NEWS AND ANALYSIS

Incisive market commentary from David Morrison

Stay ahead with our market commentary and webinars from our in house market strategist

Open a Live AccountOpen a Demo Account
 
+ Show blog menu

Categories

Menu

Expand 2017 <span class='blogcount'>(342)</span>2017 (342)
Collapse 2016 <span class='blogcount'>(483)</span>2016 (483)
Expand December <span class='blogcount'>(23)</span>December (23)
Expand November <span class='blogcount'>(41)</span>November (41)
Expand October <span class='blogcount'>(37)</span>October (37)
Expand September <span class='blogcount'>(41)</span>September (41)
Expand August <span class='blogcount'>(52)</span>August (52)
Expand July <span class='blogcount'>(38)</span>July (38)
Expand June <span class='blogcount'>(42)</span>June (42)
Collapse May <span class='blogcount'>(42)</span>May (42)
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
AM Bulletin: Equities under pressure
04 May 2016
PM Bulletin: Aussie dollar slumps
03 May 2016
AM Bulletin: RBA cuts by 25 basis points
03 May 2016
Expand April <span class='blogcount'>(45)</span>April (45)
Expand March <span class='blogcount'>(41)</span>March (41)
Expand February <span class='blogcount'>(42)</span>February (42)
Expand January <span class='blogcount'>(39)</span>January (39)
 
 
 

 

Indices Update

It’s been a bit of a “risk-off” start to this morning’s trade. Asian Pacific markets were mostly lower with the Shanghai Composite ending 2.5% lower. Oil has drifted back and European equities are in retreat as investors look ahead to this afternoon’s US Non-Farm Payroll report.

There was a positive tone to global equities for most of yesterday. The main driver was the oil price which bounced sharply on fears of supply disruptions due to a wildfire in Canada and escalating hostilities in Libya. It seems somewhat daft for investors to take on additional risk for such a negative and flimsy reason, but such is the state of our capital markets. So much cheap debt (thanks to central bank monetary stimulus) has been made available that a large proportion of it is tied to risky ventures – such as US shale oil projects. Consequently the hope is that a rising oil price will be enough to save many of these ventures (and their lenders) by putting them back in a position to service their debts.

However, equity gains were relatively modest and most of these evaporated towards the European and US closes. Investors wound back their exposure to risk ahead of this afternoon’s US Non-Farm Payroll report.  This seems sensible as there were a clutch of disappointing data releases which suggested that a number of countries are struggling against some economic headwinds. China’s Caixin Services PMI slipped to 51.8 from 52.2 previously and lower than the 52.6 expected. Earlier in the week two Chinese Manufacturing PMIs dipped from the prior month with the Caixin dropping below 50, so indicating contraction.

Later yesterday morning the UK Services PMI came in at 52.3. This was well below both the 53.6 expected, and the prior reading of 53.7. So now we’ve seen a pull-back in UK Services alongside a contraction in manufacturing and a significant drop in construction. As with the Manufacturing and Construction PMIs, the Services PMI has been trending down for the last couple of years.

Finally, US jobless claims rose 274,000 last week which was well above the consensus expectation of an increase of 261,000. This followed on from a disappointing Challenger Job Cuts report which showed a 35% increase in layoffs in April from the previous month.

Now traders will focus on this afternoon’s Non-Farm Payroll release. Early expectations were for an increase of just over 200,000. But the “whisper number” will probably be well below that following Wednesday’s grim ADP report, yesterday’s poor jobless claims and a worse than expected Challenger Job-cut number.

The FTSE 100 index closed at 6,117.3 up 5.2 points on the day or 0.1%

The German DAX rose 23.6 points or 0.2% to finish at 9,851.9

The US30 closed up 9.5 points to finish at 17,660.7 The S&P 500 ended unchanged at 2,050.1 while the Nasdaq 100 finished down 0.1% at 4,309.5

Equities Update

Centrica (CNA) slumped yesterday and was the biggest faller on the FTSE 100.  The owner of British Gas said it was looking to raise £750 million through a share sale to help it cut its borrowings and buy two rival companies. The UK’s largest energy supplier intends to sell 350 million shares to institutional investors in a bid to fund two ‘attractive acquisitions’ worth around £350 million and to pay down debt. There was some surprise at the move as raising equity to pay down debt is expensive, even if it is ultimately prudent. Centrica ended 9.8% lower at 208.5 pence.

