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PM Bulletin: BOJ and the yen
31 May 2016
AM Bulletin: Quiet start following holiday weekend
31 May 2016
PM Bulletin: Meanwhile in China
27 May 2016
AM Bulletin: Yellen in focus ahead of holiday weekend
27 May 2016
PM Bulletin: FTSE breaks above 6,200 again
26 May 2016
Holiday Schedule: Memorial Day 30th May 2016
26 May 2016
AM Bulletin: Brent crude tops $50
26 May 2016
PM Bulletin : Crude Chart
25 May 2016
AM Bulletin: “Risk-on” trade continues
25 May 2016
PM Bulletin: Another poll boost for sterling
24 May 2016
AM Bulletin: Equities slip as rate hike worries persist
24 May 2016
PM Bulletin: Changing expectations
23 May 2016
Weekly Bulletin: I’ll see your hike and raise you two
23 May 2016
PM Bulletin : Significant events ahead of June FOMC
20 May 2016
AM Bulletin: Preparing for a summer rate hike
20 May 2016
PM Bulletin : Gold struggles as dollar strengthens
19 May 2016
AM Bulletin: FOMC more hawkish than anticipated
19 May 2016
PM Bulletin : FOMC minutes and the S&P
18 May 2016
AM Bulletin: FOMC minutes in focus
18 May 2016
PM Bulletin: Cable rallies on latest poll
17 May 2016
AM Bulletin: US equities lead bounce-back
17 May 2016
Weekly Bulletin : Waiting on Central Banks
13 May 2016
PM Bulletin : Apple
13 May 2016
Holiday Schedule Whit Monday Market Holiday
13 May 2016
AM Bulletin : US Retail Sales in focus
13 May 2016
PM Bulletin : Silver and Gold
12 May 2016
AM Bulletin: Investors wary after Wall Street sell-off
12 May 2016
PM Bulletin: Two headaches for Elon Musk
11 May 2016
AM Bulletin: Stock indices pull back after rally
11 May 2016
PM Bulletin: Yen pulls back on jawboning
10 May 2016
AM Bulletin: Markets steady on commodity bounce
10 May 2016
PM Bulletin: Precious metals give back recent gains
09 May 2016
Weekly Bulletin: Poor Non-Farm Payroll causes concern
09 May 2016
May: Non Farm Payrolls Out Today
06 May 2016
PM Bulletin: A dismal Non-Farm Payroll number
06 May 2016
AM Bulletin: Non-Farm Payrolls in focus
06 May 2016
PM Bulletin: Non-Farm Payroll look-ahead
05 May 2016
AM Bulletin: Crude bounce lifts equities
05 May 2016
PM Bulletin: Apple update
04 May 2016
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04 May 2016
PM Bulletin: Aussie dollar slumps
03 May 2016
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03 May 2016
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Indices Update

In early trade it looked as if equity markets were stabilising following yesterday’s sharp sell-off on Wall Street. However, most of the major European and US indices were back in negative territory soon after this morning’s open. So far, the Dow has only given back all its gains from Tuesday. Nevertheless, yesterday’s sell-off has unnerved some investors due to the speed of the turnaround. Some analysts expressed concern that the stock market was unable to rally yesterday despite a sharp spike in oil prices. This goes against the strong positive correlation we’ve seen recently.

European equities and US stock index futures began yesterday on the back foot. This was despite a sharp rally on Tuesday which saw the Dow hit its highest level since 28th April. Investors appeared to be booking some profits as crude oil pulled back from its best levels and as the yen strengthened once again.

The equity market sell-off continued beyond the US open. Investors were spooked by trading results and weak forward guidance from Macy’s (see below). The latest update from the department store chain led to a general sell-off in the retail sector, at least at the middle and higher end. Investors have become very concerned over the state of consumer spending.  Disney’s earnings also disappointed.

 There was a sharp rally in stocks following the latest update on US crude inventories from the Energy Information Administration (EIA). This showed a large decrease in stockpiles last week which led investors to pile back into oil on the long side driving prices higher. US and European stock indices quickly cut their losses. However, this rally proved short-lived and equities resumed their slide within 30 minutes of the data’s release.

