NEWS AND ANALYSIS

Incisive market commentary and expert opinion

Stay ahead with our market commentary and webinars from our in house market strategist

Open a Live AccountOpen a Demo Account
 
+ Show blog menu

Categories

Menu

Expand 2017 <span class='blogcount'>(175)</span>2017 (175)
Collapse 2016 <span class='blogcount'>(483)</span>2016 (483)
Expand December <span class='blogcount'>(23)</span>December (23)
Expand November <span class='blogcount'>(41)</span>November (41)
Expand October <span class='blogcount'>(37)</span>October (37)
Expand September <span class='blogcount'>(41)</span>September (41)
Collapse August <span class='blogcount'>(52)</span>August (52)
Video Update: Yellen’s speech sparks USD rally
31 Aug 2016
AM Bulletin: US dollar holds recent gains
31 Aug 2016
PM Bulletin: What next for the dollar?
30 Aug 2016
AM Bulletin: Investors revel in Fed’s “Goldilocks” worldview
30 Aug 2016
PM Bulletin: Yellen has spoken
26 Aug 2016
AM Bulletin: All eyes on Yellen
26 Aug 2016
PM Bulletin: BREXIT - THE NEXT CHAPTER The referendum and market reaction
25 Aug 2016
Holiday Schedule: Summer Bank Holiday
25 Aug 2016
AM Bulletin: Quiet start ahead of US Durable Goods/Jackson Hole
25 Aug 2016
Video Update: Look–ahead to Janet Yellen’s speech at Jackson Hole
24 Aug 2016
AM Bulletin: Investors edgy ahead of Yellen’s Jackson Hole speech
24 Aug 2016
PM Bulletin: Crude continues to slide
23 Aug 2016
Platform Tour: CFD Trading - How to Place a Trade
23 Aug 2016
AM Bulletin: Crude slide shrugged off by equities
23 Aug 2016
Trading Guides: How fast can you buy and sell with spread betting?
22 Aug 2016
Weekly Bulletin: Jackson Hole Symposium in focus
22 Aug 2016
PM Bulletin: Retailers bring earnings season towards a close
19 Aug 2016
AM Bulletin: Equities driven by oil and the Fed
19 Aug 2016
Video Update: The next Fed rate hike, the dollar and oil
18 Aug 2016
AM Bulletin: FOMC minutes read as dovish
18 Aug 2016
Trading Guide: How to choose a spread bet provider
17 Aug 2016
AM Bulletin: UK employment data and FOMC minutes in focus
17 Aug 2016
PM Bulletin: Dollar sell-off sends USDJPY below 100
16 Aug 2016
AM Bulletin: Yen stronger as investors de-risk
16 Aug 2016
Platform Tours: CFD Trading - How to Place Orders
15 Aug 2016
Trading Guides: What is spread betting?
15 Aug 2016
Weekly Bulletin: Summer “melt-up” continues
15 Aug 2016
PM Bulletin: Dow, S&P and NASDAQ hit all-time highs
12 Aug 2016
AM Bulletin: US indices hit fresh all-time highs
12 Aug 2016
PM Bulletin: Yen still strong, despite Japan’s stimulus
11 Aug 2016
AM Bulletin: Equities following oil
11 Aug 2016
PM Bulletin: Gold back within sight of multi-year highs
10 Aug 2016
AM Bulletin: US Crude Oil inventories eyed
10 Aug 2016
PM Bulletin: Sterling under pressure
09 Aug 2016
AM Bulletin: Stock markets calmer following last week’s rally
09 Aug 2016
Platform Tours: Spread Betting - How to Place a Trade
08 Aug 2016
Platform Tours: Spread Betting - Closure and Partial Closure
08 Aug 2016
Platform Tours: Spread Betting - Check Open P & L
08 Aug 2016
PM Bulletin: FTSE 100 chart
08 Aug 2016
Weekly Bulletin: US Fed: the last hawk standing
08 Aug 2016
PM Bulletin: Non-Farm Payrolls soar
05 Aug 2016
July: Non Farm Payrolls Out Today
05 Aug 2016
AM Bulletin: BoE adds stimulus; Payroll numbers in focus
05 Aug 2016
PM Bulletin: Non-Farm Payroll look-ahead
04 Aug 2016
AM Bulletin: BoE rate decision in focus
04 Aug 2016
PM Bulletin: BoE look-ahead
03 Aug 2016
AM Bulletin: Earnings and Services PMIs in focus
03 Aug 2016
PM Bulletin: JPY rallies on stimulus disappointment
02 Aug 2016
AM Bulletin: JPY strengthens as Abe disappoints
02 Aug 2016
CFD Trading - Closure and Partial Closure
01 Aug 2016
Doubts over European stress tests
01 Aug 2016
Monetary policy driving investor behaviour
01 Aug 2016
Expand July <span class='blogcount'>(38)</span>July (38)
Expand June <span class='blogcount'>(42)</span>June (42)
Expand May <span class='blogcount'>(42)</span>May (42)
Expand April <span class='blogcount'>(45)</span>April (45)
Expand March <span class='blogcount'>(41)</span>March (41)
Expand February <span class='blogcount'>(42)</span>February (42)
Expand January <span class='blogcount'>(39)</span>January (39)
 
