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
PM Bulletin: OPEC and the oil price
01 Jun 2016
AM Bulletin: Manufacturing PMIs in focus
01 Jun 2016
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Indices Update
It’s been a mixed open for European equities. The major indices have had a lift from crude oil which is firmer this morning. However, the stronger yen is putting a lid on these modest gains. It’s a busy day in terms of major economic events with an ECB rate decision and press conference from Mario Draghi, the OPEC meeting in Vienna, US ADP Employment Change ( a precursor to tomorrow’s Non-Farm Payroll release) and speeches from Bank of England Governor Mark Carney and FOMC-voting member Jerome Powell.

European stock indices ended lower yesterday. This followed a weak session and an early sell-off in US indices. However, there was a late rally on Wall Street which saw the major stock indices end effectively unchanged. This recovery has led to the positive open this morning for European equities.

Yesterday saw the release of a slew of global Manufacturing PMIs. China’s headline Manufacturing PMI was unchanged from the previous month at 50.1 – so just registered expansion. However, the Caixin survey (which covers a larger number of smaller companies) slipped to 49.2 from 49.4 previously. The Non-Manufacturing PMI fell to 53.1 from 53.5. Overall, investors were unimpressed by the data which seems to confirm that China’s manufacturing and services sectors are flat-lining at best.

The European data was a mixed bag. But the main takeaway was that German manufacturing slipped from the previous month while the Eurozone’s was flat.  Nevertheless, both registered expansion.

There was a surprise bounce in the latest UK manufacturing PMI. The May number came in at 50.1 indicating expansion in the sector after it contracted sharply in April.

The UK’s Manufacturing PMI has been trending downwards since the end of 2013. While this has been a shallow decline, it has been steady and relentless, only broken by an unexpected spike in November last year. So this latest release goes against the grain and is an unexpected piece of good news against the uncertainty ahead of the UK referendum on EU membership.

The US Manufacturing PMI came in at 51.3. This was better than the prior reading of 50.8 and above the consensus expectation of a 50.5 survey reading. This was a good piece of news for the sector which has now registered expansion for the third consecutive month. The index had been trending down since the end of 2014 and there was considerable consternation back in December last year when the Fed raised rates even as the Manufacturing PMI registered contraction.

The FTSE 100 index closed at 6,191.9 down 38.9 points on the day, or 0.6%

The German DAX fell 58.3 points or 0.6% to end the day at 10,204.4

The US30 closed up 2.5 points to finish at 17,789.7. The S&P 500 rose 0.1% to close at 2,099 while the Nasdaq 100 lost 0.1% to close at 4,520.1


AccorHotels (AC) dropped sharply for the second consecutive session yesterday. Like other companies in the French travel and tourism sector, the hotel group has been hit hard by the double whammy of continued industrial action across France and a warning by the US to its citizens of possible terrorist attacks across Europe this summer. This all comes ahead of Euro 2016 tournament which takes place in France and kicks off next week. The stock ended 4.3% lower at €37.42

Commodities Update

Crude oil pulled back sharply from $50 per barrel in early trade yesterday. Brent had been trading either side of this psychologically important level since the middle of May while WTI has been hovering below here over the same period. Traders began selling crude in earnest following the release overnight of Chinese PMI data. The headline Manufacturing PMI was unchanged from the previous month at 50.1 – so just registered expansion. However, the Caixin survey (which covers a larger number of smaller companies) slipped to 49.2 from 49.4 previously. The Non-Manufacturing PMI fell to 53.1 from 53.5. Overall, investors were unimpressed by the data which seems to confirm that China’s manufacturing and services sectors are flat-lining at best. This has negative implications for crude oil demand.

There was some better news when the US Manufacturing PMI came in at 51.3. This was an improvement on the prior reading of 50.8 and above the consensus expectation of 50.5. Crude prices picked up a touch but investors seemed reluctant to take on too much exposure ahead of today’s OPEC meeting in Vienna. There has been some advance chatter that the Gulf Cooperation Council wants to revive the possibility of taking coordinated action to freeze production. However, given the abject failure of OPEC/non-OPEC producers to reach agreement at the Doha meeting in April, together with heightened tensions between Saudi Arabia and Iran, such a move looks very unlikely. Not only that, but crude has risen 20% since the Doha meeting so there is less pressure to boost prices. In fact, all producers will want to raise output by as much as possible now to take advantage of the highest oil price in eight months.

Gold and silver were firmer in early trade yesterday, getting some support from a weaker dollar. Investors also upped their long-side exposure to the two precious metals as European and US stock indices fell in early trade. However, both metals slipped back later in the session as equity markets steadied and crude oil made back earlier losses. They lost more ground following the release of the US Manufacturing PMI. This came in at 51.3 on expectations of a 50.5 survey reading. The better-than-expected number was viewed as increasing the probability of a summer rate hike from the Federal Reserve. The likelihood of further monetary tightening from the US central bank has risen sharply over the last fortnight following a rash of hawkish comments from a number of Federal Reserve regional presidents. There was more concrete evidence that the next two Fed meetings were “live” when Janet Yellen spoke briefly about monetary policy last Friday. She said that it was probably appropriate for the Fed to gradually and cautiously increase the overnight interest rate in the coming months.

Gold briefly broke back above $1,220 – a level that had previously offered a good level of support. However, it was unable to cling on here and soon fell back below $1,210. Nevertheless, $1,200 has managed to hold as support for now. But a break below here opens up the prospect of a pull-back to $1,180. 

Forex Update

The dollar was generally weaker yesterday. Amongst the majors it only managed to make gains against the Canadian dollar and the British pound. The Canadian dollar fell as crude oil pulled back from $50 per barrel. Meanwhile sterling fell sharply for a second consecutive day as investors continued to reposition themselves following polls on Tuesday which showed an unexpected lead for the “leave” campaign in the UK’s referendum on EU membership.

But yesterday’s big mover was the Japanese yen. This flew higher against all of the majors with the USDJPY coming within a few ticks of breaking back below 109.00. The yen strengthened despite Japan’s Prime Minister Shinzo Abe announcing additional fiscal stimulus and the postponement of a proposed sales tax increase. As expected, the sales tax increase was pushed back to October 2019 from April 2017. However, it appears that Mr Abe’s fiscal stimulus fell short of expectations even though it included accelerating the planned construction of Maglev trains and other infrastructure products. Investors were disappointed that the prime minister didn’t put a number on the proposed stimulus. In addition, Mr Abe also expressed concerns over the outlook for China and said that the global economy faced big risks. However, he claimed that his programme of “Abenomics” had improved Japan’s economy in terms of employment and staving off bankruptcies. But now it looks as if he’s done all he’s prepared to do fiscally and structurally, and so it’s all down to the Bank of Japan’s monetary policy which we’ll know more about in two weeks’ time. 

Upcoming events

Today’s significant economic events include OPEC meetings, the ECB rate decision and press conference and speeches from Bank of England Governor Mark Carney and FOMC-voting member Jerome Powell. We also have the UK Construction PMI. From the US we have the ADP Non-Farm Employment Change, Challenger Job Cuts, Weekly Jobless Claims and Crude Oil Inventories. 

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

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