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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
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22 Aug 2016
Weekly Bulletin: Jackson Hole Symposium in focus
22 Aug 2016
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19 Aug 2016
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19 Aug 2016
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18 Aug 2016
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18 Aug 2016
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17 Aug 2016
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17 Aug 2016
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16 Aug 2016
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16 Aug 2016
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15 Aug 2016
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15 Aug 2016
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15 Aug 2016
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12 Aug 2016
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12 Aug 2016
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11 Aug 2016
AM Bulletin: Equities following oil
11 Aug 2016
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10 Aug 2016
AM Bulletin: US Crude Oil inventories eyed
10 Aug 2016
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09 Aug 2016
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09 Aug 2016
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08 Aug 2016
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05 Aug 2016
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05 Aug 2016
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04 Aug 2016
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03 Aug 2016
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03 Aug 2016
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02 Aug 2016
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02 Aug 2016
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01 Aug 2016
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01 Aug 2016
Monetary policy driving investor behaviour
01 Aug 2016
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Indices Update

European equities and US stock index futures opened sharply lower this morning. But at the time of writing they had bounced off their lows. Traders cut their exposure to stocks as the oil price fell. Crude lost ground following the release of US inventory data from the American Petroleum Institute (API). This showed an unexpectedly large build in crude stocks.

Yesterday saw European and US stock indices push higher in early trade, despite the continued pull-back in oil. The negative effect of the falling oil price was offset to some extent by the dollar which fell against all the majors. Although dollar weakness doesn’t directly translate into stronger global equity markets, the two are connected in the current environment. This is due to the fevered speculation over the timing of the next rate hike from the US Federal Reserve.  The prospect of higher rates increases the relative attractiveness of the greenback. But equity markets tend to struggle when interest rates are on the rise, unless growth and inflation are particularly strong.

The dollar rallied sharply at the beginning of the week after Federal Reserve Vice Chairman Stanley Fischer said that unemployment and inflation were close to the Fed’s preferred targets. His comments were viewed as hawkish, particularly as they were in line with those made last week by New York Fed President Bill Dudley, San Francisco Fed President John Williams and Atlanta Fed President Dennis Lockhart. But investors dialled back their expectations yesterday, no doubt anxious to reduce their overall dollar exposure ahead of Janet Yellen’s Jackson Hole speech this Friday.

On Monday we heard that the Bank of Japan (BOJ) has not ruled out taking interest rates deeper into negative territory. Governor Haruhiko Kuroda told the Sankei newspaper that, "The degree of negative rates introduced by European central banks is bigger than Japan. Technically there definitely is room for a further cut." The BOJ adopted negative interest rates in January this year in an effort to spur inflation and economic growth. This was despite Mr Kuroda assuring Japanese policymakers that he had no intention of taking rates negative just one week before he did. It is also worth noting that there has been no pick-up in Japan’s inflation or growth rates since the negative interest rate policy was adopted.

The FTSE 100 index closed at 6,868.5 up around 40 points on the day, or 0.6%

The German DAX rose 98.5 points or 0.9% to end the day at 10,592.9

The US30 closed up 17.9 points to finish at 18,547.3. The S&P 500 rose 0.2% to close at 2,186.9 while the Nasdaq 100 rose 0.2% to close at 4,818.5

Equities

Shares in Persimmon (PSN) flew higher yesterday after the company reported a 29% rise in first-half profits. UK’s second-largest housebuilder by volume stated that customer interest remained robust, despite concerns that the UK’s vote to leave the European Union had “added uncertainty to the economic outlook”. It also noted that site visits by potential home buyers were up 20% for July when compared to the same time last year. The news helped to push other UK housebuilders such as Bellway, Taylor Wimpey and Bovis Homes Group higher as well. Persimmon ended the day 4.2% higher at 1,870 pence.

Commodities Update

Crude oil is weaker this morning following the release of US inventory data from the American Petroleum Institute which showed a bigger-than-expected build in crude stockpiles.

