Incisive market commentary from David Morrison

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Dark clouds ahead?
29 Jul 2016
BOJ underwhelms – JPY soars
29 Jul 2016
PM Bulletin: BOJ look-ahead
28 Jul 2016
AM Bulletin: FOMC leaves rates unchanged
28 Jul 2016
PM Bulletin: Yen swinging wildly on stimulus talk
27 Jul 2016
AM Bulletin: Fed rate decision and FOMC statement in focus
27 Jul 2016
PM Bulletin: FOMC look-ahead (and Japanese stimulus talk)
26 Jul 2016
AM Bulletin: FOMC meeting begins today
26 Jul 2016
Platform Tours: CFD Trading - Check Open P & L
25 Jul 2016
PM Bulletin: EURUSD breaks below 1.1000
25 Jul 2016
Weekly Bulletin: Fed and BOJ in focus
25 Jul 2016
PM Bulletin: Sterling looking vulnerable again
22 Jul 2016
AM Bulletin: Stocks lower as oil weighs
22 Jul 2016
PM Bulletin: The EURUSD and the ECB
21 Jul 2016
AM Bulletin: ECB rate decision ahead
21 Jul 2016
PM Bulletin: ECB look-ahead
20 Jul 2016
AM Bulletin: Q2 earnings keep markets buoyant
20 Jul 2016
PM Bulletin: A look at the yen
19 Jul 2016
AM Bulletin: More records for US equities
19 Jul 2016
PM Bulletin: Precious metals pull back
18 Jul 2016
Weekly Bulletin: It’s all about stimulus
18 Jul 2016
PM Bulletin: European banks in trouble
15 Jul 2016
AM Bulletin: Sombre mood following Nice atrocity
15 Jul 2016
PM Bulletin: The BoE rate decision
14 Jul 2016
AM Bulletin: All eyes on Bank of England
14 Jul 2016
PM Bulletin: BoE Rate Decision in focus
13 Jul 2016
AM Bulletin: Equities drift lower after record US close
13 Jul 2016
PM Bulletin: Global indices pushing higher
12 Jul 2016
AM Bulletin: Equity rally powers on
12 Jul 2016
PM Bulletin: Fresh record high for S&P500
11 Jul 2016
Weekly Bulletin: The markets called, NFPs answered
11 Jul 2016
AM Bulletin: The calm before the storm; Markets await today’s NFPs
08 Jul 2016
PM Bulletin: Non-Farm Payroll look-ahead
07 Jul 2016
AM Bulletin: As the Fed turns dovish, the markets turn bullish
07 Jul 2016
AM Bulletin: Concerns continue as Sterling touches $1.27
06 Jul 2016
AM Bulletin: Markets open higher, weak UK Construction PMI data removes confidence
05 Jul 2016
Weekly Bulletin: Central Banks react to Brexit vote
04 Jul 2016
AM Bulletin: When Carney speaks, the markets listen
01 Jul 2016
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Indices Update

It has been another mixed start for equity markets this morning. Shortly after the open the FTSE and DAX were both trading in the black, the French CAC was little-changed while the Spanish IBEX and Italian MIB were trading in negative territory. Crude oil had steadied while the Japanese yen was sharply higher.

It was a slow and lacklustre start for European stock indices yesterday. But investors jumped back in and pushed the majors higher following the release of Germany’s Ifo Business Climate survey. This came in at 108.3 for July which was lower than June’s pre-Brexit reading of 108.7. However, the survey came in better than the 107.7 expected, suggesting that the post-referendum downturn in business optimism wasn’t as bad as anticipated. The German DAX and French CAC were the major beneficiaries of the data release while the Italian MIB and Spanish IBEX saw more modest gains. The FTSE100 was little-moved.

But equity markets turned lower as the session progressed. Investors cut back their exposure to stocks as oil slipped one again. The Dow was down over 100 points as European market closed but made back some of these losses later in the US session.

In another sign that that reforms in China under President Xi Jinping are heading backward rather than progressing, China's top internet regulator tightened its grip over the country's web and information industries by ordering major online companies to stop original news reporting. President Xi said previously that Chinese media must serve the interests of the ruling Communist Party.

The US Federal Reserve begins a two-day rate setting meeting later today. The central bank is widely expected to keep rates on hold yet again. However, there has been growing speculation that the Fed is once again becoming more hawkish following a recent uptick in US economic data releases. But it is worth remembering that the Fed will be wary of hiking rates when there’s little pressure for them to do so. After all, there’s still the uncertainty surrounding the UK’s Brexit vote and how it may affect the economic outlook for both the Euro zone and UK. Additionally, it seems unlikely that the Fed would want to increase rates so close to the US Presidential Election for fear of destabilising financial markets ahead of such a crucial political event. Finally, the US dollar is trending higher which means the Chinese yuan is as well. A rate hike now would exacerbate this situation and open the door for a destabilising yuan devaluation. 

This is a big week for corporate earnings with reports expected from big names such as Apple (AAPL), Caterpillar (CAT), Chevron (CVX), Exxon Mobil (XON) and Facebook (FB).

