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AM Bulletin: Equities and oil slip in early trade
31 Mar 2016
PM Bulletin: Non-Farm Payroll look-ahead
31 Mar 2016
AM Bulletin: Yellen comments boost risk appetite
30 Mar 2016
PM Bulletin: Is a dovish Janet really that bullish?
30 Mar 2016
AM Bulletin: Yellen to speak
29 Mar 2016
PM Bulletin: US indices running into resistance
29 Mar 2016
AM Bulletin: Profit-taking ahead of holiday weekend
24 Mar 2016
PM Bulletin: Dollar correlations
24 Mar 2016
AM Bulletin: Equities head higher
23 Mar 2016
PM Bulletin: Melt-down in precious metals
23 Mar 2016
AM Bulletin: Markets looking for guidance
22 Mar 2016
Weekly Bulletin: US dollar on the back foot
21 Mar 2016
AM Bulletin: USD sell-off boosts oil
18 Mar 2016
PM Bulletin: A look at the S&P500 and FTSE100
18 Mar 2016
AM Bulletin: USD down on dovish Fed
17 Mar 2016
PM Bulletin: USDJPY
17 Mar 2016
AM Bulletin: All ears and eyes on FOMC
16 Mar 2016
PM Bulletin: Reaction to the “Sugar Tax”
16 Mar 2016
AM Bulletin: BOJ unchanged
15 Mar 2016
PM Bulletin: FOMC look-ahead and the USD
15 Mar 2016
Weekly Bulletin: Central banks still in focus
14 Mar 2016
PM Bulletin: Gold
14 Mar 2016
AM Bulletin: Confusion reins
11 Mar 2016
PM Bulletin: EURUSD revisited
11 Mar 2016
AM Bulletin: ECB meeting in focus
10 Mar 2016
PM Bulletin: Mr Draghi fires his bazooka
10 Mar 2016
AM Bulletin: Markets consolidate
09 Mar 2016
PM Bulletin: ECB look-ahead
09 Mar 2016
AM Bulletin: Chinese data weighs on equities
08 Mar 2016
PM Bulletin: Nasdaq 100
08 Mar 2016
Weekly Bulletin: ECB expected to boost stimulus
07 Mar 2016
PM Bulletin: FTSE making steady gains
07 Mar 2016
March: Non Farm Payrolls Out Today
04 Mar 2016
AM Bulletin: Markets quiet ahead of Non-Farms
04 Mar 2016
PM Bulletin: Meanwhile, over in silver...
04 Mar 2016
AM Bulletin: Equities consolidate
03 Mar 2016
PM Bulletin: Non-Farm Payroll look-ahead
03 Mar 2016
AM Bulletin: Equities soar
02 Mar 2016
PM Bulletin: AUDUSD chart
02 Mar 2016
AM Bulletin: See-saw day ends in losses for US equities
01 Mar 2016
PM Bulletin: Glencore
01 Mar 2016
Expand February <span class='blogcount'>(42)</span>February (42)
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Indices Update

It was a very quiet day across the world’s stock markets yesterday. The major indices all traded in narrow ranges and paid scant regard to Services PMIs from China, the UK, Euro zone and US. Instead, investors took a breather after taking equities sharply higher earlier in the week. They appeared to be keeping their powder dry ahead of today’s Non-Farm Payroll release.

This will be the last payroll update before the US Federal Reserve meets on 15th/16th March. The FOMC will also release its latest Summary of Economic Projections and Fed chairman Janet Yellen will hold a press conference. In other words, if the Fed really felt that rates should go up again ahead of the summer, this would be the time to announce it.

The Fed has made it abundantly clear that its rate decisions are data-dependent, yet US economic data since the beginning of the year has been patchy to poor. Manufacturing and Services PMIs, Durable Goods and the most recent Consumer Confidence numbers have all disappointed. On the flip side housing, employment and Average Earnings are relatively bright spots while the jury is still out on Factory Orders, Retail Sales and Industrial Production. But today’s payroll data is the most eagerly anticipated of all economic releases, as it covers the employment situation of the world’s largest economy.

The consensus expectation is for a rise of 195,000 jobs in February. This would represent a solid increase on last month’s reading of 151,000 which was well below the 189,000 consensus expectation. On top of that, December’s number was revised down sharply. The trouble is that it’s quite difficult to predict how investors will react to data that comes in better, or worse, than expected.

Last month, the poor numbers led to a sharp sell-off in US equities which saw the Dow Jones Industrial Average lose around 5% over the next few days. It was only Fed Chairman Janet Yellen’s testimony in Washington the following week which triggered a rally that has continued until now.