The FTSE 100 index closed up 5.8 points or 0.1% at 6,162.5

The German DAX fell 70.1 points or 0.7% to finish at 9,975.3

The US30 closed down 217.2 points to finish at 17,711.1 The S&P 500 ended down 1% at 2064.5 while the Nasdaq 100 finished 0.9% lower at 4,361

Equities Update

We’re in the last stages of the earnings season for both US and European stocks. Now US retailers take centre stage. Yesterday Macy’s (M), the department store group which includes Bloomingdale’s, reported its numbers which weren’t a pretty sight. Comparative store sales slumped 6.1% which was nearly half what was expected. Sales for the first quarter of 2016 were down 7.4% when compared with the same period 12 months ago. The company reported continued weakness in consumer spending levels for clothing and related products. It also noted that sales trend relative to expectations had slowed “meaningfully” since mid-March. The biggest surprise was the company’s revised guidance for earnings per share. This was slashed to a range of $3.15 to $3.40 for the 2016 financial year from $3.80 to $3.90 previously. The stock was sharply lower in early trade and dragged down other retailers with it. It closed 15.2% lower at $31.37

Commodities Update

Crude oil lost ground in early trade yesterday, tempering some of the gains made on Tuesday. However, both WTI and Brent flew higher following the release of the latest US inventory data from the Energy Information Administration (EIA). This showed a fall of 3.4 million barrels for the previous week compared with an expected build of 100,000 barrels.

It has certainly been a volatile week for oil prices so far with some big intra-day ranges. Crude fell sharply on Monday when some of the worst fears about the Canadian wildfire around Fort McMurray, the capital of Canada’s oil sand fields, were dampened on news that bad weather was helping to bring the fires under control. Crude lost more ground after analysts at Genscape reported a bigger-than-expected US inventory build at Cushing, Oklahoma. But prices bounced back sharply on Tuesday on concerns over supply disruptions in Nigeria and Libya, holders of Africa’s largest oil reserves. Some major producers have begun evacuation procedures due to increasing rebel violence in the Niger River delta. Then oil slipped back later in the day after the American Petroleum Institute (API) revealed that inventories for US crude had risen more than expected.

The charts suggest there’s resistance coming in around $46 for WTI and $48 for Brent. WTI broke above this level yesterday, but now it needs to hold above here to form support and move higher. There’s support for both contracts around the $42 per barrel level. Oil could be consolidating now ahead of another leg higher. Crude has put in an impressive rally since the beginning of the year and may need to build a base before it can push up further. However, an alternative view is that crude is losing its upside momentum. Temporary supply disruptions won’t offset the likelihood of increased production the closer we get to $50 per barrel. Meanwhile, the outlook for demand growth is a bit foggier now as there’s increasing evidence that global economic activity is slowing once again.

Precious metals rallied sharply yesterday as did base metals such as copper, lead and zinc. This was a broad-based recovery which followed the China-inspired sell-off on Monday. Investors rushed back in to snap up gold and silver as a number of analysts expressed a bullish outlook for the two metals. A sell-off in the US dollar also supported the rally. The Dollar Index broke below 94.00 while the EURUSD rallied aback above 1.1400

There has been increased coverage about how precious metals are back in favour now thanks to the increased adoption of negative interest rate policies around the world. Investors are no longer worried about owning an asset which pays no interest when so many bonds have negative yields. In addition, there is an increased understanding that gold and silver operate as both stores of value and mediums of exchange which some people may see as superior to cash. 

Forex Update

The US dollar came under renewed pressure yesterday losing ground against a basket of currencies. The Dollar Index fell back below 94.00 ahead of the US open. This is a level which has acted as support on a number of occasions over the past year. Meanwhile, the EURUSD broke back above 1.1400 and once again tested resistance around 1.1430 – the 76.4% Fibonacci Retracement of the August-December 2015 sell-off.

But just as much attention is being lavished on the USDJPY pair as on the EURUSD. Yesterday the yen put in its best performance since the end of April as the USDJPY dropped back below 109.00. This followed a week in which the USDJPY rallied 3.5% thanks to repeated efforts from Japanese policymakers to talk down the yen. Yesterday Koichi Hamada, special advisor to Japan’s Prime Minister Shinzo Abe, said that Japan retained the right to intervene in currency markets and should do so if the USDJPY were to fall to 100.00. On the face of it this gave currency traders a firm idea of where the line in the sand is for Japan’s policymakers. However, Mr Hamada also said that he didn’t think the yen had much further to rise and saw it trading between 105.00 and 110.00.

Yesterday we had the latest update on the UK’s Industrial and Manufacturing Production. These numbers tend to be quite volatile and have a history of swinging from positive to negative readings. That’s exactly what we saw with both numbers showing a rebound in March after a dismal February. However, that rebound fell well short of the improvement expected and only went to confirm the weakness in manufacturing which showed up in last week’s PMI data.

These data releases aren’t closely followed by the public in the way that GDP and inflation numbers are. Nevertheless, the upcoming referendum continues to give the Chancellor plenty of cover for blaming any signs of UK economic weakness on fears of a Brexit.


Upcoming events

Today’s significant economic events include Industrial Production from the Euro zone. From the US we have Weekly Jobless Claims, Import Prices and speeches from FOMC voting members Eric Rosengren and Esther George. The main event is the release of the Bank of England’s rate decision, Inflation Report, Monetary Policy Summary together with a press conference with BOE Governor Mark Carney.  

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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