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Weekly Bulletin: Equity rally continues
29 Feb 2016
PM Bulletin: Chart for the EURUSD
29 Feb 2016
AM Bulletin: Auction postponement linked to risk rally
26 Feb 2016
PM Bulletin: FOMC members add to confusion over monetary policy
26 Feb 2016
AM Bulletin: US stock indices rebound
25 Feb 2016
PM Bulletin: Lloyds Banking Group
25 Feb 2016
AM Bulletin: Stocks slip on lower crude
24 Feb 2016
PM Bulletin: Gold
24 Feb 2016
PM Bulletin: Crude oil, yen and equities
23 Feb 2016
AM Bulletin: Equities slip after strong start to week
23 Feb 2016
Sterling dumps on Brexit fears
22 Feb 2016
AM Bulletin: Stronger start for global equities
22 Feb 2016
AM Bulletin: Netflix leads Nasdaq lower
19 Feb 2016
PM Bulletin: FTSE revisited
18 Feb 2016
AM Bulletin: Oil still leading equities
18 Feb 2016
PM Bulletin: The yen, Nikkei and negative interest rates
17 Feb 2016
AM Bulletin: Oil and FOMC minutes in focus
17 Feb 2016
PM Bulletin: WTI and Brent
16 Feb 2016
AM Bulletin: Equities, USD, oil rally while precious metals slide
16 Feb 2016
Weekly Bulletin: Yellen keeps us guessing
15 Feb 2016
PM Bulletin: A multi-year look at the FTSE100
15 Feb 2016
PM Bulletin: Andrews’ Pitchfork on S&P500
12 Feb 2016
AM Bulletin: Equities remain vulnerable to further selling
12 Feb 2016
PM Bulletin: EURUSD – what now?
11 Feb 2016
AM Bulletin: Yellen fails to calm nerves
11 Feb 2016
PM Bulletin: Yellen steers through Clashing Rocks
10 Feb 2016
AM Bulletin: Yellen testimony in focus
10 Feb 2016
PM Bulletin: Japanese sell-off spooks investors
09 Feb 2016
AM Bulletin: Investors nervous as crude flirts with $30
09 Feb 2016
PM Bulletin: Big “risk-off” moves to start the week
08 Feb 2016
Weekly Bulletin: Investor jitters raises volatility
08 Feb 2016
February: Non Farm Payrolls Out Today
05 Feb 2016
PM Bulletin: Big miss for Non-Farm Payrolls
05 Feb 2016
AM Bulletin: Non-Farm Friday
05 Feb 2016
PM Bulletin: Non-Farm Payroll look-ahead
04 Feb 2016
AM Bulletin: Dollar slumps; oil spikes
04 Feb 2016
PM Bulletin: Tomorrow’s MPC press conference in focus
03 Feb 2016
AM Bulletin: Weaker crude weighs on equities
03 Feb 2016
PM Bulletin: A look at the EURUSD
02 Feb 2016
AM Bulletin: Google can’t lift indices
02 Feb 2016
PM Bulletin: Charts for USDJPY
01 Feb 2016
Weekly Bulletin: Central banks respond to sell-off
01 Feb 2016
Expand January <span class='blogcount'>(39)</span>January (39)
 
 
 Tuesday 02 February 2016

AM Bulletin: Google can’t lift indices

 

 

Indices Update

It was a downbeat start to the month with the major indices ending Monday mostly weaker. That sentiment has carried over into this morning’s trade. Not even a blow-out set of earnings from Alphabet (Google’s parent company) has been able to turn things around. Instead, news that BP posted its worst annual loss in twenty years has added to the gloom as the fall in oil continues to weigh on global indices.

Yesterday brought the release of Manufacturing PMIs from China and a number of Euro zone countries. China's official Manufacturing PMI hit a three-year low in January, coming in at 49.4, down from December's reading of 49.7. This was the sixth consecutive month of contraction in the sector. The private survey from Markit/Caixin showed January manufacturing activity shrank for the eleventh straight month. Non-Manufacturing also posted a month-on-month decline although this is still comfortably in expansion territory.

Meanwhile, European manufacturing was a mixed bag. In early trade yesterday European equities and US stock index futures gave back a significant proportion of their gains from Friday. Stocks had soared at the end of last week after the Bank of Japan (BOJ) surprised the markets and took interest rates negative for the first time in its history. Japan has now adopted the Negative Interest Rate Policy (NIRP) joining the Euro zone, Switzerland, Denmark and Sweden. The reason why the move was such a surprise is that BOJ Governor Haruhiko Kuroda had said just one week previously that negative interest rates weren’t being considered.

