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

If there’s one overriding feature about trade since the New Year it has to be the uptick in volatility. Yesterday had it in spades as global stock indices see-sawed on oil, the FOMC and corporate earnings. US equities gave back most of Tuesday’s oil-driven gains following the Fed’s FOMC statement which proved to be less dovish than anticipated.

The major US stock indices reversed early losses and were effectively unchanged as the statement was released. There was the briefest of bounces but this was soon followed by a sharp and protracted sell-off. In essence, the FOMC noted that “economic growth slowed” since it hiked rates in December, yet the committee gave no suggestion that was tuning down its projections for a full 1%-worth of rate hikes for the rest of the year. This unnerved investors and led many more to question the Fed’s timing of its 25 basis point hike at its last meeting.

However, some calm has been restored this morning thanks in no small part to Facebook’s (FB) earnings after the bell. These smashed above even the most optimistic predictions for earnings and revenue. The stock soared 12% in after-hours trade.

The US30 closed down 222.8 points to finish at 15,944.5 The S&P 500 ended at 1,883 down 20.7 points while the Nasdaq 100 fell 2.5% to close at 4,128.9

Equities Update

Yesterday brought the result of the long-awaited shareholder vote on Royal Dutch Shell’s (RDS) acquisition of BG Group (BG). The closer we got to the vote, the more likely it looked that shareholders would approve the deal. This was despite the fact that crude oil has fallen by 50% since the deal was first put before them. In the end 83% of shareholders backed RDS’s CEO Ben van Beurden’s £34.4 billion planned merger. They accepted his arguments about cost savings and synergies in the deal and are prepared to take the long view over the future price of oil. It also seems likely that if RDS hadn’t moved on BG someone else would have done which would have been more of an issue for RDS going forward. BG shareholders vote this morning on the deal, but this is expected to be a formality.

Commodities Update

Oil fell in early trade yesterday but both Brent and WTI managed to hold above $30 per barrel throughout the morning session. As with other markets, trade was relatively subdued ahead of fresh US inventory data and the US Federal Reserve meeting.

Data from the Energy Information Administration (EIA) showed a bigger-than-expected rise in US inventories. Crude stockpiles rose by 8.38 million barrels to 494.9 million in the week ended 22nd January, leaving inventories at their highest levels since November 1930. The actual build was also well above the 3.8 million expected. Despite this both WTI and Brent rallied straight after the data release. There was very little reaction to the FOMC’s statement – just the briefest of rallies followed by a small sell-off to take it back to where it started.

Crude has continued to steady since last week when Mario Draghi delivered a dovish ECB statement and press conference. Mr Draghi suggested that the ECB’s Governing Council would review and perhaps reconsider its stance on monetary policy when in next meets in March. He cited 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.

Oil suffered a set-back on Monday after Reuters reported that Iraq's oil ministry said the country had record output in December. Separately, a senior Iraqi oil official said that output could be increased even more this year. Against this background there has been chatter of talks taking place between OPEC and non-OPEC producers to curb output.

Gold and silver slipped a bit in early trade yesterday. Some pull-back seemed inevitable given the recent gains for the two precious metals. However, any selling due to profit-taking was mild due to the pull-back in equities and ahead of the FOMC meeting. Gold and silver shot higher straight after the release of the FOMC statement. Gold came within a whisker of $1,128 while silver topped $14.50. Both metals have pulled back since and gold is once again hovering around its 200-day moving average near $1,120

Forex Update

Understandably there was very little movement in most of the major currency pairs yesterday ahead of the Federal Reserve rate decision and statement. The EURUSD was effectively becalmed while the Canadian dollar and Norwegian krone ebbed and flowed along with crude oil.

Investors were convinced that the US central bank would keep interest rates unchanged. However, there was considerable interest in the FOMC’s latest economic outlook given the turbulent start to the year. The Fed fund futures were implying just one 0.25% rate hike this year, compared with a possible four hikes of 25 basis points each according to Fed policymakers' own rate guidance.

The FOMC kept rates unchanged as expected. They also said they were monitoring global and financial developments and that the economy was expected to “warrant only gradual rate rises.” Nevertheless, they failed to dial down their projections of a full 1% hike in rates this year. This was viewed as being more hawkish than expected by the equity markets. However, the dollar fell straight after the statement’s release which suggested that currency markets viewed the statement from a dovish perspective.

Interestingly, the Japanese yen lost ground against both the euro and US dollar. This had nothing to do with “risk-on” carry-trade as equities were weaker and the Swiss franc was unmoved. More likely, investors are repositioning themselves ahead of the Bank of Japan meeting on Friday morning. Speculation is mounting that the central bank is prepared to provide additional monetary stimulus. As the yen has strengthened appreciably since mid-December, it makes sense for buyers to take profits now.

Upcoming events

Today’s significant data releases include German Preliminary CPI, Spanish Unemployment and UK Preliminary GDP. From the US we have Durable Goods and Pending Home Sales. Overnight sees the release of Japanese CPI, Unemployment and Industrial Production while the Bank of Japan will announce its latest decision concerning further monetary stimulus early Friday morning.


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Posted by David Morrison

Category: AM Bulletin

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