Incisive market commentary from David Morrison

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PM Bulletin: Gold
29 Jan 2016
AM Bulletin: BOJ takes rate negative
29 Jan 2016
PM Bulletin: BOJ in focus
28 Jan 2016
AM Bulletin: FOMC disappoints, but earnings offer support
28 Jan 2016
PM Bulletin: Facebook reports after the close
27 Jan 2016
AM Bulletin: Crude still driving equities
27 Jan 2016
PM Bulletin: Tomorrow’s FOMC meeting
26 Jan 2016
AM Bulletin: Equities slide on crude sell-off
26 Jan 2016
PM Bulletin: Silver chart
25 Jan 2016
Weekly Bulletin: Promise of further stimulus halts equity slide
25 Jan 2016
PM Bulletin: EURUSD chart
22 Jan 2016
AM Bulletin: Equities rally on ECB and oil
22 Jan 2016
PM Bulletin: Dovish Draghi triggers euro sell-off
21 Jan 2016
AM Bulletin: ECB meeting in focus
21 Jan 2016
PM Bulletin: Crude makes fresh multi-year lows
20 Jan 2016
AM Bulletin: Stocks slide as oil slumps
20 Jan 2016
PM Bulletin: Bank of Canada rate decision
19 Jan 2016
AM Bulletin: Equities surge on relief rally
19 Jan 2016
PM Bulletin: Crude oil - long-term charts
18 Jan 2016
Weekly Bulletin: China and oil weigh on equities
18 Jan 2016
PM Bulletin: Long-term gold bullion chart
15 Jan 2016
AM Bulletin: More woe from China
15 Jan 2016
Holiday Schedule: Martin Luther King Day Monday 18th January 2016
14 Jan 2016
PM Bulletin: Equities: bull or bear?
14 Jan 2016
AM Bulletin: Investors remain jittery
14 Jan 2016
PM Bulletin: The Bank’s rate decision
13 Jan 2016
AM Bulletin: Oil rebound lifts stocks
13 Jan 2016
PM Bulletin: Saudi Aramco’s IPO
12 Jan 2016
AM Bulletin: Crude closes in on $30
12 Jan 2016
PM Bulletin: US Fourth Quarter Earnings Season
11 Jan 2016
Weekly Bulletin: 2016: Trouble ahead?
11 Jan 2016
January: Non Farm Payrolls Out Today
08 Jan 2016
PM Bulletin: Another blow-out payroll number
08 Jan 2016
AM Bulletin: China effect calms markets
08 Jan 2016
PM Bulletin: Non-Farm Payroll look-ahead
07 Jan 2016
AM Bulletin: Equities slump after 2nd China trading halt
07 Jan 2016
AM Bulletin: Investors remain jittery
06 Jan 2016
AM Bulletin: China steadies and Europe rallies
05 Jan 2016
AM Bulletin: Chinese equities plunge
04 Jan 2016


Indices Update

Yesterday the European Central Bank (ECB) kept all its key interest rates unchanged as expected. However, ECB President Mario Draghi gave equities a lift by delivering a dovish statement and press conference. He highlighted the increased market and geopolitical risks since the beginning of the year and said that the outlook for inflation was considerably lower than it was at the ECB’s last meeting in early December. Most importantly he said the ECB must review and perhaps reconsider its stance on monetary policy when in next meets in March.

The prospect of further stimulus led to a sell-off in the euro and a bounce in European and US stock indices. Nevertheless, the initial upside moves in equities felt constrained and tentative. While US indices ended last night in positive territory, there was a bout of last minute selling into the close. Investors’ nerves are frayed and it will take more than vague statements of intent to allay fears of a deeper and protracted decline in stocks. Yet European equities and US stock index futures are firmer this morning. Crude oil is back above $30 per barrel while there was sharp rally in Asian Pacific markets overnight. The Shanghai Composite rose 1.3%, the Hang Seng closed just under 3% higher while the Japanese Nikkei soared nearly 6%.

Yesterday morning European equities and US stock index futures shrugged off a sharp sell-off in Asian Pacific indices. For a time it looked as if bargain hunters were getting ready to swoop and hoover up cheaper stock. However, the price of crude remains the prime driver for equities. The major indices gave up early gains as both WTI and Brent dipped below $28 per barrel.

