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PM Bulletin: Exxon Mobil - a proxy for crude?
29 Apr 2016
AM Bulletin: Equity sell-off continues
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
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19 Apr 2016
PM Bulletin: US indices continue to push higher
18 Apr 2016
Weekly Bulletin: The Fed, China, oil and the yen
18 Apr 2016
PM Bulletin: Brent crude
15 Apr 2016
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15 Apr 2016
PM Bulletin: EURUSD chart
14 Apr 2016
AM Bulletin: Equity rally continues
14 Apr 2016
AM Bulletin: Equities push higher
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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01 Apr 2016
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 Thursday 14 April 2016

AM Bulletin: Equity rally continues

 

 

Indices Update

US indices stormed higher last night led by financial stocks. The Dow ended at a five month high. But while European stock indices are a touch firmer this morning (playing catch-up with Wall Street) the US majors have pulled back from their best levels along with oil.

European equities were sharply higher in early trade yesterday. Partly they were playing catch-up with a strong close on Wall Street. But they were also reacting to Asian Pacific markets which rallied strongly following better-than-expected Chinese trade data. In local currency March exports surged 18.7% from a year earlier, while imports dipped only a slight 1.7%. In dollar terms, exports rose 11.5%, returning to growth for the first time in nine months. Imports fell by 7.6% which was less than expected. The better-than-expected data followed weak numbers in January and February. It also came on top of data from earlier in the week showing a pick-up in Chinese vehicle sales. However, economists warned that the trade data was probably subject to distortions from China's Lunar New Year holiday.

The rally in equities continued throughout the European session and into the US open. Investors ignored a mild pull-back in oil prices as both the WTI and Brent contracts remain well above the $40 per barrel threshold. Instead they took heart from a weaker yen and better-than-expected first quarter results from JP Morgan (JPM).

The FTSE 100 index closed at 6,362.9 up 120.5 points on the day, or 1.9%

The German DAX rose 264.6 points or 2.7% to finish at 10,026.1

The US30 closed up 187 points to finish at 17,908.3 The S&P 500 rose 1% to close at 2,082.4 while the Nasdaq 100 gained 1.3% to close at 4,554.7

Equities Update

JP Morgan (JPM) announced its first quarter earnings ahead of yesterday’s US open. It was the first of the US banking giants to post results since the Federal Reserve raised rates in December last year. Earnings came in at $1.35 per share on expectations of $1.26. Total revenue was $24.08 billion which was well above the consensus expectation of $23.4 billion. The stock gapped higher on the open. But the year-on-year comparisons were dismal. Earnings per share were down 6.9% from the same time last year; revenue was down 6.7% while net income fell to $5.52 billion from $5.91 billion. By the close of business the stock was 4.2% higher at $61.79

Commodities Update

Crude oil gave back a small proportion of its recent gains yesterday and is weaker again this morning. Investors are taking advantage of the strong rally over April to book profits as the US dollar continues to push higher. Yesterday’s sell-off gathered pace following the release of US inventory data. The Energy Information Administration reported a build of 6.6 million barrels for the week ending 8th April. This was way above the 0.9 million expected and went a long way to making up from last week’s surprise drawdown of 4.9 million barrels.

It will be no surprise to anyone who follows the oil market that the lead-up to this Sunday’s meeting would offer the opportunity for shenanigans. Ever since Saudi Arabia, Russia, Venezuela and Qatar got together and first mooted the idea of an output freeze we’ve had numerous rumours and conflicting headlines about who was in favour and who wasn’t. Yesterday Saudi Arabia's oil minister Ali al-Naimi appeared to contradict a story from the day before which said that his country and Russia were set to agree to a production freeze, irrespective of Iran’s decision to participate in such an action. Obviously the first story led to a rally in crude while yesterday’s led to a sell-off. No doubt someone is making good money off this rubbish.

Anyway, just to focus on specifics – if that’s what one can call them. The meeting is set for Sunday and the majority of OPEC members will be attending. Iran may, or may not. But then Iran has always said that it has no intention of freezing production at January levels. A number of non-OPEC producers will also be in attendance. Russia will be there but the US won’t. The aim is to agree to a production freeze but I’ve yet to read any analysis which says that a freeze will do anything to put a dent in the current supply glut. The only thing that will is an outright cut in production. That looks most unlikely as a cut isn’t even on the table. On top of all this, even if agreement can be reached to freeze production (and ignoring non-attendees) then the likelihood of everyone following through on their promises is practically zero.

However, let’s not be too negative. After all, since the production freeze plan was made public in mid-February Brent has rallied 36% and WTI is up 41%. One could argue that the Doha meeting has already been an incredible success. However, that does raise the possibility that it’s all downhill from here.

Gold and silver were lower in early trade yesterday. The two precious metals succumbed to further profit-taking which was triggered by a rally in the US dollar. Despite yesterday’s pull-back gold managed to hold above $1,240. This level has previously acted as resistance although gold managed to break above here at the end of last week. However, gold broke below here overnight as the dollar continued to strengthen. The next significant support comes in around $1,220.

At the beginning of this month silver was trading below $15 per ounce. Since then it has rallied around 7% and bullish investors have been encouraged by this week’s price action. Typically a pull-back would be expected given the size of this latest rally.

Both precious metals continue to benefit from the adoption of negative interest rates from central banks. In addition investors took advantage of the multi-year lows that gold and silver hit at the end of last year to add both to their portfolios. This has much to do with the two metals’ safe-haven status. It may be expected that this status would be undermined by the ongoing strength of global stock indices. However, many investors remain wary of recent equity gains – particularly given the China-inspired scares of last summer and again at the beginning of this year. 

Forex Update

There was a big turn-around in FX yesterday. After snoozing in a narrow range with a slight upside bias the EURUSD fell sharply. Technically the euro was struggling to break above the area around 1.1425/50. This had acted as resistance on previous occasions and also marked the 76.4% Fibonacci retracement of August-December 2015 sell-off. Yesterday it fell back sharply from here and should now test support around 1.1260 on a closing basis – the 61.8% retracement of the same move.

The dollar was stronger against all the other majors as well. This suggests that the move was/is largely technical as traders reversed short-dollar trades. The big question now is whether this is the start of a larger rally for the greenback or simply a corrective short-term one. It is interesting that despite steep early losses crude oil held up well as did silver. Gold was weaker but it managed to hold above $1,240 support for much of the day.

The argument in favour of a technical move rather than anything fundamental was given a boost by some US data releases. Both core and headline Retail Sales came in below expectations as did PPI and Business Inventories. So none of the data would have pushed the Fed to become more dovish in their outlook and so support the dollar – quite the opposite in fact. 

Upcoming events

Today’s significant economic events include the release of Euro zone CPI and the Bank of England’s MPC rate decision and monetary policy summary. From the US we have CPI and Weekly Jobless Claims. Later in the day Federal Reserve Governor Jerome Powell will testify about the current trends and changes in the fixed income markets before the Senate Banking Committee. 

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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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