The FTSE 100 index closed at 6,710.1 down 20.4 points on the day, or 0.3%

The German DAX rose 50.8 points or 0.5% to end the day at 10,198.2

The US30 closed down 77.8 points to finish at 18,493. The S&P 500 fell 0.3% to close at 2,168.5 while the Nasdaq 100 lost 0.14 points to close at 4,665.9


Shares in Ryanair (RYA) were up sharply in early trade yesterday. The budget airline reported a 4% rise in net profits for the April to June. Ryanair said that Brexit will lead to downward pressure on fares until the end of 2017 at least, but the carrier stuck to its earnings target for the year. The travel sector has been under pressure recently. Last week, easyJet (EZJ) declined give any profit guidance blaming the “unprecedented” terrorist threat. EasyJet also blamed the French air traffic controllers’ strike and the post-Brexit sell-off in sterling for a set of poor numbers. Ryanair ended the day up 6.3% at €11.59

Bookmaker William Hill (WMH) also shot higher yesterday morning after online gambling group 888 Holdings and casino operator Rank Group said they were set to make a joint bid for the company. 888 and Rank now have until 17:00 BST on 21st August this year to make a firm offer for William Hill. Shares in the bookmaker ended 4.9% higher at 328.8 pence.

Commodities Update

Crude slid lower again yesterday. The recent pick up in the US dollar is helping to keep a cap on prices, while investors and traders continue to keep a close eye on US inventories. We can expect fresh updates later this evening and on Wednesday afternoon. The interesting thing here is that while the headline data on crude stockpiles has been mixed in that we’ve seen both bigger-than-expected drawdowns and builds, there is ongoing evidence of inventory increases in gasoline and other distillates. Bloomberg reported that: “US gasoline stockpiles were at the highest for the time of year since 1984 as record consumption failed to drain the glut refiners created when crude was cheap, according to the Energy Information Administration (EIA)”. In addition, sentiment seems to have turned over the past month and there’s evidence that investors now expect crude prices to continue to correct downwards after a rally which topped out in June which saw crude effectively double in price from earlier in the year. Also weighing on prices the Baker Hughes US rig count was up 15 for the week ending 22nd July registering its fourth consecutive increase.

There’s some decent support for WTI around $42 and some modest support for Brent just below $44 per barrel. But if bearish investors are right then a 50% correction of this year’s rally would take both WTI and Brent back down to around $40 per barrel.

Gold and silver were both sharply lower in early trade yesterday. The two precious metals continued to come under selling pressure thanks to ongoing dollar strength and increased risk appetite as major US stock indices made fresh record highs at the end of last week. Over the weekend the G20 ended its meeting with a communique pledging to take action to boost global growth and to avoid competitive currency devaluations. This meant that investors had even less reason to own precious metals as safe havens. The stronger dollar has also weighed on dollar-denominated commodities as they become more expensive for non-dollar investors as the greenback increases in value. 

Silver was down between 20 and 30 cents for most of yesterday’s afternoon session while gold was trading below $1,315 soon after lunch. But both spiked higher shortly before the European close in a move which took silver back into positive territory. The US dollar slipped modestly over the same period but it seems most likely that investors were spooked by a sudden sell-off in equities which saw the Dow down over 100 points at one stage. That fall in turn was triggered by a decline of over 2% in crude oil.

Forex Update

The Japanese yen rose sharply overnight with the USDJPY dropping towards 104.00. Traders said that some of the move was attributable to the knife attack at a facility for the disabled just outside Tokyo. However, as this was obviously not a terrorist atrocity, that seems unlikely. Instead, it’s possible that investors are looking ahead to the Bank of Japan’s (BOJ) meeting at the end of this week and worrying that the BOJ may be less accommodative than previously thought. In addition, carry trade players will be buying back borrowed yen after liquidating positions as US equities fell yesterday.

On Friday the EURUSD closed below 1.1000 for the first time since early March this year. This level had acted as support on a closing basis ever since the UK voted to leave the European Union just over a month ago. Investors will want to wait and see if this is a temporary blip or part of a more protracted sell-off. Chart-wise, it does look as if the short to medium term trend for the EURUSD is downward. Much of this comes down to central bank chatter. The dollar is getting a lift from renewed speculation that the US Federal Reserve may be ready to hike rates again before the end of the year. This seems most unlikely (and nothing is expected at this week’s meeting) but it all helps to boost the greenback. At the same time, while the ECB declined to make any changes to its already-accommodative monetary policy at last week’s meeting, the governing council left the door open for further easing in September.

We have just had another G20 meeting. Time will tell if there was any behind the scenes shenanigans, but the subsequent communique included a pledge to avoid competitive currency devaluations and agreement to consult on foreign exchange policy. However, Japan managed to underscore a warning in the communique concerning “excess” currency volatility. This may provide Japanese policymakers with the cover to intervene unilaterally should the yen strengthen and we see the USDJPY head back towards 100. This could be useful if the Bank of Japan fails to announce further monetary stimulus after this week’s meeting which would certainly wrong-foot investors.

Upcoming events

Today’s significant economic data releases include BBA Mortgage Approvals from the UK. From the US we have the S&P/Case Shiller house Price Index, Flash Services PMI, New Home Sales and the Richmond Manufacturing Index. 


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Posted by David Morrison

Category: AM Bulletin

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