 
 Thursday 18 August 2016

AM Bulletin: FOMC minutes read as dovish

 

 

Indices Update

European stock indices closed sharply lower yesterday. Investors cut their exposure to equities as falling bond yields put further pressure on the European banking sector. The major US indices were also softer but then headed up into positive territory ahead of the release of minutes from the Fed’s FOMC July meeting. The main takeaway from these was that Fed members believe that a rate hike will soon be needed. However, they require further data before deciding when to pull the trigger. The Fed would like investors to think that a move in September is possible, but December seems far more likely. Overall, the minutes were read as dovish and this is helping to support equities and send the dollar lower.

Investors were in a skittish mood yesterday and all the major European and US indices spent most of the early session in negative territory. We heard a number of conflicting views from Fed members on Tuesday. San Francisco Fed President John Williams wrote that central banks may have to raise their inflation targets which would suggest that global interest rates could stay lower for longer. In contrast New York Fed President William Dudley and Atlanta Fed President Dennis Lockhart both gave speeches in which they said the US economy was probably strong enough to withstand at least one rate hike before the end of the year. So traders lightened up on their equity positions and waited for the release of minutes from the Fed’s FOMC meeting for further clues.

Earlier in the day it was reported that Cisco (CSCO) could be laying off as many as 14,000 employees – around 20% of the company's global workforce.“ Confirmation of the cuts is expected within the next few weeks and many early retirement package plans have already been offered to employees.

The UK unemployment rate came in unchanged at 4.9% for the three months to June. This covered the period directly before the referendum on EU membership. However, the Claimant Count for July fell by 8,600 which was way below the increase of 5,200 expected. This was an impressive improvement and many commentators were quick to point out that this was clear evidence that the Brexit vote was not damaging economic activity in the UK. Certainly, it suggests that employers were happy to recruit staff once the uncertainty of the vote was out of the way. However, it’s usually a mistake to look at one data point in isolation, so it will be a few months before we see if this is a clear trend developing.

The FTSE 100 index closed at 6,859.2 down 34.8 points on the day, or 0.5%

The German DAX fell 139 points or 1.3% to end the day at 10,537.7

The US30 closed up 21.9 points to finish at 18,573.9. The S&P 500 rose 0.2% to close at 2,182.2 while the Nasdaq 100 gained 0.2% to close at 4,805.5

Equities

Shares in Admiral (ADM) fell sharply after the insurer said that market volatility around the Brexit vote and lower interest rates had hit its capital reserves and so impacted its solvency ratio. The stock was down over 8% at one stage even though the company also reported a 4% rise in first half profit before tax when compared to the same period last year. Admiral increased its interim dividend by 23% to 62.9 pence per share but trimmed its forecasts for future pay-outs to reflect future uncertainty. The shares closed 7.7% lower at 2,081 pence.

Commodities Update

Oil spent most of yesterday’s trading session in negative territory, giving back some of Tuesday’s gains, although still hovering around highs last seen over a month ago. Some mild profit-taking crept in as investors awaited the latest US crude inventory update from the Energy Information Administration (EIA). This was exacerbated as, according to Zero Hedge, Saudi Arabia is set to increase output to a fresh record high.

But oil shot higher after the EIA reported a drawdown of 2.5 million barrels of crude. The consensus expectation had been for a modest build of 300,000 barrels for the week ending 12th August. This followed an increase of 1.1 million the week before. Gasoline stocks fell 2.7 million barrels while distillates rose 1.9 million.

