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PM Bulletin: BOJ and the yen
31 May 2016
AM Bulletin: Quiet start following holiday weekend
31 May 2016
PM Bulletin: Meanwhile in China
27 May 2016
AM Bulletin: Yellen in focus ahead of holiday weekend
27 May 2016
PM Bulletin: FTSE breaks above 6,200 again
26 May 2016
Holiday Schedule: Memorial Day 30th May 2016
26 May 2016
AM Bulletin: Brent crude tops $50
26 May 2016
PM Bulletin : Crude Chart
25 May 2016
AM Bulletin: “Risk-on” trade continues
25 May 2016
PM Bulletin: Another poll boost for sterling
24 May 2016
AM Bulletin: Equities slip as rate hike worries persist
24 May 2016
PM Bulletin: Changing expectations
23 May 2016
Weekly Bulletin: I’ll see your hike and raise you two
23 May 2016
PM Bulletin : Significant events ahead of June FOMC
20 May 2016
AM Bulletin: Preparing for a summer rate hike
20 May 2016
PM Bulletin : Gold struggles as dollar strengthens
19 May 2016
AM Bulletin: FOMC more hawkish than anticipated
19 May 2016
PM Bulletin : FOMC minutes and the S&P
18 May 2016
AM Bulletin: FOMC minutes in focus
18 May 2016
PM Bulletin: Cable rallies on latest poll
17 May 2016
AM Bulletin: US equities lead bounce-back
17 May 2016
Weekly Bulletin : Waiting on Central Banks
13 May 2016
PM Bulletin : Apple
13 May 2016
Holiday Schedule Whit Monday Market Holiday
13 May 2016
AM Bulletin : US Retail Sales in focus
13 May 2016
PM Bulletin : Silver and Gold
12 May 2016
AM Bulletin: Investors wary after Wall Street sell-off
12 May 2016
PM Bulletin: Two headaches for Elon Musk
11 May 2016
AM Bulletin: Stock indices pull back after rally
11 May 2016
PM Bulletin: Yen pulls back on jawboning
10 May 2016
AM Bulletin: Markets steady on commodity bounce
10 May 2016
PM Bulletin: Precious metals give back recent gains
09 May 2016
Weekly Bulletin: Poor Non-Farm Payroll causes concern
09 May 2016
May: Non Farm Payrolls Out Today
06 May 2016
PM Bulletin: A dismal Non-Farm Payroll number
06 May 2016
AM Bulletin: Non-Farm Payrolls in focus
06 May 2016
PM Bulletin: Non-Farm Payroll look-ahead
05 May 2016
AM Bulletin: Crude bounce lifts equities
05 May 2016
PM Bulletin: Apple update
04 May 2016
AM Bulletin: Equities under pressure
04 May 2016
PM Bulletin: Aussie dollar slumps
03 May 2016
AM Bulletin: RBA cuts by 25 basis points
03 May 2016
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Indices Update

US indices ended yesterday mixed. However, investors seem in a far more negative frame of mind this morning with European equities and US stock index futures sharply lower.

Last night saw the release of minutes from the FOMC’s last meeting in April. Back then the committee left rates unchanged and removed references to global risks from their statement. Last night the minutes showed that the FOMC had concerns over the possibility of the UK leaving the European Union, but overall they were more hawkish than expected. The minutes suggested that the FOMC was relatively upbeat about the outlook for the US economy and that a June rate hike was likely if the data improves.

It’s worth bearing in mind that recent US economic data releases have been mixed at best. However, we have just had the second consecutive CPI release showing that inflation is running above the Fed’s 2% annual target. On top of that, the employment picture remains solid. Despite last month’s disappointing Non-Farm Payroll release the Unemployment Rate is steady around 5% - a level consistent with the Fed’s view of “full employment.” But manufacturing has been a definite disappointment. Over the next few weeks and ahead of the Fed’s meeting in June we’ll get updates on Manufacturing and Services PMIs, Durable Goods and another Non-Farm Payroll update. We should expect volatility now as good data releases suggest a rate hike while poor numbers increase the likelihood that the Fed leaves them unchanged.

The FTSE 100 index closed at 6,165.8 down 2 points on the day, or +0.03%

The German DAX rose 53 points or 0.5% to end the day at 9,943.2

The US30 closed down 3.4 points to finish at 17,526.6. The S&P 500 rose 0.4 to close at 2,047.6 while the Nasdaq 100 rose 0.4% to close at 4,338.2


Shares in luxury retailer Burberry (BRBY) fell yesterday following the release of its latest numbers. Total revenue was down 1% to £2.52 billion for the year to 31st March thanks to reduced sales from Hong Kong and Macau. Once these two areas were stripped out, sales were up 3%. Adjusted profit before tax was worse than expected falling £35 million to £421 million. Reported profit before tax was down 6.5% to £416 million. Despite this Burberry increased its dividend by 5% to 37 pence. The stock ended the day 2.7% lower at 1,112 pence. 

