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Dark clouds ahead?
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12 Jul 2016
AM Bulletin: Equity rally powers on
12 Jul 2016
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07 Jul 2016
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07 Jul 2016
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06 Jul 2016
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05 Jul 2016
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01 Jul 2016
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 Tuesday 12 July 2016

AM Bulletin: Equity rally powers on

 

 

Indices Update

Global equities remain firmly in rally mode this morning. This follows on from yesterday’s gains when European indices began the day playing catch-up with the US following last week’s blow-out Non-Farm Payrolls. The June number came in at 287,000 - far better than the 107,000 expected and helping to offset May’s dismal release. However, the three-month moving average for 2016 comes in at 147,000 – well below last year’s 229,000. But for now investors have been caught up in a wave of bullishness. The US jobs data points to economic improvement yet there’s very little chance that the Federal Reserve will want to raise rates in the near future given “global uncertainties.” It certainly doesn’t look likely this month, and September should be off the cards coming just ahead of November’s US Presidential Election. December looks like the earliest data for a hike although the Fed Funds futures market suggests nothing until the end of 2018.

 Over the weekend Japan’s Prime Minister Shinzo Abe’s coalition party won a landslide victory in upper house elections. This has been taken as validation for “Abenomics” – the monetary, fiscal and reform package championed by Shinzo Abe. Mr Abe was quick to hint that a significant fiscal stimulus package is on its way. Analysts are also convinced that the Bank of Japan is also getting ready to add to its already substantial QQE programme.

Last night the S&P500 closed out at a fresh record high. Alcoa unofficially kicked off the second quarter earnings season by posting 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).

The FTSE 100 index closed at 6,682.9 up 92.2 points on the day, or 1.4%

The German DAX rose 203.8 points or 2.1% to end the day at 9,833.4

The US30 closed up 80.2 points to finish at 18,226.9. The S&P 500 rose 0.3% to close at 2,137.2 while the Nasdaq 100 rose 0.6% to close at 4,554.7



Equities

Overnight Nintendo (traded on the Tokyo Stock Exchange) was up 12.8%. Yesterday it surged close to 25% and this followed a gain of just under 9% on Friday. The moves follow a spectacular launch of the company’s “Pokémon Go” app in the US, Australia and New Zealand where it currently tops Apple’s free apps charts. This has led to expectations that the app will see similar levels of demand when it is released in Japan and elsewhere across the Asian Pacific area, let alone Europe. Pokémon Go uses augmented reality technology which enables users to catch virtual characters in real-life surroundings. However, analysts have warned that Nintendo will need to see monthly turnover in the tens of billions of yen to have a meaningful impact on profits. First day turnover was half a billion yen.

Commodities Update

Crude was steadier yesterday but continues to look vulnerable to further selling. Just over a month ago WTI and Brent were both trading well over $50 per barrel and at their best levels since July and October 2015 respectively. Crude looked as if it was consolidating above the $50 threshold as analysts calculated that supply and demand fundamentals were coming back into balance faster than previously thought. On top of that there were supply disruptions caused by the Canadian oil sand wildfires and the ongoing sabotage of Nigeria’s oil infrastructure by militant political groups.

But both contracts have now lost more than 12% over the last four weeks. Sellers came in to book profits after a rally which saw oil double in price since the beginning of the year. Part of this is purely technical. However, every move requires a catalyst and in this a pick-up in the US rig count has probably helped to cap prices. On top of this, there are concerns that the Brexit vote may lead to a pull-back in demand, particularly if uncertainty leads to slowing economic activity across the UK and European Union.

Gold and silver have been the two stand-out performers following the UK’s decision to quit the European Union. Gold is up around $100 (8%) since the vote while silver has surged by around 18% over the same period. What is particularly interesting is that both metals have made gains despite a rally in the US dollar. Usually dollar-denominated commodities weaken when the greenback strengthens. However, in this instance the two precious metals along with the US dollar are acting as safe havens.

Gold pulled back sharply yesterday. This looks like little more than a bout of profit-taking following on naturally from recent gains. Investors used Friday’s strong US payroll number as an excuse to trim back long positions as most attention focused on equity markets. But as there’s still little chance of a rate hike this year from the Fed, and as there’s still considerable uncertainty concerning the UK’s exit from the EU, precious metals should continue to find buyers.

Forex Update

The Japanese yen fell sharply yesterday. This followed news that Japan’s Prime Minister Shinzo Abe’s coalition party had a landslide victory in upper house elections. The resounding victory was seen as validation for “Abenomics”– the monetary, fiscal and reform package championed by Shinzo Abe. Mr Abe was quick to hint that a significant fiscal stimulus package is on its way. Analysts are also convinced that the Bank of Japan is also getting ready to add to its already substantial Quantitative and Qualitative Easing (QQE) programme. The news sent the USDJPY flying. On Friday the pair briefly traded under 100.00 but it bounced off this level as traders anticipated possible intervention to weaken the yen. Now the pair is trading over 103.00 although the yen is still uncomfortably strong as far as Japan’s policymakers are concerned.

The British pound is stronger this morning with cable trading back above 1.3000. Sterling finally managed to rally as it became apparent that Theresa May will succeed David Cameron as the UK’s Prime Minister when he officially steps down tomorrow. There was widespread relief that there wasn’t a drawn-out leadership contest after Andrea Leadsom suddenly withdrew from the contest.  This at least removes some political uncertainty following the UK’s decision to split from the UK. The big question now is if Mrs May has the courage to call a General Election to legitimise her position.

Upcoming events

Today’s significant economic events include minutes from the last meeting of the Bank of England’s (BOE) Financial Policy Committee, a speech from BOE Governor Mark Carney and the BOE Quarterly Bulletin. From the US we have JOLTS Job Openings and Wholesale Inventories. We also have speeches from FOMC members Daniel Tarullo and James Bullard.


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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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