Incisive market commentary from David Morrison

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AM Bulletin: Markets rise for the second day ; back to pre-referendum levels, sterling still weak
30 Jun 2016
AM Bulletin: Confidence returns – but for how long?
29 Jun 2016
AM Bulletin: The onslaught continues – and we’re not just talking the football
28 Jun 2016
Weekly Bulletin: Investors rattled by Brexit vote
27 Jun 2016
PM Bulletin: Brexit - Referendum fallout
24 Jun 2016
AM Bulletin: We’re out! And so is Cameron
24 Jun 2016
Video Update: #AskSpreadCo - EU referendum
23 Jun 2016
AM Bulletin: Markets on tenterhooks ahead of UK vote
23 Jun 2016
Spread Betting Tips
22 Jun 2016
AM Bulletin: Risk assets waft higher
22 Jun 2016
PM Bulletin:Referendum and Market Reaction
21 Jun 2016
PM Bulletin: Gold and the referendum
21 Jun 2016
AM Bulletin: Yellen testimony in focus
21 Jun 2016
PM Bulletin: Janet Yellen’s testimony
20 Jun 2016
Weekly Bulletin: It’s all about the referendum
20 Jun 2016
Market Info Update: EU Referendum Margin Changes - CFDs
17 Jun 2016
Market Info Update: EU Referendum Margin Changes - Spread Betting
17 Jun 2016
PM Bulletin: Forecasting the referendum result
17 Jun 2016
AM Bulletin: Central banks leave rates unchanged
17 Jun 2016
PM Bulletin: FOMC post-mortem
16 Jun 2016
AM Bulletin: Yen, precious metals soar post FOMC/BOJ
16 Jun 2016
PM Bulletin: FOMC look-ahead
15 Jun 2016
AM Bulletin: FOMC meeting ahead
15 Jun 2016
PM Bulletin: European equities slide
14 Jun 2016
AM Bulletin: Stocks down on oil, growth fears and UK referendum
14 Jun 2016
Weekly Bulletin: FOMC and BOJ meetings in focus
13 Jun 2016
PM Bulletin: Markets rattled by slide in bond yields
10 Jun 2016
AM Bulletin: European stock indices drift lower
10 Jun 2016
PM Bulletin: WTI at $50 – thoughts on US production
09 Jun 2016
AM Bulletin: Precious metals soar
09 Jun 2016
PM Bulletin: S&P closes in on all-time high
08 Jun 2016
AM Bulletin: Investors in limbo ahead of Fed and UK vote
08 Jun 2016
PM Bulletin: Yellen and the jobs data
07 Jun 2016
PM Bulletin: Fresh polls send sterling lower
06 Jun 2016
Weekly Bulletin: Rate hike? What rate hike?
06 Jun 2016
PM Bulletin: A dismal Non-Farm Payroll number
03 Jun 2016
AM Bulletin: Non-Farm Payroll Friday
03 Jun 2016
PM Bulletin: Non-Farm Payrolls look-ahead
02 Jun 2016
AM Bulletin: OPEC, ECB, key data releases and central bank speakers
02 Jun 2016
PM Bulletin: OPEC and the oil price
01 Jun 2016
AM Bulletin: Manufacturing PMIs in focus
01 Jun 2016
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Indices Update

Global equities pushed higher again yesterday and there were particularly strong gains seen for the German DAX, French CAC and Italian MIB. But some profit-taking crept in later in the US session which saw Wall Street give back most of its early gains. In fact, the tech-heavy NASDAQ100 ended the day lower.

Investors have wound down their expectations of a summer rate hike from the US Federal Reserve. This was a result of Friday’s dismal payroll number together with Fed Chair Janet Yellen’s speech in Philadelphia on Monday. Mrs Yellen called Friday’s jobs data disappointing but said that the US labour situation remains quite encouraging. However, overall her comments were considered dovish. Just over a week ago Mrs Yellen said she expects interest rates to rise "in the coming months” while on Monday she said that rates probably needed to rise gradually “over time.”  Investors interpreted this as taking a June hike off the table completely. July remains a possibility while the FOMC’s September meeting is also now in the frame for a hike.

Although Mrs Yellen expressed disappointment with Friday’s payroll report, she insisted that the labour situation was generally positive. This was somewhat surprising as it is generally understood that Mrs Yellen pays close attention to the Labour Market Conditions Index (LMCI). This is an index compiled by the St Louis Federal Reserve which looks at 19 separate job indicators. We have just had an update on the index and it fell 4.8 in May. Not only was this its largest month-on-month fall since 2009, but it was also its fifth consecutive decline.

We now won’t hear anything more from members of the Fed until after next week’s meeting on 14th and 15th June. But for now equities are pushing higher. Investors seem to like the idea that the Fed sees the economy improving but can still find excuses not to raise rates.