Commodities Update

Crude rallied sharply for the second successive session yesterday. Investors were reacting to news of the wildfire which has taken hold near Canada’s oil sand fields and of increased hostilities between rival factions in Libya. Officials in the Libyan capital Tripoli warned that the country's output could fall by 120,000 barrels per day if tankers continue to be blocked. Meanwhile, residents of Fort McMurray (a city in the heart of Canada's oil sands) were evacuated as fire spread. Although production facilities are not directly in the fire's path, the blaze has disrupted operations in the area.

What is interesting is that this kind of supply disruption would have been ignored last year when oil prices were falling. Suddenly, the market has become far more concerned about what should be a short-term hit to supply. That just wouldn’t happen in a market where there was little chance of a glut coming to an end. Recent suggestions that supply and demand could come close to being back in balance by the end of this year have played a large part in this.

Gold and silver began yesterday’s trading session on the back foot. This made sense as the dollar rallied on the European open. Both metals recovered later in the day despite the greenback adding to its earlier gains but then slipped into the red once again later in the afternoon. So overall, trade was directionless yesterday and both metals appear to be back in consolidation mode. This shouldn’t be too surprising given their gains through the latter half of April. Additionally, investors will want to reduce their exposure ahead of today’s Non-Farm Payroll release. It seems probable that gold and silver will move inversely to the US dollar. So on the face of it a poor number should be bad for the greenback and good for the two precious metals. After all, weaker employment data should reduce the likelihood of the Federal Reserve hiking rates at its meeting next month. In addition, a poor payroll release (on top of recent weak US economic data) sends up some worrying signals over the state of the US economy. But although Wednesday’s worse-than-expected ADP release saw the dollar initially fall, it rallied back quickly putting downside pressure on gold and silver. 

Forex Update

The bounce-back in the US dollar continued yesterday. The greenback made gains against most of the majors, although it did briefly fall back below 107.00 against the Japanese yen. The yen strengthened early in the US session despite Japan’s Prime Minister Shinzo Abe suggesting that measures could be taken to weaken the currency. Policymakers and the Bank of Japan (BOJ) have had to sit back and watch the currency surge around 12% against the US dollar since the end of January. This was when the BOJ took markets by surprise and adopted negative interest rates. The move should have made the yen less attractive. But instead it was driven higher as investors speculated that the BOJ was acting out of desperation and was close to reaching the limits of monetary easing.

Yesterday’s dollar rally was surprising in some respects. After all, the latest Weekly Jobless Claims number came in at 274,000 – well above the 261,000 expected. This followed a disappointing Challenger Job Cuts report which showed a 35% increase in layoffs in April from the previous month. Yesterday the ADP payroll number was up 156,000 – a long way short of the 205,000 increase expected. All-in-all, this fresh jobs data doesn’t bode well for today’s official Non-Farm Payroll report. Consequently, it’s surprising that the dollar didn’t give back some of its recent gains. After all, weaker jobs numbers will make it less likely that the Fed will want to hike rates further at its meeting next month. However, for some reason investors appear to be paying more attention to the jawboning of various Fed members. Earlier in the week San Francisco Fed President John Williams and Atlanta Fed President Dennis Lockhart suggested that the US central bank could still hike rates at next month’s meeting.


Upcoming events

Today’s major event is the release of US Non-Farm Payrolls. We’ll also get an update on the Unemployment Rate and Average Hourly Earnings. 

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

Category: AM Bulletin


Add a comment Add comment            

 

 
© 2017 Spread Co Limited. All Rights Reserved.

Spread Co Limited is a limited liability company registered in England and Wales with its registered office at 22 Bruton Street, London W1J 6QE. Company No. 05614477. Spread Co Limited is authorised and regulated by the Financial Conduct Authority. Register No. 446677.

Spread betting and CFD trading are leveraged products and can result in losses that exceed your deposits. Ensure you understand the risks.

Losses can exceed deposits. Click here to learn more.