Incisive market commentary from David Morrison

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Expand 2017 <span class='blogcount'>(348)</span>2017 (348)
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Expand December <span class='blogcount'>(23)</span>December (23)
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Central banks and US payrolls in focus - Weekly Bulletin
31 Oct 2016
Revised Trading Hours - UK British Summer Time (BST) ends, 30th October 2016
28 Oct 2016
US GDP in focus - AM Bulletin
28 Oct 2016
US stock indices still range-bound
27 Oct 2016
Equities drift on mixed earnings
27 Oct 2016
Earnings season, oil and the US dollar - Video Update
26 Oct 2016
Apple disappoints - AM Bulletin
26 Oct 2016
Silver range-bound - PM Bulletin
25 Oct 2016
Equities up on deals and earnings - AM Bulletin
25 Oct 2016
Spread betting charges – overnight financing - Trading Guide
24 Oct 2016
USD rally continues - Weekly Bulletin
24 Oct 2016
Deutsche Bank trades at pre-DOJ fine levels : AM Bulletin
21 Oct 2016
ECB Decision in less than 400 words - PM Bulletin
20 Oct 2016
Oil’s move to a 15-month high supports global markets - AM Bulletin
20 Oct 2016
Intel buck earnings trend as the Fed takes centre stage again - PM Bulletin
19 Oct 2016
WTI eyes resistance around June highs - PM Bulletin
18 Oct 2016
US/UK inflation data in focus - AM Bulletin
18 Oct 2016
How to know what to spread bet on : Trading Guides
17 Oct 2016
Dollar up on December rate hike speculation - Weekly Bulletin
16 Oct 2016
Oil sparks recovery on Wall Street - AM Bulletin
14 Oct 2016
FOMC minutes - hawkish or dovish? - PM Bulletin
13 Oct 2016
Weak Chinese trade number hits miners - AM Bulletin
13 Oct 2016
US indices range-bound ahead of election - Video Update
12 Oct 2016
FOMC minutes in focus - AM Bulletin
12 Oct 2016
Sterling at fresh multi-year lows : PM Bulletin
11 Oct 2016
Brent crude hits 12-month high - AM Buleltin
11 Oct 2016
How Spread Betting Works : Trading Guides
10 Oct 2016
Another disappointing US payroll report - Weekly Bulletin
09 Oct 2016
Sterling “flash crash” and US Non-Farm Payrolls - AM Bulletin
07 Oct 2016
Non-Farm Payroll look-ahead - PM Bulletin
06 Oct 2016
AM Bulletin: Equities up on data releases and oil
06 Oct 2016
Video Update: OPEC’s production cut promise poses some questions
05 Oct 2016
AM Bulletin: Precious metals slump on USD rally
05 Oct 2016
PM Bulletin: Sterling lurches lower
04 Oct 2016
AM Bulletin: Firmer start for global equities
04 Oct 2016
Trading Guide: How to use Stop Losses in spread betting
03 Oct 2016
Weekly Bulletin: Important week for data releases
03 Oct 2016
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Indices Update

It has been a mixed start for European equities and US stock index futures this morning. The FTSE100 has pulled back from its near-record close yesterday after a pull-back on Wall Street last night. Investors trimmed back their exposure to US equities as the probability of a Fed rate hike increased after better-than-expected data releases and comments from a number of regional Fed presidents.

Yesterday the International Monetary Fund (IMF) released its latest "World Economic Outlook" report. It has forecast that overall global growth will expand at 3.1% in 2016, which was unchanged from its July forecast. But advanced economies (including the US) are expected to slow this year to 1.6% growth, down from both the 2.1% growth recorded last year and the Fund’s July forecast of 1.8%.

Yesterday the Reserve Bank of Australia (RBA) kept its headline Cash Rate unchanged at 1.5% as expected. But the Reserve Bank of India (RBI) came up with an unexpected cut of 25 basis points taking its benchmark repurchase rate to 6.25% from 6.5% - its lowest level in five years. The central bank cited a slowdown in global growth and a cool outlook on inflation in justifying the rate action.