The FTSE 100 index closed at 6,284.5 up 11.1 points on the day, or 0.2%

The German DAX rose 166.6 points or 1.7% to end the day at 10,287.7

The US30 closed up 17.95 points to finish at 17,938.3. The S&P 500 rose 0.1% to close at 2,112.1 while the Nasdaq 100 fell 0.2% to close at 4,513.1


Following its acquisition of BG Group, Royal Dutch Shell (RDSB) became the world’s biggest dividend payer. Investors currently receive 7.5% per annum which is quite something given the fact that over $10 trillion of government debt now yields less than zero. But investors have been wary of piling into the stock given uncertainty over the oil price and the company’s high level of debt as a proportion of its capital base which stands at 26% (up from pre-BG levels of 14%). Yesterday RDS said it was on track to sell assets worth $30 billion by 2018. It also expects to save around $4.5 billion through synergies from its BG takeover while a $60 oil price could bring in $20-25 billion of cash flow annually. Finally, RDS said its priorities were to reduce debt, pay dividends and achieve a "balance between capital investment and share buy backs." The stock ended the day 3.1% higher at 1,764.5 pence.

Commodities Update

WTI joined Brent to trade above $50 per barrel yesterday. The US dollar remained depressed following its sharp post-payroll sell-off on Friday and this helped support oil prices. The Dollar Index spent most of yesterday stuck under 94.00 while the EURUSD remains in an uptrend above 1.1300.

But as on Monday it seemed that supply issues provided the biggest fillip to crude. Militant action continues to disrupt Nigerian output which, according to the country’s oil minister,  is estimated to have fallen by 800,000 barrels per day (bpd) to 1.4 million (bpd). Nigeria was once the biggest oil producer on the continent. But this year the country has suffered repeated acts of sabotage on oil infrastructure by The Niger Delta Avengers and this looks set to continue.

In addition, French refineries will soon be coming back on line following the end of nationwide strikes. This suggests that French crude demand should begin to pick up now. On top of this, the latest US crude inventory data from Genscape showed a bigger-than-expected drawdown at Cushing, Oklahoma.  Late yesterday, data from the American Petroleum Institute (API) confirmed the drawdown in crude inventories. However, there were bigger-than-expected builds in both distillate and gasoline products. The news saw oil sell off briefly. We’ll get a further inventory update this afternoon from the Energy Information Administration.

On Monday energy services company Baker Hughes reported a pick-up in the US rig count for only the second time this year. The oil rig count for the week ending 3rd June rose by 9 to 325 – which is still well below the 642 producing this time last year. The news could continue to keep a lid on oil prices until we get next week’s update.

On Monday gold and silver managed to eke out modest gains in the wake of Federal Reserve Chairman Janet Yellen’s speech in Philadelphia. This was quite an impressive achievement given Friday’s fierce rally in the two precious metals following the grim payroll data. However, gold and silver drifted lower yesterday despite a weaker tone to the US dollar.

Where the two go next really depends on what investors expect the US Federal Reserve to do when it comes to monetary policy for the rest of the year. As noted yesterday Mrs Yellen described last week’s payroll data “disappointing.” Yet she also managed to talk up the US economy to some extent. So while the markets believe that a June rate hike is off the cards, they still feel that tightening could come in July, or even September. This could mean that precious metals range-trade over the summer – unless we see weaker economic data which persuades investors that a July hike is unlikely. If gold can dig in above $1,240 then this level could act as support once again and mark the bottom of the range with $1,280 acting as resistance. Otherwise, we could be looking at prices trading either side of $1,220 for a while.

Both metals were sharply higher in early trade this morning. Some newswires are putting this down to expectations that the Fed won’t hike in July either, but there was nothing overnight to suggest this is the case. Instead, it was simply down to heavy buying in the Asian Pacific session. This could unravel once the US opens, but it does mean there’s more chance of $1,240 becoming significant support once again. 


Forex Update

The dollar and the euro lost ground against a number of crosses yesterday which meant the EURUSD spent most of Tuesday’s session little-changed.

There were more fun and games in sterling early yesterday in the Asian Pacific trading session. At one point cable soared close to 2 full cents while the EURGBP plunged 90 ticks in the space of one minute. There was a subsequent correction, but not by the full move, and sterling then pushed higher throughout the remainder of the day. There was some suggestion that sterling’s rally had been triggered by newspaper polls showing that the “remain” camp had retaken the lead. However, I’ve been unable to find any evidence of this. Certainly, as far as FX traders were concerned, the move was a combination of a “fat finger” hitting the wrong button just as trading volumes were light as the Asian Pacific FX session wound down. It’s worth noting that liquidity is drying up in FX, particularly in pairs including sterling. This will become even more apparent as we get closer to the referendum on June 23rd.

The Australian dollar rallied yesterday after the Reserve Bank of Australia (RBA) left its benchmark Cash Rate unchanged at 1.75%. This was as expected as the RBA cut rates by 25 basis points last month. The central bank also suggested that it was in no hurry to ease further following the release of some decent economic numbers. 

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

Category: AM Bulletin

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