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PM Bulletin: Gold
29 Jan 2016
AM Bulletin: BOJ takes rate negative
29 Jan 2016
PM Bulletin: BOJ in focus
28 Jan 2016
AM Bulletin: FOMC disappoints, but earnings offer support
28 Jan 2016
PM Bulletin: Facebook reports after the close
27 Jan 2016
AM Bulletin: Crude still driving equities
27 Jan 2016
PM Bulletin: Tomorrow’s FOMC meeting
26 Jan 2016
AM Bulletin: Equities slide on crude sell-off
26 Jan 2016
PM Bulletin: Silver chart
25 Jan 2016
Weekly Bulletin: Promise of further stimulus halts equity slide
25 Jan 2016
PM Bulletin: EURUSD chart
22 Jan 2016
AM Bulletin: Equities rally on ECB and oil
22 Jan 2016
PM Bulletin: Dovish Draghi triggers euro sell-off
21 Jan 2016
AM Bulletin: ECB meeting in focus
21 Jan 2016
PM Bulletin: Crude makes fresh multi-year lows
20 Jan 2016
AM Bulletin: Stocks slide as oil slumps
20 Jan 2016
PM Bulletin: Bank of Canada rate decision
19 Jan 2016
AM Bulletin: Equities surge on relief rally
19 Jan 2016
PM Bulletin: Crude oil - long-term charts
18 Jan 2016
Weekly Bulletin: China and oil weigh on equities
18 Jan 2016
PM Bulletin: Long-term gold bullion chart
15 Jan 2016
AM Bulletin: More woe from China
15 Jan 2016
Holiday Schedule: Martin Luther King Day Monday 18th January 2016
14 Jan 2016
PM Bulletin: Equities: bull or bear?
14 Jan 2016
AM Bulletin: Investors remain jittery
14 Jan 2016
PM Bulletin: The Bank’s rate decision
13 Jan 2016
AM Bulletin: Oil rebound lifts stocks
13 Jan 2016
PM Bulletin: Saudi Aramco’s IPO
12 Jan 2016
AM Bulletin: Crude closes in on $30
12 Jan 2016
PM Bulletin: US Fourth Quarter Earnings Season
11 Jan 2016
Weekly Bulletin: 2016: Trouble ahead?
11 Jan 2016
January: Non Farm Payrolls Out Today
08 Jan 2016
PM Bulletin: Another blow-out payroll number
08 Jan 2016
AM Bulletin: China effect calms markets
08 Jan 2016
PM Bulletin: Non-Farm Payroll look-ahead
07 Jan 2016
AM Bulletin: Equities slump after 2nd China trading halt
07 Jan 2016
AM Bulletin: Investors remain jittery
06 Jan 2016
AM Bulletin: China steadies and Europe rallies
05 Jan 2016
AM Bulletin: Chinese equities plunge
04 Jan 2016
 Wednesday 06 January 2016

AM Bulletin: Investors remain jittery



Indices Update

European stock indices and US stock index futures were sharply lower in early trade this morning. There was some talk of general nervousness following news that North Korea has successfully carried out a hydrogen bomb test. However, as the oil price is lower and precious metals are little-changed, this doesn’t hold water. In addition, the Shanghai Composite closed 2% higher this morning which should have calmed nerves.

Nevertheless, investors remain jittery. Recent market behaviour suggests that investors are cutting back their risk exposure and moving back into dollars, yen, T-bonds and to a lesser extent, gold. Whether this is the start of a significant stock market sell-off, or a healthy correction, remains to be seen. But bulls won’t take any comfort from a Dow below 17,000 and S&P500 under 2,000.

Early yesterday morning the People’s Bank of China said it was injecting 130 billion yuan ($20 billion) into the banking system. Despite this the Shanghai Composite looked like losing another 3% on the open. However, someone (or something) put in a massive bid which pushed the market up. It later emerged that state-controlled funds had stepped in to buy equities while the securities regulator signalled that it would delay lifting the ban preventing major shareholders from selling stocks. The 6-month ban was due to expire this Friday. The Shanghai Composite ended the session effectively unchanged and this helped to steady European markets on Tuesday’s opening.

There had been a palpable feeling of triumph on Monday night as the Dow and S&P500 rallied off their lows and closed back above significant levels of 17,000 and 2,000 respectively. However, everything felt a bit fragile on Tuesday morning as the major European and US indices pulled back from their best levels.

Last summer the carnage in China’s financial markets persuaded the US Federal Reserve to hold off from hiking rates and this helped global stocks recover quickly. This time round we’ve just had a rate hike with the expectation of more to come. Investors are likely to hold off from taking on much more exposure until the situation in China becomes clearer.

