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Dark clouds ahead?
29 Jul 2016
BOJ underwhelms – JPY soars
29 Jul 2016
PM Bulletin: BOJ look-ahead
28 Jul 2016
AM Bulletin: FOMC leaves rates unchanged
28 Jul 2016
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AM Bulletin: Fed rate decision and FOMC statement in focus
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PM Bulletin: FOMC look-ahead (and Japanese stimulus talk)
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AM Bulletin: FOMC meeting begins today
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PM Bulletin: EURUSD breaks below 1.1000
25 Jul 2016
Weekly Bulletin: Fed and BOJ in focus
25 Jul 2016
PM Bulletin: Sterling looking vulnerable again
22 Jul 2016
AM Bulletin: Stocks lower as oil weighs
22 Jul 2016
PM Bulletin: The EURUSD and the ECB
21 Jul 2016
AM Bulletin: ECB rate decision ahead
21 Jul 2016
PM Bulletin: ECB look-ahead
20 Jul 2016
AM Bulletin: Q2 earnings keep markets buoyant
20 Jul 2016
PM Bulletin: A look at the yen
19 Jul 2016
AM Bulletin: More records for US equities
19 Jul 2016
PM Bulletin: Precious metals pull back
18 Jul 2016
Weekly Bulletin: It’s all about stimulus
18 Jul 2016
PM Bulletin: European banks in trouble
15 Jul 2016
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15 Jul 2016
PM Bulletin: The BoE rate decision
14 Jul 2016
AM Bulletin: All eyes on Bank of England
14 Jul 2016
PM Bulletin: BoE Rate Decision in focus
13 Jul 2016
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13 Jul 2016
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12 Jul 2016
AM Bulletin: Equity rally powers on
12 Jul 2016
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11 Jul 2016
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11 Jul 2016
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08 Jul 2016
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07 Jul 2016
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07 Jul 2016
AM Bulletin: Concerns continue as Sterling touches $1.27
06 Jul 2016
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05 Jul 2016
Weekly Bulletin: Central Banks react to Brexit vote
04 Jul 2016
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01 Jul 2016
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 Thursday 21 July 2016

AM Bulletin: ECB rate decision ahead

 

 

Indices Update

European indices and US stock index futures were modestly higher on the open yesterday morning. The upside momentum picked up as the session proceeded helped by a modest rebound in the oil price and a pause in the US dollar’s recent rally. But the FTSE100 lagged other European indices as losses in the mining and energy sectors offset gains for banks and insurers. Tech stocks were also popular with buyers. Overall, investor sentiment towards equities remains positive thanks to a decent start to the second quarter earnings season and the promise of additional central bank monetary stimulus.

The European Central Bank (ECB) will publish its latest rate decision at 12:45 BST. The central bank is expected to keep its headline Minimum Bid Rate and main Deposit Rate unchanged at zero and minus 0.4% respectively. The consensus expectation is that it will also keep its monthly bond purchase programme unchanged both in terms of size and duration. Despite the UK’s shock vote to leave the EU, the ECB is expected to follow the Bank of England’s lead and wait until its next meeting before deciding to alter monetary policy.

European stock indices are drifting lower in early trade this morning. Meanwhile, the EURUSD is still managing to trade above support around 1.1000 ahead of the ECB announcement.

The FTSE 100 index closed at 6,729 up 31.6 points on the day, or 0.47%

The German DAX rose 160.8 points or 1.6% to end the day at 10,142

The US30 closed up 36 points to finish at 18,595. The S&P 500 rose 0.4% to close at 2,173 while the Nasdaq 100 rose 1.2% to close at 4,657.2

Equities

UK mining stocks topped the FTSE100 loser-board yesterday. Anglo American (AAL) ended the day down 4.8% at 774.4. BHP Billiton (BHP) closed down 2.3% at 926.4 and Rio Tinto (RIO) fell 1.6% to finish at 2,339 pence.

