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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
PM Bulletin: Yen swinging wildly on stimulus talk
27 Jul 2016
AM Bulletin: Fed rate decision and FOMC statement in focus
27 Jul 2016
PM Bulletin: FOMC look-ahead (and Japanese stimulus talk)
26 Jul 2016
AM Bulletin: FOMC meeting begins today
26 Jul 2016
Platform Tours: CFD Trading - Check Open P & L
25 Jul 2016
PM Bulletin: EURUSD breaks below 1.1000
25 Jul 2016
Weekly Bulletin: Fed and BOJ in focus
25 Jul 2016
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22 Jul 2016
AM Bulletin: Stocks lower as oil weighs
22 Jul 2016
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21 Jul 2016
AM Bulletin: ECB rate decision ahead
21 Jul 2016
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20 Jul 2016
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20 Jul 2016
PM Bulletin: A look at the yen
19 Jul 2016
AM Bulletin: More records for US equities
19 Jul 2016
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18 Jul 2016
Weekly Bulletin: It’s all about stimulus
18 Jul 2016
PM Bulletin: European banks in trouble
15 Jul 2016
AM Bulletin: Sombre mood following Nice atrocity
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
AM Bulletin: Equities drift lower after record US close
13 Jul 2016
PM Bulletin: Global indices pushing higher
12 Jul 2016
AM Bulletin: Equity rally powers on
12 Jul 2016
PM Bulletin: Fresh record high for S&P500
11 Jul 2016
Weekly Bulletin: The markets called, NFPs answered
11 Jul 2016
AM Bulletin: The calm before the storm; Markets await today’s NFPs
08 Jul 2016
PM Bulletin: Non-Farm Payroll look-ahead
07 Jul 2016
AM Bulletin: As the Fed turns dovish, the markets turn bullish
07 Jul 2016
AM Bulletin: Concerns continue as Sterling touches $1.27
06 Jul 2016
AM Bulletin: Markets open higher, weak UK Construction PMI data removes confidence
05 Jul 2016
Weekly Bulletin: Central Banks react to Brexit vote
04 Jul 2016
AM Bulletin: When Carney speaks, the markets listen
01 Jul 2016
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Indices Update

It has been a mixed start for European equities and US stock index futures this morning. It looks as if investors are undertaking some mild profit-taking which seems reasonable given the speed and size of the recent rally.

The rally in global stock indices continued yesterday with most of the European majors posting hefty gains. The Dow joined the S&P500 in making a fresh all-time record close as investors expect central banks to continue or even expand their loose monetary policies. Equities are also becoming more in favour with investors who would usually prefer to invest in bonds. This asset reallocation comes due to the historically low yields found across all levels of the bond market. Although equities are higher risk, the search for a yield through dividends together with the hope of further capital growth (due to continuous central bank intervention) continues to pull formerly risk-averse investors into stocks.

We’ve just started the fourth quarter earnings season. After Monday’s close Alcoa (AA) posted earnings and revenue which beat analysts’ expectations. Earnings came in at $0.15 ($0.09 expected) on revenues of $5.3 billion ($5.2 billion). Alcoa jumped 4% in after-hours trade and held on to these gains in the main session. Today’s big earnings release is Yum! Brands (YUM) but it will still be a few weeks before the overall tone is established. The general expectation is that the earnings recession will hit the one year mark this quarter. That is to say that this quarter will be the fourth consecutive quarter of year-on-year earnings decline. So expectations are low. But what could upset the market is if corporations issue downbeat forward guidance. This is a possibility given the uncertain outlook for global growth which has just been compounded by the UK vote to leave the European Union.

The FTSE 100 index closed at 6,680.7 down 2.2 points on the day, or 0.03%

The German DAX rose 130.7 points or 1.3% to end the day at 9,964.1

The US30 closed up 120.7 points to finish at 18,347.7. The S&P 500 rose 0.7% to close at 2,152.1 while the Nasdaq 100 rose 0.5% to close at 4,577.6

Equities

The FTSE100 ended yesterday little-changed. Nevertheless, it was a better session for homebuilders, financial and insurance stocks. These are the main UK-focused sectors which had been hit hardest in the immediate aftermath of the Brexit vote. Man Group (EMG) topped the FTSE100 leader-board ending the day 4.3% higher. Insurance giant Aviva (AV) closed up 4.2% while Prudential (PRU) also had a good session ending 3.4% higher.

                            

Commodities Update

Crude oil rallied sharply yesterday. The move higher followed a month-long sell-off which saw WTI and Brent pull back around 12% from their best levels since July and October 2015 respectively. The rally looked to be little more than profit-taking by short sellers. Buyers of crude shrugged off news that OPEC had downgraded its outlook for global economic growth which should mean lower demand for oil. OPEC cut its 2016 forecast for growth in global GDP to 3.0% from 3.1% citing increased uncertainty following last month’s UK vote to leave the European Union. But the organisation also predicted that demand would pick up in 2017 and oil prices should rise as inventories decreased.

Gold lost ground for the second successive trading session yesterday. There was some chatter which blamed the sell-off on the prospect of further monetary stimulus from major central banks as this reduced gold’s safe-haven demand. This makes some sense. However, looser monetary policy just underlines the fact that there are still serious problems in the global economy while also being inflationary in the longer term. Ultimately this should increase the attractiveness of owning both gold and silver. So as on Monday the move looked more like a bout of profit-taking rather than anything more serious. However, gold has now lost around 2% this week and there will be some concerns amongst bullish investors that it may have further to fall. Nevertheless, nothing goes up (or down) in a straight line forever and consolidation after a big rally will help the technical structure of the market. There was some mild support around $1,340 but this got taken out yesterday afternoon although gold is firmer in early trade this morning. There’s also some mild support around $1,320. However, looking at the chart $1,300 is a more significant level.

Forex Update

The Japanese yen and British pound were yesterday’s two big movers in FX. The yen fell sharply for the second successive day and for the same reason as Monday. Over the weekend Japan’s Prime Minister Shinzo Abe’s governing coalition party gained a landslide victory in upper house elections. This was viewed as a strong validation for “Abenomics”– the monetary, fiscal and reform package launched by Shinzo Abe when he was re-elected Prime Minister in December 2012. Mr Abe has ordered another package of fiscal stimulus which looks like focusing on large infrastructure projects. There is also an expectation that the Bank of Japan will soon add to its already substantial Quantitative and Qualitative Easing (QQE) programme. On top of this, the renewed appetite for risk assets has led to an outburst of yen borrowing (selling) as part of the carry-trade to finance the purchase of equities. The yen fell against all the majors clocking up losses of over 2% against both the US dollar and the euro. The continuation of the yen sell-off will be a big relief for Japanese policymakers. The yen has risen strongly since the beginning of the year which became a big headache for Japanese exporters. The USDJPY is now up 5% since the end of last week although it’s still trading near the lows last seen at the end of 2013.

Meanwhile sterling shot higher yesterday and managed to pull further away from its 30 year low made last week. Investors were expressing relief that former Foreign Secretary Theresa May will take over from David Cameron as the UK’s Prime Minister when he officially steps down today. There was relief that the leadership contest was wound up so quickly and removes some political uncertainty following the UK’s decision to split from the European Union.

Upcoming events

Today’s significant economic events include the release of the Bank of England’s Credit Conditions Survey, Euro zone Industrial Production and the Bank of Canada’s rate decision and accompanying statement. From the US we have Crude Oil Inventories, the Federal Budget Balance and Beige Book.

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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