The FTSE 100 index closed at 5,773.8 up 100.2 points (or 1.8%) on the day.

The German DAX rose 182.5 points or 1.9% to finish at 9,574.2

The US30 closed up 115.9 points to finish at 15,882.7 The S&P 500 ended at 1,869 up 9.7 points while the Nasdaq 100 rose 0.2% to close at 4,142.6

Equities Update

Shares in Pearson (PSON) shot higher in early trade yesterday after closing at their lowest level in over six years on Wednesday. Investors responded positively to a £320m restructuring plan that will see the loss of 4,000 jobs, or 10% of its workforce. Savings of £350 million are expected by the end of 2017.Last week the world’s largest education company announced its fourth profit warning in three years. This was despite selling off the Financial Times and its holding in The Economist in order to focus on its core education business. However, this latest strategy has run into difficulties thanks to declining US college enrolments and poor textbook sales. Pearson ended at 772 pence up 17.4%

Commodities Update

Oil fell again on Thursday in early trade, the day after making fresh twelve-year intra-day lows. Both WTI and Brent traded below $28 for the usual supply/demand reasons. However, there were also concerns of further weakness to come as speculation mounts over the possibility that Saudi Arabia may unpeg the riyal from the US dollar. The strength of the greenback combined with the low oil price is a serious drain on the Kingdom’s reserves and breaking the peg would be one way of easing the pain.

Crude got a lift after ECB President Mario Draghi said it would be necessary to review the central bank's monetary policy stance at its next meeting in March. It drifted lower again ahead of the US Energy Information Administration’s (EIA) weekly inventory update. US crude inventories rose by 4 million barrels for the week ending 15th January, slightly above the consensus expectation. The EIA reported that: “At 486.5 million barrels, U.S. crude oil inventories remain near levels not seen for this time of year in at least the last 80 years.”

However, both WTI and Brent suddenly caught a bid and rose around 3% in less than 10 minutes. The only explanation I can find is that of profit-taking from the shorts, and snowstorms on the US East Coast.

Gold slipped back below $1,100 in early trade yesterday while silver struggled to hold above $14 per ounce. Both traded in relatively narrow ranges during the morning session although gold began to drift lower after the ECB announced its rate decision. This was slightly odd as the central bank simply said that all its main interest rates remained unchanged, as expected.

But both gold and silver fell sharply following the release of the ECB statement ahead of Mario Draghi’s press conference. This was understandable as the ECB indicated that it would review and perhaps reconsider its stance on monetary policy when in next meets in March. The euro fell, the dollar shot higher and traders rushed to cut long positions in the two precious metals.

It was disappointing (but not surprising) to see both gold and silver relinquish recent, hard-won gains so quickly. This seems to indicate that investors are not yet fearful enough to load up on the two ultimate safe havens.

Forex Update

Yesterday’s ECB meeting turned out to be the trigger for some big currency moves. The central bank’s decision to keep rates unchanged was expected. But there was a sharp reaction to the overall dovishness of the ECB’s statement and Mario Draghi’s press conference. Mr Draghi expressed the Governing Council’s expectation that interest rates would stay at current levels or below for an extended period. He cited concerns over the economic and geopolitical situation and the fact that downside risks have increased since the beginning of the year, with heightened uncertainty over China and other emerging markets. Crucially, he said that the council would review and possibly reconsider its monetary policy stance at the next meeting in March.

The euro fell sharply while the dollar was generally higher. However, once again it was commodity currencies which posted the most dramatic moves. The Canadian dollar and Norwegian krone both soared as crude oil finally caught a bid. Their gains were exacerbated by traders caught on the wrong side of the moves who were forced to cover.

Upcoming events

Today’s significant economic events include Flash Manufacturing and Services PMIs from France, Germany and the Euro zone. From the UK we have Retail Sales and Public Sector Net Borrowing. Later on we have Canadian CPI, Canadian Retail Sales, the US Flash Manufacturing PMI and US Existing Home Sales. General Electric (GE) reports earnings.


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Posted by David Morrison

Category: AM Bulletin

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