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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
Trading Guides: How fast can you buy and sell with spread betting?
22 Aug 2016
Weekly Bulletin: Jackson Hole Symposium in focus
22 Aug 2016
PM Bulletin: Retailers bring earnings season towards a close
19 Aug 2016
AM Bulletin: Equities driven by oil and the Fed
19 Aug 2016
Video Update: The next Fed rate hike, the dollar and oil
18 Aug 2016
AM Bulletin: FOMC minutes read as dovish
18 Aug 2016
Trading Guide: How to choose a spread bet provider
17 Aug 2016
AM Bulletin: UK employment data and FOMC minutes in focus
17 Aug 2016
PM Bulletin: Dollar sell-off sends USDJPY below 100
16 Aug 2016
AM Bulletin: Yen stronger as investors de-risk
16 Aug 2016
Platform Tours: CFD Trading - How to Place Orders
15 Aug 2016
Trading Guides: What is spread betting?
15 Aug 2016
Weekly Bulletin: Summer “melt-up” continues
15 Aug 2016
PM Bulletin: Dow, S&P and NASDAQ hit all-time highs
12 Aug 2016
AM Bulletin: US indices hit fresh all-time highs
12 Aug 2016
PM Bulletin: Yen still strong, despite Japan’s stimulus
11 Aug 2016
AM Bulletin: Equities following oil
11 Aug 2016
PM Bulletin: Gold back within sight of multi-year highs
10 Aug 2016
AM Bulletin: US Crude Oil inventories eyed
10 Aug 2016
PM Bulletin: Sterling under pressure
09 Aug 2016
AM Bulletin: Stock markets calmer following last week’s rally
09 Aug 2016
Platform Tours: Spread Betting - How to Place a Trade
08 Aug 2016
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08 Aug 2016
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08 Aug 2016
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08 Aug 2016
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08 Aug 2016
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05 Aug 2016
July: Non Farm Payrolls Out Today
05 Aug 2016
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05 Aug 2016
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04 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
AM Bulletin: JPY strengthens as Abe disappoints
02 Aug 2016
CFD Trading - Closure and Partial Closure
01 Aug 2016
Doubts over European stress tests
01 Aug 2016
Monetary policy driving investor behaviour
01 Aug 2016
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Indices Update

European equities are in retreat this morning as disappointment over Japan’s fiscal stimulus and second quarter corporate earnings weigh on risk assets. There was a 25 basis point rate cut from the Reserve Bank of Australia (RBA) this morning and RBA governor Glenn Stevens warned that the global economy was growing at a lower-than-average pace. On top of this, we’ve had some detail concerning the 28 trillion yen fiscal stimulus promised by Prime Minister Shinzo Abe. The overall takeaway is that it isn’t quite as impressive as it first sounded. The yen is stronger and the USDJPY has fallen back below 102.

European equities began the month in positive territory in early trade yesterday. Investors responded to the European Banking Authority’s (EBA) Stress Test results which were released late on Friday. Italian bank Monte dei Paschi was identified as the financial institution most at risk, but this was no surprise. Other troubled banks include Allied Irish, Royal Bank of Scotland and Commerzbank, while Deutsche Bank performed better than expected. European banking stocks led broader equity markets higher. However, the sector turned lower later in the day with UniCredit giving back a 4% gain to end the day more than 9% lower.

In other news, William Dudley, President of the New York Federal Reserve, said investors shouldn't be ruling out the possibility the Fed will hike interest rates this year. He told a conference of central bankers and regulators that: "Market expectations, to my eye, derived from federal funds futures prices, which price in no more than one 25 basis-point rate hike through the end of 2017, … appear to be too complacent". He also said he expected the US economy to grow at an annualised rate of around 2% over the next 18 months. Meanwhile, Federal Reserve Bank of Dallas President Robert Kaplan said the central bank could still raise rates at the September meeting. Of course, we’ve heard all this stuff so many times before: the Federal Reserve chickens out of modestly tightening monetary policy and then spends the next month or two trying to convince everyone that the US economy is robust enough to deal with a rate hike. Quite frankly their desperation is getting embarrassing now.

