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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
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Indices Update

European equities and US stock index futures were a touch firmer on yesterday’s open. Markets appeared to settle down following Friday’s tech-led US sell-off. However, by mid-morning all the major indices were falling sharply as investors switched into risk-off mode. The selling gathered pace into the US session as the front month WTI crude contract dipped below $30 per barrel. The Japanese yen shot higher as another symptom of a loss of risk appetite.

Despite ending sharply lower on the day the major US indices had a strong bounce off their lows in the last two hours of trading. This saw the Dow rally from 15,800 to close back over 16,000 thanks to a recovery in the energy sector.

Investors are worried about a slowdown in global growth, particularly that in China. In addition, they are still digesting Friday’s Non-Farm Payroll data. The headline number came in at 151,000 – well below the 190,000 consensus expectation. However, the Unemployment Rate fell to 4.9% - its lowest level since the first quarter of 2008. Average Hourly Wages rose 0.5% month-on-month (well above the +0.2% expected) and up a total of 2.5% from the same time last year.

The weak headline payroll number would suggest that the Federal Reserve is going to be less anxious to raise rates over the course of this year. But unfortunately for stock market bulls, the low Unemployment Rate together with the jump in hourly wages isn’t expected to dampen the Fed’s hawkish outlook. Investors are hoping for more Fed guidance when Janet testifies in Washington tomorrow and Thursday.

The FTSE 100 index closed at 5,689.4 down 158.7 points on the day or 2.7%

The German DAX fell 306.9 points or 3.3% to finish at 8,979.4

The US30 closed down 177.9 points to finish at 16,027.1 The S&P 500 ended at 1,853.4 down 26.6 while the Nasdaq 100 fell 1.6% to close at 3,960.7

Equities Update

Unsurprisingly, there weren’t many stocks which managed to end in positive territory yesterday although some UK miners managed to capitalise on the rally on precious metals. Randgold Resources (RRS) was perhaps the most notable. The African gold mining and exploration company shot higher after announcing one of its best periods of production ever. Production for the quarter ending 31st December 2015 rose 6% on the same period the year before. This helped lift profits by 10% from the preceding quarter although profits fell over 21% for the full year. Nevertheless the shares closed up 13.2% at 6,000 pence.

But we were spoilt for choice when it came to the losers. ITV (ITV) was one of the biggest decliners after Deutsche Bank downgraded to stock to “sell”, citing weakening retail spend which is set to hit advertising revenues. The shares closed down 7.2% at 237 pence.

Commodities Update

Crude oil was firmer in early Monday trade and this move helped to lift equities. There had been some initial buying on hopes of some kind of output cut being agreed following a weekend meeting between fellow OPEC members Saudi Arabia and Venezuela. As noted in earlier commentaries, Venezuela is a producer being particularly badly hit by the ongoing rout in the oil price. In fact, there are concerns of serious social unrest in a country which is currently suffering from an annual inflation rate estimated to be over 700%. Venezuela is desperate for any measures which could lift the price of crude, which really boils down to an agreement between OPEC and non-OPEC countries for a cut in production. But it remains abundantly clear that the Saudis aren’t prepared to go down that path and the crude rally quickly petered out and reversed.

Ahead of the US open it was a shaping up to be a general “risk-off” day as equities fell sharply in a continuation of Friday’s sell-off. The front-month WTI contract dropped below $30 in a move that suggested to investors that the lows for crude may not yet be in.

In contrast to oil, gold and silver began Monday’s trading session on the back foot. However, they began to recover as the US dollar gave back early gains. Later in the day both precious metals found their own upside momentum and surged higher. Gold took out its 15th October intra-day high of $1,191.7 to hit its best levels since June 2015 when the metal was in decline. Silver was up over 3% at one stage.

This year’s surge in the gold price has been quite extraordinary, particularly since the beginning of February. This is certainly constructive; although it does present a problem for those would-be buyers who were hanging back to make sure that the price really had bottomed. It does look as if the sub-$1,050 levels from December could mark the lows of the sell-off which began in the summer of 2011. The problem is that gold does look overbought at current levels with the RSI up around 80. But even a pull-back to around $1,115 (a 50% retracement of the rally from December) would (assuming it finds support and consolidates) wouldn’t mean that the metal’s best days are behind it.

Forex Update

Volatility has certainly returned to the FX markets and nowhere was that more in evidence yesterday than with the yen. The Japanese currency soared against all the majors as investors rushed to buy back yen that they had borrowed (sold) in order to use the proceeds to gain exposure to stocks and other higher-yielding (and riskier) assets. The USDJPY hit its lowest level in close to fifteen months and looks likely to fall further should the global sell-off in equities continue. This will be something of a worry to Japanese policymakers and Bank of Japan (BOJ) governor Haruhiko Kuroda in particular, coming so soon after he announced a negative interest rate policy (NIRP). The move should have weakened the yen and so helped to encourage exports, boost growth and push up inflation. Mr Kuroda must be pulling his hair out deciding what his next move will be to try and trash his currency. So we should listen out for any comments over the next few days as the BOJ won’t be happy with the USDJPY trading below 116.00.

Mr Kuroda and his colleagues may be hoping from some help from Janet Yellen when she testifies this week in Washington. But the Fed Chairman faces a couple of uncomfortable sessions in front of the House Financial Services Committee on Wednesday and the Senate Banking Committee the following day. No doubt she will be quizzed (and maybe even criticised) over the Fed’s December rate hike. But she will also be anxious to make the right noises in order to calm investors’ nerves and prevent a deeper and more protracted stock market sell-off. But she can only do this if she dials back on the FOMC’s projections for a full 100 basis point increase in rates in 2016. This should send the dollar lower, although the market is already adjusting to the prospect of a slower pace of tightening. But if she can engineer a stock market rally then the greenback should strengthen against the yen.

Upcoming events

There’s not much in the economic calendar today, just the UK Trade Balance and US JOLTS Job Openings and Wholesale Inventories. Key earnings come from TUI, Coca-Cola, Viacom and Walt Disney.

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

Category: AM Bulletin


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