There is also a fundamental problem for investors where China is concerned. On one hand, it must be heartening to feel that the authorities will intervene whenever there’s a problem and equities slump. However, this is hardly a ringing endorsement of a properly-functioning capital market. There is also the concern that one day the authorities decide that they won’t/can’t intervene, or else their intervention is ineffective.

The FTSE 100 index closed at 6,137.2 up 43.8 points on the day or 0.7%

The German DAX rose 26.7 points or 0.3% to finish at 10,310.1

The US30 closed up 9.7 points to finish at 17,158.7 The S&P 500 ended at 2,016.7 up 4.1 points or 0.2% while the Nasdaq 100 fell 0.3% to close at 4,484.2

Equities Update

Shares in Home Retail Group (HOME) gapped higher on yesterday’s open and pushed up steadily for no apparent reason. The move left many traders flummoxed until Sainsbury’s (SBRY) confirmed that it had made an offer for the group back in November. Sainsbury’s said that the offer (which was in the form of Sainsbury’s shares and cash) had been rejected. Back in mid-December Home Retail (parent company of Argos, Habitat and Homebase) shares hit their lowest level in three and a half years. Yesterday Home Retail Group closed at 139.3 pence up 41.1%. A number of analysts had tipped the stock as a “buy” recently so this has turned out to be a nice post-Christmas bonus for some lucky investors.

Commodities Update

Crude oil drifted lower yesterday morning with both Brent and WTI trading close to multi-year lows. There had been great excitement on Monday as investors pushed the oil price higher in response to rising tensions across the Middle East. For a time it seemed as if geopolitical concerns would trump the supply/demand dynamic which has (along with a strengthening dollar) been driving the oil price lower for the past eighteen months. However, it looks as if it will take a lot more than the cutting of diplomatic ties between Saudi Arabia and Iran for geopolitical risk to once again be the driver for higher oil prices (this was confirmed to a great extent as oil completely ignored news of the North Korean H-bomb test). Of course, if this feud develops into full-blown hostility between majority-Shia Iran and Sunni Saudi Arabia (rather than the proxy wars taking place in Syria and Yemen for example) then crude prices will rebound. But it is worth considering how quickly US production can be brought online should the price rise high enough for it to be profitable. For this reason it would seem unlikely that we’ll be seeing the crude price back in triple digits anytime soon - barring some world-changing conflagration.

Gold and silver were firmer in early trade yesterday morning. This was something of a surprise as the US dollar was also pushing higher. Typically, there is a close inverse relationship between the two precious metals and the greenback. This is the case with all dollar-denominated commodities as a stronger dollar makes it more expensive for non-dollar bloc countries to purchase such commodities. This inverse relationship between the two precious metals and the US dollar was particularly strong last year.

For all the talk of the Japanese yen and Swiss franc being safe-haven currencies, the ultimate “go-to” currency in times of uncertainty is the US dollar. So when gold, silver and the US dollar move together it suggests that investors are becoming strongly risk-averse.

Forex Update

The euro was weaker against all the majors for much of yesterday. It slumped below support around the 1.0800 area against the US dollar and technically I can’t see much in the way of significant support now unless it drops below 1.0600 and retests the 3rd December low of 1.0525. But the single currency is really feeling the pain against the Japanese yen. The Relative Strength Indicator has fallen below 20 suggesting that the EURJPY is oversold. However, it is probably the wrong time to bet against the yen. The Japanese currency is seeing buyers as investors cut their risk exposure and buy back the yen borrowed to finance higher yielding (and higher risk) positions.

The euro wasn’t helped by the release of Euro zone CPI. This came in at +0.2% year-on-year for December – well below the +0.4% reading expected. One of the European Central Bank’s (ECB) prime aims is to see inflation (as measured by CPI) move back up to its 2% preferred target rate. The fact that it remains stubbornly low raises the prospect of further stimulus from the central bank. In a speech to the Economic Club of New York on 4th December ECB president Mario Draghi said: “I can say therefore with confidence – and without any complacency – that we will secure the return of inflation to 2% without undue delay, because we are currently deploying tools that we believe will achieve this, and because we can, in any case, deploy our tools further if that proves necessary”. In essence Mr Draghi was reminding us of a speech from July 2012 when he said the ECB will “do whatever it takes” to preserve the euro.

Upcoming events

Today’s significant data releases include Spanish, Italian, French, German, Euro zone and UK services PMIs. From the US we have ADP Non-Farm Employment Change, the Trade Balance, ISM Non-Manufacturing PMI, Factory Orders, Crude Oil Inventories and the minutes from the FOMC’s December meeting when the committee decided to raise rates.


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Posted by David Morrison

Category: AM Bulletin

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