Meanwhile, the second quarter earnings season continues to be broadly positive. American Express (AXP) posted earnings of $2.10 per share, well above the consensus estimate of $1.42. Revenue was a touch below expectations coming in at $8.24 billion compared to $8.28 billion. Intel’s (INTC) earnings per share came in at $0.59 which was also better than the $0.53 expected. However, as with AMEX, revenues were lighter than expected coming in at $13.53 billion for the quarter compared to an expectation of $13.54 billion.

Commodities Update

Trade in crude was mixed yesterday but overall the downside bias in both WTI and Brent remains in place. As last week investors were quick to react to US inventory data. And as last week the headline data on crude didn’t tell the whole story. According to the latest update from Energy Information Administration (EIA) last week’s crude inventories showed a drawdown of 2.3 million barrels – well above the 1.3 million drawdown expected. However, gasoline stocks rose 911,000 barrels, compared with forecasts for stocks to remain unchanged. This was the second consecutive week when crude stockpiles fell more than expected while gasoline stocks rose. This is something of a conundrum given that the US driving season is underway and it is this which is helping to keep a lid on prices.

After the close on Tuesday the latest update on US inventories from the American Petroleum Institute (API) also came in mixed. Crude stockpiles fell 2.3 million barrels last week which was slightly more than expected, but as with yesterday’s EIA data there was an unexpected build in gasoline stockpiles.

Gold and silver drifted lower in early trade yesterday. However, the selling picked up as the session progressed and gold ended the day well below previous support around $1,320. It now looks as if traders are set to test more significant support around $1,300. Silver’s losses were even heavier and if it fails to bounce off support on an upper-sloping trend line which comes in around $19.30 then a pull-back toward $18 can’t be ruled out.

The two metals have come under steady selling pressure for the last ten days as investors have watched equities rally with the major US indices making a succession of record closes. The US dollar has also pushed higher over the same period. The Dollar Index has consolidated the gains made since the UK voted to leave the UK. The front month futures contract has built a base around 96.00 and is now trading at its highest level since March this year. This renewed dollar strength is also weighing on the two precious metals.

Forex Update

After a shaky start, sterling got a modest lift yesterday morning following the release of some encouraging news on UK employment. The Claimant Count rose by just 400 – well below the 4,100 increase expected. However, the positive effect was offset to some extent as the prior month’s data was revised up sharply to 12,200 from a decline of 400. Nevertheless, the Unemployment Rate fell to 4.9% to register its lowest reading since 2006. There was more good news as the Average Earnings Index for the quarter rose 2.3% from the same time last year. This was up from 2% last month and suggests that wages are pushing higher which should give workers more disposable income. The data was collated ahead of the referendum and suggests that employers were less cautious ahead of the vote than many analysts estimated.

The British pound may have bounced off its post-Brexit lows but it still looks vulnerable to further selling. As far as the GBPUSD is concerned, we really need to see sterling push back above 1.3830/50 – its pre-referendum low area – for it to be out of the danger zone. Otherwise there’s a fair chance that cable will make fresh 30-year lows before the year is out. Certainly, sterling is likely to see more selling if the Bank of England decides to ease monetary policy at its meeting in early August. At the same time, the dollar is getting some support as a recent uptick in US economic data has put the prospect of a Fed rate hike before the year-end back on the cards. This really is most unlikely, but investors are nevertheless pricing the possibility back in.

The EURUSD broke below 1.1000 in early trade yesterday. This level has held (and continues to hold) as support on a closing basis ever since the euro’s post-referendum sell-off. However, investors appeared to be squaring positions ahead of today’s ECB rate decision. As detailed in yesterday’s “PM Report” the market expectation is that the ECB will hold off from loosening monetary policy further at this meeting. However, the central bank seems likely to present a dovish outlook and suggest that it may take further action after September’s meeting.

Upcoming events

Today’s significant economic data releases include UK Retail Sales and Public Sector Net Borrowing. We also have Canadian Wholesale Sales. From the US we have Weekly Jobless Claims, the Philly Fed Manufacturing Index, Existing Home Sales and the CB Leading Index. However, today’s main event is the ECB’s rate decision and Mario Draghi’s subsequent press conference. 

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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