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AM Bulletin: The onslaught continues – and we’re not just talking the football
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Spread Betting Tips
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Weekly Bulletin: It’s all about the referendum
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Market Info Update: EU Referendum Margin Changes - CFDs
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Market Info Update: EU Referendum Margin Changes - Spread Betting
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PM Bulletin: Forecasting the referendum result
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PM Bulletin: FOMC post-mortem
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AM Bulletin: Yen, precious metals soar post FOMC/BOJ
16 Jun 2016
PM Bulletin: FOMC look-ahead
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AM Bulletin: FOMC meeting ahead
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PM Bulletin: European equities slide
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13 Jun 2016
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10 Jun 2016
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10 Jun 2016
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09 Jun 2016
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09 Jun 2016
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08 Jun 2016
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08 Jun 2016
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07 Jun 2016
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06 Jun 2016
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06 Jun 2016
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03 Jun 2016
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03 Jun 2016
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02 Jun 2016
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02 Jun 2016
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01 Jun 2016
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01 Jun 2016
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 Wednesday 15 June 2016

AM Bulletin: FOMC meeting ahead

 

 

Indices Update

There’s a firmer tone to global stock indices this morning, thanks to a recovery on Wall Street last night. But crude oil has continued to pull back from $50 per barrel and this may cap gains for now. Later on today traders will be focusing on the US Federal Reserve rate meeting which concludes this evening. While the Fed is expected to keep rates on hold, market participants will be parsing the accompanying statement. They will also study the Fed’s Summary of Economic Projections for insight into the Fed’s thinking on monetary policy.

European indices were sharply lower in early trade yesterday. Investors appear rattled and anxious to reduce their exposure to equities and other risk assets. Obviously, there are nerves ahead of today’s Federal Reserve rate announcement although no one really believes the FOMC will hike rates today. It seems likely that the Bank of Japan meeting will be just as closely watched overnight.

But these aren’t the only big risk events to consider. Investors are positioning themselves for next week’s UK referendum on EU membership. There have been more polls showing that the “Leave” campaign is maintaining its upside momentum.

This is not just an issue for UK investors. Withdrawal from the EU looks likely to put downside pressure on European growth in the short-term. It also opens up the prospect that other countries may choose to withdraw from the EU or even the Euro zone.

These fears are helping to push funds into the perceived safety of government debt. Investors have been pouring their money in safe-haven assets. Yesterday the German 10-year bund yield fell below zero for the first time in history. A negative yield means that investors will be paying the government in order to hold its bonds.

The FTSE 100 index closed down 121.4 points, or 2% at 5,923.5

The German DAX fell 138.2 points or 1.4% to end the day at 9,519.2

The US30 closed down 57.7 points to finish at 17,674.8. The S&P 500 fell 0.2% to close at 2,075.3 while the Nasdaq 100 gained 0.1% to close at 4,424.9

  

Equities

FTSE250 constituent FirstGroup (FGP) flew higher yesterday despite declining revenues.  The bus and rail services provider reported a 14% fall in revenues due mostly to the expiry of the First Capital Connect and First ScotRail franchises. But once these were stripped out the revenue decline was a mere 0.3%, coming in at £5.22 billion for the year ended in March compared to £5.23 billion previously. Meanwhile, pre-tax profit was up 7.3% to £113.5 million over the same period. The stock ended up 6% at 109.3 pence.

  

Commodities Update

Crude fell again yesterday with both WTI and Brent trading below $50 per barrel. Both contracts have now fallen for four consecutive days. Investors are positioning themselves ahead of this week’s central bank meetings and next week’s UK referendum on EU membership. The trouble is that it’s becoming very difficult to strip out the individual effects that different factors may be having on oil or indeed any financial market currently. Some analysts blame the recent sell-off in oil and equities on fears that the UK will vote to leave the EU. But others have said that while this is a factor, there are other issues which complicate the picture. They cite uncertainty over the outlook for global growth and fears of deflationary pressures. While a Brexit would no doubt exacerbate these issues in the short-to-medium term, it’s unlikely that a vote to remain in the EU would lead to an improvement in the global outlook.

This uncertainty overshadowed a relatively upbeat report from the International Energy Agency, which said the oil market is coming back into balance after two years of surpluses. However, their projection relies on continued demand growth from China in particular. Some analysts have expressed concern that the rate of increase in Chinese oil imports may begin to decline soon. They suggest that China’s strategic oil reserve is close to maximum capacity. Chinese demand could then tail off as economic growth continues to slow.

Gold and silver pulled back from their best levels yesterday. The US dollar rallied and this put some downside pressure on the two precious metals. Not only does a stronger dollar mean that dollar-denominated commodities become more expensive for non-dollar holders, but in times of uncertainty the greenback itself is seen as a safe-haven. Nevertheless, both metals have proved remarkably resilient over the last ten days or so. Both have managed to build on gains which followed the weak Non-Farm Payroll report earlier this month. The poor data, followed by a dovish speech from Federal Reserve Chairman Janet Yellen, have effectively ended the likelihood of a rate hike from the US central bank, either later tonight or at the July meeting. 

     

Forex Update

The British pound fell sharply again yesterday after another poll which showed the “Leave” vote continuing to gain momentum ahead of next week’s UK referendum on EU membership. The euro was also generally weaker although it managed to fare better than sterling. Nevertheless, the EURGBP is still trading below the multi-month high it hit back in April this year. While investors feel that sterling will bear the brunt of selling should the UK vote to leave the EU, there’s no doubt that the single currency would also come under pressure. Investors worry about the growth prospects for the Union without the UK, and also the prospects of other countries choosing to leave the 28-member union, or even the Euro zone itself.

The US dollar made gains against most of the majors although it continues to come under pressure versus the Japanese yen. Yesterday afternoon the latest US Retail Sales data was released.  Core (excluding autos) Retail Sales rose 0.4% in May as expected, but was down on the prior reading of +0.8%. When autos are included the number tends to be considerably more volatile. Last month it unexpectedly jumped by 1.3% on expectations of a 0.3% decline. May’s number came out at +0.5% on expectations of a +0.4% increase.

This was the first major US economic data release since the dismal Non-Farm Payroll number at the beginning of the month. Of course, thanks to the payrolls and Janet Yellen’s dovish speech a week ago, there’s no expectation of a rate hike after today’s Fed meeting, and the Retail Sales numbers did nothing to change that. However, the FOMC will also release its latest summary of economic projections. This could be market-moving as it includes an update on Fed members’ predictions for future rate hikes. We can expect to see the dollar rally sharply if a majority of Fed members continue to insist that we’re still due a couple of rate hikes this year.

Upcoming events

Today’s significant data releases include UK employment data, the Euro zone Trade Balance, a German 10-year Bund auction and Canadian Manufacturing Sales. From the US we have PPI, the Empire State Manufacturing Index, Capacity Utilisation, Industrial Production, Crude Oil Inventories and the Fed’s FOMC meeting. German Bundesbank President (and senior ECB member) is also due to speak. 

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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