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14 Apr 2016
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14 Apr 2016
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13 Apr 2016
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12 Apr 2016
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12 Apr 2016
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11 Apr 2016
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11 Apr 2016
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08 Apr 2016
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08 Apr 2016
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07 Apr 2016
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07 Apr 2016
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06 Apr 2016
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06 Apr 2016
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05 Apr 2016
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05 Apr 2016
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04 Apr 2016
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04 Apr 2016
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01 Apr 2016
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01 Apr 2016
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 Tuesday 19 April 2016

AM Bulletin: Dow tops 18,000

 

 

Indices Update

There was a softer tone to European and US stock indices in early trade yesterday. This followed an overnight sell-off in oil as Sunday’s meeting of OPEC and non-OPEC producers ended without agreement. However, the initial “risk-off” move, which also saw the Japanese yen rally, reversed as the European trading session progressed. Then, the major indices rallied sharply as the US opened for business.

From then on, global indices soared higher led by the S&P500 and Dow Jones. The Dow closed above 18,000 for the first time since July and in early trade this morning the S&P came within one point of 2,100. It was the recovery in oil prices which was the driver behind the rally. Investors are also moving into equities (perhaps reluctantly) as so far the US earnings season hasn’t produced any disasters. Well to qualify, it has been awful, but corporates have managed to beat analysts’ expectations.

There were another couple of meetings which ended this weekend: G20 and IMF. Fortunately they were both overshadowed by the goings-on in Qatar, so for the most part their facile utterances can be ignored. However, it is perhaps worth noting that the IMF statement called on countries to beef up their monetary policy to promote growth while the G20 communique said countries should end their reliance on monetary stimulus. In other words, these two major international bodies believe in opposing solutions to global economic problems. How reassuring.

The FTSE 100 index closed at 6,353.5 up 9.8 points on the day, or 0.2%

The German DAX rose 68.7 points or 0.7% to finish at 10,120.3

The US30 closed up 106.7 points to finish at 18,004.2 The S&P 500 ended 13.6 points higher at 2,094.3 while the Nasdaq 100 rose 26.2 or 0.6% to close at 4,569.3

Equities Update

Morgan Stanley (MS) reported earnings ahead of the US open yesterday. Like its peers (JP Morgan, Wells Fargo and Citigroup) both earnings and revenues were down sharply year-on-year. Earnings slumped by 53% from $2.3 billion to $1.1 billion previously, or $0.55 per share. First quarter revenues came in at $7.8 billion compared to $9.9 billion for the same period last year. Despite this the shares were up around 2% in pre-market trading as both numbers came in better-than-expected. The consensus expectation for earnings was $0.46 per share on $7.87 billion in revenues. Last night Morgan Stanley closed at $25.73 down 0.1%

Commodities Update

Analysts were split in their reactions to the news (or lack of) from the OPEC/non-OPEC oil producers’ meeting in Doha. Some insisted that expectations had been lowered to such an extent ahead of the meeting that the lack of progress was neither here nor there. Their view was that Iran and Libya were never going to participate in any plan to freeze output at January levels. However, others were less sanguine and warned about growing hostility between Saudi Arabia and Iran. Certainly, Russian delegates were scathing about the outcome of the meeting. Russian Energy Minister Alexander Novak said that the 11 OPEC states and seven non-OPEC producers present at the meeting had spent two months drafting an agreement to cap oil production. But Gulf States including Saudi Arabia, the UAE and hosts Qatar demanded that Iran also had to agree to a freeze, even though Iran didn’t attend in an official capacity.

Crude oil fell sharply in the immediate aftermath of the failed meeting. However, prices recovered as the day progressed, no doubt getting support from a strike by Kuwaiti oil workers which began on Sunday. The strike is expected to cut the country’s output by between 1 and 2 million barrels per day, which effectively takes care of the current daily oversupply. Investors remain mindful of last week’s latest report from the International Energy Agency (IEA) released its latest report on the oil market. The IEA said that falling US production and a drop in output from non-OPEC producers would help the oil market "move close to balance" in the latter half of 2016. It said that although the world would “still produce more oil than it consumes throughout 2016” it estimated that world surplus would diminish to 200K barrels a day. Earlier this year the surplus was estimated to be anything between 1.5 and 2 million barrels per day.

Gold and silver were relatively quiet yesterday with both trading within narrow ranges. There was a slight upward bias to prices thanks to the Doha talks. News that OPEC and non-OPEC producers were unable to reach an agreement over an output freeze surprised few people. Nevertheless, crude fell sharply overnight and the two precious metals found buying interest on safe haven demand.

But what was most interesting was that investors didn’t rush to sell gold and silver as the oil price stabilised and equities rallied. Usually this would be a signal to bail out of precious metals. However, it was the afternoon retreat in the US dollar which gave the metals some support. Gold briefly poked its head above resistance at $1,240 but was unable to hold onto these gains. Nevertheless, it didn’t once come close to troubling its next significant area of support around $1,220. Meanwhile, silver continues to consolidate around $16.20. There is some mild support around $16 although $15.80 looks more significant. 

Forex Update

The failure of the Doha meeting was evident in FX moves as well, at least initially. Currencies linked to oil (such as the Canadian dollar) fell sharply as crude prices dipped in early trade. However, many had made back most of their losses by early afternoon. The US dollar was generally lower, and nowhere was this more apparent than in the USDJPY pair. The yen continued its rally from the end of last week and the USDJPY dipped back below 108.00 in early trade. Partly this was to do with investors unwinding their carry-trade positions in a general risk-off move. But also there was an element of yen repatriation following the two earthquakes that took place in Japan over the weekend. But either way, investors remain wary of any strength in the yen given the precarious state of the Japanese economy as it struggles with a government debt-to-GDP ratio of around 234%.

But soon after the US open, the failure of Doha was completely forgotten. In particular the USDJPY rallied sharply and moved back into positive territory as global stock indices rallied. The move continued for the rest of the session.

Meanwhile, the US dollar lost ground against the euro, Swiss franc and British pound. The EURUSD continues to trade in a band between 1.1430/40 with 1.1260 currently acting as support. These areas mark the 76.4% and 62.8% Fibonacci retracements of the August-December 2015 euro sell-off. 

Upcoming events

 Today’s significant economic events include the release of German and euro zone ZEW Economic Sentiment surveys, US Housing Starts and Building Permits. In addition, there are speeches from three central bank governors: the Reserve Bank of Australia’s Glenn Stevens, the Bank of England’s Mark Carney and the Bank of Canada’s Stephen Poloz. 

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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