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
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01 Jun 2016
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01 Jun 2016
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Indices Update

Last night US Federal Reserve Chairman Janet Yellen delivered a speech in Philadelphia. This was the last insight into Fed thinking ahead of a media blackout which is now in place until after the Fed’s June 14-15 monetary policy meeting. It followed last week’s shock non-farm payrolls report that sent the dollar tumbling.

There was a muted market reaction to the speech as the Fed chair gave little away. However, although Mrs Yellen called Friday’s jobs data disappointing, she said that overall the labour situation has been quite positive. But perhaps of more interest were her comments concerning the timing of a rate hike. Last night she said that rates probably needed to rise gradually “over time.” Just over a week ago Mrs Yellen said she expects interest rates to rise "in the coming months.” That sounds like she’s pushing the prospect of a rate hike out beyond July.

This could delay the prospect of the potential double whammy of raised interest rates and a deteriorating economic background. Back in December the Fed raised rates even as manufacturing data was declining. Now, while the headline ISM Manufacturing PMI has ticked higher into expansionary territory it could hike rates as employment weakens. Last week’s number could end up being revised higher. However, that doesn’t look particularly likely as we’re recently seen a number of downward revisions to past payroll releases.

But for now equities are pushing higher. Investors like the idea that the Fed sees the economy improving but can still find excuses not to raise rates.

It was a mixed open yesterday for European indices. However, equity markets began to head higher as the morning wore on. This was despite a nasty fall in German Factory Orders for April which saw new orders decline 2% on expectations of a 0.4% decline. This was only partially offset by an upward revision to March’s number. There are concerns that Germany remains too dependent on exports which is showing signs of weakening as the country’s customers (within Europe but also China and elsewhere) invest less on capital expenditure. Nevertheless, the DAX rallied along with other European indices, lifted by rising crude and hopes that the US Federal Reserve won’t tighten monetary policy at next week’s meeting.

The FTSE 100 index closed at 6,273.4 up 63.8 points on the day, or 1%

The German DAX rose 17.8 points or 0.2% to end the day at 10,121.1

The US30 closed up 113.3 points to finish at 17,920.3. The S&P 500 rose 0.5% to close at 2,109.4 while the Nasdaq 100 gained 0.3% to close at 4,523.6



Monday was another one of those days when mining stocks were responsible for the FTSE100’s overall tone. Last year, invariably, the tone was bearish as the mining sector buckled under the pressure of collapsing commodity prices. But yesterday it was all good news. Friday’s sell-off in the US dollar helped to keep metals prices buoyant with iron ore ending yesterday’s session over 6% higher. Anglo American (AAL) topped the FTSE100 gainers’ table ending up 11.1% at 686.6 pence. It was followed by Rio Tinto (RIO), BHP Billiton (BHP) and Antofagasta (ANTO) – all ending the day more than 5% higher.


Commodities Update

Crude shot higher yesterday partly in response to Friday’s sell-off in the US dollar. The greenback took a tumble following a truly awful Non-Farm Payroll release. May showed a paltry 38,000 jobs created against an expected increase of 160,000. But while other dollar-denominated commodities (such as gold) soared on the weaker dollar, crude fell initially. It recovered later in the session but still ended lower on Friday. The main reason was that the poor data suggested that the US economic recovery (such as it is) may be weaker than previously considered. This could impact negatively on future crude demand growth.

However, that was all set aside yesterday as crude played catch-up. It was also lifted by renewed supply disruptions. Exxon Mobil announced a pipeline failure at a refinery near Los Angeles. The Torrance facility had only recently come back into service following an explosion last year. In addition, there was news of further militant attacks on Nigeria’s oil infrastructure.

On the other side of the supply ledger, crude prices were capped to some extent on hopes of an increase in US production. Energy services company Baker Hughes reported a pick-up in the US rig count for the second time this year. With WTI closing in on $50 per barrel, producers have been encouraged to take some rigs out of mothballs. The rig count for the week ending 3rd June rose to 325 – which is still well below the 642 producing this time last year.

Gold and silver traded in relatively narrow ranges yesterday ahead of Federal Reserve Chairman Janet Yellen’s speech in Philadelphia. Yet both metals managed to hold on to the significant gains made on Friday in the wake of the dismal payroll data and the subsequent sell-off in the US dollar. This on its own was an impressive performance by both metals. After all, investors have been rather skittish of late when it comes to holding on to positions in gold and silver, being very quick to cash in on gains. However, it’s probably fair to assume that Friday’s rally caught most on the hop. The speed of the bounce following the jobs number gave very little opportunity to load up at cheap levels.

There was plenty of analysis ahead of Mrs Yellen’s speech. Most commentators were of the opinion that she would want to keep all options open – despite the dreadful data. However, most also felt that the chances of a hike next week were back to zero.

Mrs Yellen downplayed the weak jobs data but called it “disappointing.” She managed to talk up the US economy and suggested that rate hikes were coming, but perhaps not just yet. The markets now believe that June is off the radar. The possibility of a July hike has decreased while September has increased.

Chart-wise, last Friday’s bounce does look a bit fragile so it would be surprising to see gold re-establish $1,240 as fresh support straight away. However, over the longer-term $1,200 is looking increasingly solid, which is one rung up from $1,180. Meanwhile, the $16 level for silver is also looking quite useful as future support.


Forex Update

The dollar struggled to make back lost ground yesterday ahead of Janet Yellen’s speech in Philadelphia. This would be the last comment from any Fed member until after next week’s FOMC meeting. Consequently, it was viewed as crucial for pre-meeting positioning following Friday’s payroll shocker.

Ahead of Mrs Yellen’s speech, Cleveland Fed President Loretta Mester popped up to insist that the weak jobs number had not changed the overall economic picture. She said that "a gradual upward pace of the funds rate appropriate" and went on to say that the timing of any hikes was data-dependent. Meanwhile, Boston Fed President Eric Rosengren declared that the payroll numbers were “disappointing.” However, he optimistically predicted that economic growth would support higher interest rates over the coming months. Both Fed regional presidents are voting members of the FOMC this year.

Yesterday’s big FX move was in the British pound. Sterling fell sharply against the majors following the release of three polls on the UK referendum. These all showed a lead for “leave” over “remain”. ICM had Leave on 48% and Remain on 43%. TNS put Leave on 43% with Remain on 41% while YouGov/GMB had Leave on 45% and Remain on 41%. This was the first time that the YouGov pollsters had put Leave ahead.

According to Reuters, out of the eight most recently published polls, five had Leave ahead with two going for Remain and one tie. Overall, these results suggest that the Leave campaign is continuing to build momentum.

The news led to a sharp sell-off in sterling overnight. The GBPUSD fell 100 ticks in 30 minutes. This took it back towards a mild area of support around 1.4330.


David: Today’s significant data releases include Euro zone Revised GDP and a 30-year UK Gilt auction. From the US we have Nonfarm Productivity and Unit Labour Costs (both revised), Economic Optimism and Consumer Credit.


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Posted by David Morrison

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