On Monday market intelligence firm Genscape estimated that there had been a draw of more than 350,000 barrels at the delivery hub at Cushing, Oklahoma.  This was bigger inventory reduction than expected and added to general bullish sentiment. Then on Tuesday data from the American Petroleum Institute (API) backed up the Genscape assessment when it reported bigger-than-expected drawdowns in both Cushing inventories and crude as a whole. Countering this, the API also noted that there were significant builds in both gasoline and distillates and this led to a modest pull-back from the day’s highs.

Crude is still getting support from speculation that producers are prepared to discuss freezing output once again. The current proposal is that OPEC and non-OPEC producers will attend a side meeting when they travel to Algeria next month for the International Energy Forum.  Most analysts really don’t believe there’s any prospect of a production freeze being agreed. However, traders are mindful of the rally ahead of the freeze meeting in Doha back in April. Indeed, crude continued to rally even after the meeting broke down in acrimony. Looking at current market action it feels as if both Brent and WTI want to retest their highs from the beginning of June, and will use any excuse to keep a bid under the oil price. It’s worth remembering that an OPEC meeting in June also failed to reach an agreement to limit production, and the group's output has since reached new record highs.

Gold and silver drifted lower for most of yesterday in lacklustre trade. Both metals had rallied strongly early on Tuesday after San Francisco Fed President John Williams released a dovish report suggesting that central banks may have to raise their inflation targets which would suggest that global interest rates could stay lower for longer. However, later on New York Fed President William Dudley said that "the time for a rate hike is edging closer" while Atlanta Fed President Dennis Lockhart supported Dudley saying the US economy was probably strong enough to withstand at least one rate hike before the end of the year.

But the two precious metals fluctuated in relatively tight trading ranges ahead of the release of FOMC minutes. Traders were unwilling to take on additional exposure in case the minutes presented a clearer picture over the Fed’s thoughts on monetary policy for the rest of this year. The Fed is still anxious to persuade investors that the US economy is robust enough to stomach a rate hike in September.  However, the minutes didn’t do much to provide a clearer picture. The general takeaway is that the Fed is preparing to hike rates but would like to see more evidence of US economic strength before doing so. Overall the minutes were taken as dovish. Gold and silver rallied after the release and the dollar fell.

Forex Update

There was little early activity in FX markets yesterday. Investors held back from taking fresh positions ahead of the release of minutes from last month’s FOMC meeting. The dollar steadied against the majors but was unable to make back its losses from Tuesday. The greenback had fallen sharply after San Francisco Fed President John Williams released a paper arguing that central banks may have to raise their inflation targets which would suggest that global interest rates could stay lower for longer. He also said that central banks should also pay more attention to economic growth and push governments for more fiscal stimulus. The dollar made back some of its losses later in the day after New York Fed President William Dudley claimed that "the market is complacent about the need to gradually hike rates and the time for a rate hike is edging closer." Then later on Tuesday Atlanta Fed President Dennis Lockhart said that the US economy was probably strong enough to withstand at least one rate hike before the end of the year. However, this had a limited market effect as it was simply a toned down version of Dudley’s statement.

The minutes of the Fed’s FOMC minutes in July were considered dovish. Most members believe that a rate hike will soon be needed. However, they would like to see additional data before deciding when to pull the trigger. This would suggest that there will be no rate hike until December at the earliest, once the US Presidential Election is out of the way.

Upcoming events

Today’s significant economic events include the release of UK Retail Sales, Euro zone CPI and the account of the last ECB Monetary Policy Meeting. From the US we have Weekly Jobless Claims, the Philly Fed Manufacturing Index, CB Leading Index and another speech from Federal Reserve Bank of New York President William Dudley.

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


Add a comment Add comment            

 

 
© 2017 Spread Co Limited. All Rights Reserved.

Spread Co Limited is a limited liability company registered in England and Wales with its registered office at 22 Bruton Street, London W1J 6QE. Company No. 05614477. Spread Co Limited is authorised and regulated by the Financial Conduct Authority. Register No. 446677.

Spread betting and CFD trading are leveraged products and can result in losses that exceed your deposits. Ensure you understand the risks.

Losses can exceed deposits. Click here to learn more.