The FTSE 100 index closed at 6,060.1 down 23.7 points on the day or 0.4%

The German DAX fell 40.2 points or 0.4% to finish at 9,757.9

The US30 closed down 17.1 points to finish at 16,449.2 The S&P 500 ended at 1,939.4 down less than one point while the Nasdaq 100 rose 0.2% to close at 4,286.6

Equities Update

Alphabet (Google’s parent company) reported last night after the US close. The company has proved remarkably resilient given the stock market sell-off since the beginning of this year. As of Friday’s close the stock was down just over 2% since the end of December. In comparison, the S&P500 is around 5% lower. Last week we heard from Facebook (FB) and Amazon (AMZN). The latter had a shocker of a fourth quarter posting earnings of just $1.00 per share on expectations of $1.56. Revenues were also light coming in at $35.75 billion against the anticipated $35.93 billion. Amazon slumped around 15% in the immediate aftermath of the report. In contrast Facebook produced stellar results and is now up around 7% from the end of last year.

As far as Alphabet is concerned, expectation was for earnings per share of $8.09 on revenues of $20.77 billion (suggesting a year-on-year increase of 43.4%). Earnings came in at $8.67 per share while revenues also topped expectations coming in at $21.33 billion. This was the first time that Alphabet reported results in a new fashion – stripping out “other bets” from the core business. Other bets include self-driving cars and other experimental ventures. “Other bets” lost $3.6 billion over the financial year.

Nevertheless, the stock flew higher in after-hours trade and was up over 5% from its pre-earnings price at one stage. On current prices Alphabet has now overtaken Apple as the world’s most valuable company.

This means that all the FANGs (Facebook, Amazon, Netflix and Google) have now reported fourth quarter earnings. As we can see they were a bit of a mixed bag. Consequently, they are unlikely to support the broader market over the coming months in the way they did last year.

Commodities Update

As we approached the close of the European session WTI crude was as much as 5% lower while Brent was down around 4%. Both contracts gave back gains made last Friday after the Bank of Japan surprised investors by cutting rates into negative territory. The news of from monetary stimulus gave crude a lift along with equity markets. Crude was also lifted last week by rumours that Saudi Arabia was proposing output cuts. However, this expectation has been dialled back to some extent.

Early yesterday morning China released Manufacturing and Non-Manufacturing PMI data. The official Manufacturing PMI came in at 49.4, down from December's reading of 49.7. This was the sixth consecutive month of contraction in the sector and also a three year low. The Caixin survey (which covers a wider range of smaller companies) came in at 48.4. This was a modest improvement on December’s 48.2 but still registered contraction. Meanwhile Non-Manufacturing showed expansion although it still posted a month-on-month decline. Oil prices are particularly sensitive to Chinese economic data as the country is the second biggest consumer of crude after the US.

Gold and silver were firmer in early European trade and the price action in both continues to be constructive from a bullish perspective. Looking at gold first, early last week it broke above the 50% retracement of its 28th October-3rd December sell-off, managing to find support around $1,115 on a closing basis. Its next target is around $1,130 which marks the 61.8% Fibonacci Retracement of the same move. This could be a harder nut to crack and we may need to see some consolidation around current levels for gold to gather enough momentum to break above the latter level. But it’s getting some help from ongoing dollar weakness. The greenback is coming under selling pressure as investors reconsider the timing and degree of further tightening from the US Federal Reserve. Last week’s FOMC statement was relatively dovish. Following on from this Advance GDP for the fourth quarter was a disappointment. In its statement the Committee said it is “closely monitoring global economic and financial developments…” as things stand, it is looking increasingly likely that the Fed will hold back from further tightening for the first quarter of this year.

Forex Update

The dollar was mixed in early trade yesterday. It initially made gains against the Japanese yen and Canadian dollar but fell against the euro, sterling and Swiss franc. Overall, the US Dollar Index also lost ground. Investors continue to absorb the implications from the latest round of central bank meetings. On Friday the BOJ joined the ECB and took a key rate negative in order to encourage lending from financial institutions. The negative deposit rate means that there is now a cost to depositing funds with the BOJ. Last Wednesday the US Federal Reserve released a relatively dovish statement while in December the ECB suggested that further stimulus could be forthcoming at its next meeting in March.

As the day progressed the dollar ceded more ground. There was a clutch of disappointing Manufacturing PMIs from China and the Euro zone. Later on the US ISM Manufacturing PMI came out at 48.2. This was unchanged on the previous month, but lower than expected and also in contraction territory. Construction Spending was also poor.

The best Manufacturing PMI came from the UK. This came in at 52.9 for January – well above the 51.8 expected. In addition, December’s number was revised up to 52.1 from 51.8. Cable managed to stage a decent rally yesterday although it remains dangerously close to the multi-year intra-day low of 1.4080 made on 21st January.

Upcoming events

Today’s significant data releases include German Unemployment, Euro zone Unemployment, UK Construction PMI and US Total Vehicle Sales. FOMC-voting member Esther George is scheduled to speak at 18:00 GMT.

 

Posted by David Morrison

Tagged: AM Bulletin

Category: AM Bulletin


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