The sell-off in crude continued in early trade yesterday despite a modest pull-back in the US dollar. It looked as if traders had decided that all the speculation about producers agreeing to an output freeze at next month’s meeting in Algeria had been overdone. Venezuela, Ecuador and Kuwait had reignited the idea of a freeze earlier in this month. While similar talks ended without agreement in mid-April, this fresh attempt by troubled OPEC members caught sellers offside and led to a sharp short-covering bounce. However, the resulting rally hasn’t (so far) been strong enough to push oil back up to retest the June highs. On Monday it looked as if all the short-side speculators had been driven out of the market and oil was set to turn lower once again.

But crude suddenly shot higher yesterday afternoon. The move followed a report that Iran was prepared to 'support joint action to prop up the oil market'. This was an unexpected turnaround as OPEC member Iran refused to take part in April’s Doha talks. The reason for this was that Iran was desperately trying to boost output to pre-sanction levels so an output freeze was hardly in the country’s interests.  However, it could be that they’ve managed to raise production to a respectable level and now have no objection to an output freeze. It is also thought that non-OPEC member Russia may also support a fresh freeze.

Despite all this, it’s worth bearing in mind that, according to former OPEC President Chakib Khelil, Saudi Arabia, Iran, Iraq and Russia are producing at, or close to, maximum capacity. Meanwhile US production continues to recover, as does Nigeria’s as militants prepare for a ceasefire and talks. On top of this many oil analysts point out that producers will need to cut, rather than freeze, production to make any significant inroads into global oil inventories which stand at record highs.

Gold and silver had an uneventful session yesterday with both stuck in narrow trading ranges. They had popped higher in early morning trade thanks to a mild pull-back in the US dollar, but subsequently drifted as the greenback made back early losses. Gold and silver both have a close inverse correlation to the dollar and it seems unlikely that the two precious metals will now move much ahead of Federal Reserve Chairman Janet Yellen’s speech at the Jackson Hole Economic Symposium this Friday. Investors want to hear what Dr Yellen has to say about the state of both the US and global economy. In this way they hope to get a steer on the Fed’s thinking over monetary policy. While nobody expects Dr Yellen to say explicitly that the central bank is set to hike rates this year, let alone next month, any hint that the Fed’s targets for inflation and unemployment are close to being met should send the dollar higher – and precious metals lower.

Forex Update

The US dollar gave back a sizable proportion of Monday’s gains in early trade yesterday. The pull-back appeared to be tied to profit-taking and repositioning as investors prepare themselves for the Jackson Hole Economic Symposium in Wyoming. The symposium doesn’t officially kick off until Thursday and the Fed Chairman Janet Yellen won’t deliver her highly anticipated speech until Friday. Nevertheless, this is a key event as far as investors are concerned as it comes just one month ahead of the Federal Reserve’s big September meeting.

It’s true that market analysts don’t expect Dr Yellen to say anything explicit about the probability or timing of what would be the Fed’s first rate hike since December last year. Nevertheless, there are hopes that she may give some clues as to her thoughts over the state of the US economy, and indeed any risks facing the global economy as well. On Sunday her Fed Vice Chairman, Stanley Fischer, was upbeat in his outlook for the US economy saying that he expected growth to pick up following a particularly weak second quarter.

The August Flash Manufacturing and Services PMIs for France, Germany and the Euro zone were released yesterday. These were a bit of a mixed bag really with manufacturing a disappointment everywhere (except France) although services were generally better than expected. Germany managed to record PMIs which were down on the prior month and below expectations. Despite this, the euro rallied and the general takeaway was that (post-Brexit) they could have been worse.

As noted yesterday, chart-wise, the dollar still appears to be in a downtrend when we look at the USDJPY, EURUSD and Dollar Index. But there’s support for the dollar around 94.00 on the Dollar Index, and this corresponds to resistance on the EURUSD around 1.1400. It seems unlikely that traders will be in a hurry to test either level seriously ahead of Janet Yellen’s big speech on Friday.

Upcoming events

Today’s calendar is very light with just German Final GDP and UK Mortgage Approvals this morning. Later on we have Existing Home Sales and Crude Oil Inventories from the US. 

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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