Commodities Update

Crude oil held near 7-month highs for most of yesterday’s trading session. But both contracts pulled back sharply as the dollar rallied following the release of the FOMC minutes.

Outages and supply disruptions in Canada, Nigeria, Venezuela and other producing regions such as Iraq have reduced oil production by around 3.7 million barrels a day, according to Reuters. If so, this easily eliminates any excess of supply over daily global demand. However, any shortfalls are covered by existing inventory while other producers (such as Saudi Arabia, Iran and even US shale oil drillers) ramp up output where possible.

The situation in Canada has taken a sudden turn for the worse. Last week it was expected that production was set to resume within days. However, the wildfire jumped a fire break area and is now threatening some energy production facilities. It is now estimated that around 1.2 million barrels a day are offline due to forest fires in Alberta.

Despite this, the Canadian outage is still seen as a short-term problem which will ultimately be resolved. But in Nigeria the problems are ongoing and potentially intractable. Militants have sabotaged a number of oil production facilities and look set to continue to disrupt the oil industry and the country itself. Meanwhile Venezuela is growing increasingly more unstable - both politically and economically. The country is still producing around 2.3 million barrels a day, but this looks unsustainable.

The front month WTI contract hit a seven-month high in early trade yesterday. It had pulled back from its best levels by lunchtime (as did Brent). Both contracts continue to close in on the psychologically important $50 per barrel level. This level is also seen as significant for a number of US shale producers. Supply could come back online, as long as lenders are prepared to take a risk and extend loans to the troubled industry.

Gold and silver fell sharply yesterday morning and both were unable to make back losses as the day progressed. The sell-off was a direct result of a rally in the US dollar. This bounced sharply yesterday on increased speculation of a June rate hike from the Fed. It rallied further following the release of minutes from the FOMC’s April meeting.

Gold has now broken below support at $1.260. If it is unable to rally back above here in today’s session then there’s a possibility of further losses to come. The next area of support comes in around $1,240.

The dollar’s rally has also resulted in silver breaking significant support – this time around $17 and then $16.80. The next level of support comes in around $16.20

Forex Update

The US dollar soared yesterday evening following the release of minutes from the Fed’s FOMC meeting in April. These were considered more hawkish in tone than the statement released at that time and so analysts quickly cut their odds on the likelihood of a rate hike at next month’s meeting.

The dollar has continued to gain ground this morning with the Dollar Index hitting its highest level since the end of March and the USDJPY trading back above 110.00. If this holds, then it should take some pressure off Japanese policymakers ahead of the G7 meeting which begins tomorrow. The yen had rallied early yesterday after first quarter GDP showed Japan's economy expanded at 0.4% for the quarter - the fastest pace in a year and well above the +0.1% expected. But declines in the Price Index showed that deflationary pressures were still in evidence and so have kept alive expectations of more stimulus in coming months.

The US dollar was already firmer in early trade yesterday as investors recalibrated the likelihood of a rate hike from the Federal Reserve at its meeting next month. This followed a pick-up in US inflation as recorded by the CPI while investors were also wrong-footed by comments from two members of the Fed. Data released on Tuesday showed the biggest rise in US consumer prices in more than three years in April as gasoline prices and rents rose. Housing Starts and Industrial Production were also strong.

Meanwhile, San Francisco Fed President John Williams and Atlanta Fed President Dennis Lockhart both said that rates could be hiked two or three times this year. This would imply rate increases in June, September and December, a total of 75 basis points, which could take the Fed Funds rate up to 1.25%. Needless to say, this was something of a shock for a market pricing in just 25 basis points in 2016 – at worst.

The British pound shot higher yesterday. Partly this was to do with the release of UK Labour Market data for May. The UK’s claimant count fell by 2,400 - well below the increase of 4,000 expected. In addition, average earnings rose 2% for the quarter when compared to a year ago. These strong numbers comes after yesterday’s inflation data which ticked lower in April. The jobs data goes some way to offsetting the weaker-than-expected Manufacturing, Services and Construction PMIs from earlier in the month. However, the strongest catalyst for sterling’s rally is the feeling that the UK will vote to remain in the EU. This will extinguish worries over short-term uncertainty.

Upcoming events

Today’s significant data releases include UK Retail Sales and the ECB Monetary Policy Meeting Accounts. From the US we have the Philly Fed Manufacturing Index, Weekly Jobless Claims and the Conference Board Leading Index.


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Posted by David Morrison

Category: AM Bulletin

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