The FTSE 100 index closed at 6,693.95 down 30.5 points on the day, or 0.45%

The German DAX fell 7 points or 0.07% to end the day at 10,330.5

The US30 closed down 27.7 points to finish at 18,404.5. The S&P 500 fell 0.1% to close at 2,170.8 while the Nasdaq 100 rose 0.6% to close at 4,756

Equities

Much of yesterday’s equity market focus was on the European banking sector. Investors initially reacted positively to the European Banking Authority’s stress test results. However, by the close of business there were some notable losers, mostly amongst Italian banks. The Italian banking sector remains a major concern for policymakers in the Euro zone and Italy, not to mention investors themselves. This is due to an overhang of around €360 billion of non-performing loans which could be a disaster even if only a relatively small percentage ends up going bad. Investors were also questioning the validity of the stress tests, given that there was no zero/negative interest rate scenario while Greek and Portuguese banks were left out altogether.

Commodities Update

Oil fell again yesterday taking WTI and Brent further below support at $42 and $44 respectively. According to Bloomberg, money managers increased their short positions in the WTI contract dramatically last week for the biggest increase since 2006. Investors are expressing growing unease about what looks like a downturn in demand growth. At the same time stockpiles continue to build as global oil production continues to pick up. Meanwhile the US rig count rose again last week. Data from Baker Hughes showed that the number of active rigs is up by 58 since the beginning of June when crude was trading above $50 per barrel. On top of this OPEC production is on course to hit its highest level in recent history this month. This is the news that greets Mohammed Barkindo of Nigeria as he steps in as OPEC’s new general secretary, the first in close to 10 years.

Gold spent most of yesterday’s trading session in negative territory. However, its losses were relatively modest, particularly when one puts them in the context of last week’s rally. All in all yesterday’s price action looked like nothing more than consolidation, catalysed by dollar strength. Meanwhile, silver performed well and was up over 1.5% earlier in the European session.

The two precious metals soared higher last week. Both made solid gains following the release of disappointing US economic data and the Federal Reserve rate decision. Wednesday saw the publication of weak Durable Goods numbers. Later in the day the Fed surprised no one when it kept interest rates unchanged. However, the accompanying FOMC statement was considered relatively dovish, even though some commentators were convinced it kept the door open for a September hike. Yet most investors now believe that there will be no tightening of monetary policy until December at the earliest. Dollar-denominated gold responds favourably to the prospect of low US interest rates, as the lost opportunity cost of holding the non-yielding asset decreases. Then on Friday we got the first look at second quarter US GDP. This came in at +1.2% year-on-year which was well below expectations. The dollar fell sharply on the news and this helped to lift both precious metals again.

Forex Update

Overnight the Reserve Bank of Australia (RBA) cut its headline Cash Rate by 25 basis points to 1.50%. The Aussie dollar slipped initially but soon made back its losses as the cut was widely anticipated. This morning all eyes are on the Japanese yen which is strengthening again. Investors are buying yen and selling risk assets as they express their disappointment over Shinzo Abe’s much-hyped fiscal stimulus package.

We had a stack of manufacturing PMIs published yesterday beginning with China. The official number came in below expectations at 49.9 indicating mild contraction in the sector. However, the Caixin survey (which tracks smaller-scale private firms compared to the official gauge) rose to 50.6 from 48.6 previously and against expectations of 48.8. Meanwhile, the non-manufacturing PMI rose to 53.9 from 53.7 the previous month.

The European data was similarly mixed. The Italian and Spanish Manufacturing PMIs disappointed, the French came in as expected while Germany’s and that for the euro zone as a whole registered a modest improvement from a month earlier. The euro was little-moved on the news.

Meanwhile the UK’s Manufacturing PMI for July slumped to 48.2, well below the 49.1 expected and indicating further contraction in the sector. This latest data point provides the Bank’s MPC with further evidence of a post-Brexit slowdown and makes a rate cut at this Thursday’s meeting pretty much inevitable. The only question now is whether they back up a 25 basis point cut with an increase to the Asset Purchase Facility as well. The poor data led to a sell-off in sterling against the majors although it recovered some lost ground as the trading session progressed.

Upcoming events

Today’s significant economic data releases include Spanish Unemployment, Euro zone PPI and the UK Construction PMI. From the US we have Personal Spending, Personal Income, the Core PCE Price Index (the Fed’s preferred inflation measure) and Total Vehicle Sales. 

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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