Now we know that the Fed has had to dial back from the rate hike projections it made in December. Nevertheless, the central bank wants to give the impression that it has every confidence in the US economy. Yet it probably daren’t risk another rate hike this month for fear of triggering another big risk-off move. So while a poor headline payroll number (say, below 160,000) should initially be negative for equities and the dollar, it may reassure investors that the Fed will delay its next rate rise beyond June. A strong number (above, say, 220,000 ignoring revisions) should spark an initial increase in risk appetite. But that may not be sustained if the prospect of a June rate hike becomes embedded in the market’s consciousness.

It’s also important to keep an eye on Average Hourly Earnings. If this holds up around +0.5% month-on-month then this will put further pressure on the Fed to talk up the prospect for further rate hikes.

The FTSE 100 index closed at 6,130.5 down 16.6 points on the day, or -0.3%

The German DAX fell 24.7 points or 0.3% to finish at 9,751.9

The US30 closed up 44.6 points to finish at 16,943.9. The S&P 500 rose 0.4% to close at 1,993.4 while the Nasdaq 100 fell 0.2% to close at 4,325.9

Equities Update

Shares in Aggreko (AGK) surged yesterday despite the company reporting a fall of 13% in pre-tax profits to £252 million for 2015. The temporary power provider suffered from weak oil prices, slow payments and a price reduction due to a contract extension in Bangladesh. Revenue was effectively flat at £1.6 billion and the company maintained its full year dividend of 27.12p a share, which it said reflected its continued confidence in the strength and prospects for the group. Aggreko also said it was on track to deliver £80 million worth of cash savings by 2017 from reorganisation and improvements in procurement. The shares ended the day 12.6% higher at 1,008 pence

Commodities Update

It was a slow start to yesterday’s trade and both Brent and WTI spent the majority of the European session in the red. However, prices spiked higher mid-afternoon although it wasn’t apparent what had caused the change in sentiment.

Both Brent and WTI continue to grind higher after hitting multi-year lows in January. Momentum appeared to be flagging once February got underway. However, oil, along with equities and other risk assets spiked higher following Federal Reserve chairman Janet Yellen’s testimony in Washington three weeks ago. Brent continues to push above the $36 level which was previously resistance while WTI is finally managing to pull away from $34.

Crude prices are currently underpinned by talk of an agreement being reached to freeze production at January levels. The initial talks involved OPEC members Saudi Arabia, Venezuela and Qatar together with non-OPEC Russia. However, there is now speculation that a further meeting will be held later this month to discuss this plan which will include other OPEC and non-OPEC producers. Despite this, a freeze is not a cut and the underlying market fundamentals haven’t changed. Supply looks set to exceed demand for a considerable period of time yet and record inventories have to be wound down. In addition, the upside could be constrained as moth-balled US shale production looks likely to come back on line once crude gets back above $40 per barrel. On Wednesday the Energy Information administration (EIA) said that US production has dropped by around 25,000 barrels per day (bpd) to 9 million bpd. Last April the US was pumping out around 9.6 million bpd.

While equity markets went into hibernation ahead of today’s Non-Farm Payroll data, gold and silver took the opportunity of a sleepy market to surge higher. The catalyst for the move was the US dollar which fell sharply once the US trading session got underway. All morning gold had been building a base above $1,240 but then it suddenly took off and flew past $1,250 before briefly hitting $1,260. It appears that the rising pennant mentioned in previous commentaries really was the precursor for a break higher. Now we’ll have to wait and see if gold can hold on to these gains ahead of the weekend. If it can, then a rally towards the high of $1,300 from this time last year could be on the cards. Silver followed gold higher.

Forex Update

The US dollar had rallied steadily since 11th February after Janet Yellen finished her second day of testimony in Washington. Prior to this investors had sold the greenback as they reassessed the likelihood of the Fed hiking rates by as much as 100 basis points over 2016. This had been the base case scenario back in December following the Fed’s decision to hike rates for the first time since June 2006. However, the loss of risk appetite since the beginning of the year, together with some dovish statements from Fed members changed perceptions. But Janet Yellen then assured everyone that the US recovery was on track, and that monetary tightening from the Fed was definitely on the table.

Nothing fundamental has changed since then – except the passage of time. Today sees the release of US Non-Farm Payrolls and the feeling is that this could be the deciding factor in the Fed’s decision when it meets later this month. Consequently, it makes sense to see some position squaring ahead of the data release, hence the sell-off in the dollar. Of course, the greenback wasn’t helped by a pick-up in US Weekly Jobless Claims and a decline in the ISM Non-Manufacturing PMI. The employment component of the index was particularly worrying. This followed on from a disappointing Manufacturing PMI earlier in the week.

Upcoming events

Today’s most important event is the release of US Non-Farm Payrolls. We will also get an update on Average Hourly Earnings and the Unemployment Rate. We also have the Canadian Trade Balance.


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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