Sterling fell sharply for the second successive session. The sell-off came as the government indicated that it would be negotiating a “hard Brexit.” That is, that access to the single market would take second place to taking control of migration. On top of this, Chancellor Philip Hammond warned that the UK now faced at least two years of economic ‘turbulence’ along with a period of ‘fiscal uncertainty’. Mr Hammond also said that business confidence would likely go on ‘a bit of a rollercoaster’ as the process gets underway. The chancellor will present his Autumn Budget Statement on 23rd November. But it looks as if he will announce a programme of fiscal spending which will add to the budget deficit and therefore the national debt. Meanwhile the latest UK Manufacturing PMI came in at 55.4, well above the 52.1 expected and the highest since June 2014.

The FTSE 100 ended the day 90.8 points higher at 7,074.3

The German DAX rose 108.6 points or 1.0% to end the day at 10,619.6

The US30 closed 85.4 points lower to finish at 18,168.5 The S&P 500 ended down 0.5% at 2,150.5while the Nasdaq 100 fell 0.2% to close at 4,859.5


UK equities were amongst the world’s best performer stocks yesterday. And multinationals topped the FTSE100 thanks to the sharp sell-off in sterling. Cable hit a 31-year low after the UK’s Prime Minister Theresa May announced that Article 50 would be triggered by March 2017. Once this happens then Brexit negotiations can formally get underway. However, there are fears that the UK government is preparing for a “hard Brexit” which could mean loss of access to the single market. The resulting sell-off in sterling helped to lift big dollar earners such as Pearson (PSON) and Rolls-Royce (RR). Pearson (former owner of the Financial Times) provides educational materials throughout North America and ended the day 5.2% higher at 802.5 pence. Engineering giant Rolls-Royce ended the day up 3.1% at 760.5 pence.

Shares in Deutsche Bank continued to recover from last week’s sell-off. Trading in Frankfurt resumed yesterday following a German Bank Holiday break on Monday. Deutsche ended the day 1.5% higher at €11.75

Commodities Update

Crude oil drifted lower in early trade on Tuesday. Traders initially seemed wary of pushing prices much higher following last week’s sharp rally and ahead of an update on US inventories after yesterday’s close. However, both WTI and Brent headed higher in the afternoon session, completely ignoring the rally in the US dollar. Brent broke above $50 per barrel on Monday and managed to build on these gains, briefly poking its head above the high from mid-August. WTI also fared well but couldn’t quite recapture its own intra-day high from mid-August of $49.35.

The American Petroleum Institute (API) reported a 7.6 million decline in US crude inventories. This was the fifth consecutive week of bigger-than-expected drawdowns. The news has helped to keep a bid under oil prices this morning.

Last Wednesday OPEC committed itself to a production cut of anything between 240,000 and 740,000 barrels per day (bpd).  The news came as a big surprise as most analysts hadn’t expected an agreement to an output freeze, let alone a full-blown cut. Crude oil has been rallying ever since. However, the bulls now have to push prices convincingly above the mid-August highs if they are going to have any chance of taking out the multi-month highs from early June. This may be a problem. For a start, there’s a very big difference between a daily output cut of 240,000 barrels and one of 740,000 barrels. Cynics could argue that the numbers have just been plucked from the air and consequently are more of a pipe dream than anything remotely realistic. In addition, OPEC members will have to fight it out to decide which countries will be making cuts and by how much. Then of course, there’s the issue of compliance. OPEC has introduced quotas before, but no one ever stuck to them. There’s also the question of giving exemptions to Iran, Libya and Nigeria – countries where production has been curtailed recently due to sanctions and hostilities. Finally, will non-OPEC countries like Russia also take part? All these decisions have been kicked down the road until the next OPEC meeting at the end of November. In the meantime, with prices up around $50, US shale oil producers have an incentive to ramp up production which could put a cap on further price rises.

Yesterday gold sliced below the $1,300 support level as the US futures market opened. The move triggered a flurry of sell stops which took gold down to its lowest level since the 24th June UK referendum result. The sell-off came as the US dollar rallied. The Dollar Index flew above 96.00 while the EURUSD fell back below 1.1200. However, the dollar continues to trade well within its accepted ranges while the moves in gold looks like something out of the ordinary. Silver suffered a similar fate – pulling back sharply as the US futures market opened. It found some support around the $18.50/55 area but this level couldn’t hold. Silver went on to break below the more significant support level of $18 per ounce. If gold and silver fail to break back above $1,300 and $18 respectively by the end of this week, then further losses look inevitable.

Precious metals have come under sustained selling pressure since the beginning of last week. This followed on from their sharp rally in the immediate aftermath of the Fed’s decision to keep rates on hold at its September meeting. However, there has been growing speculation that the US central bank is gearing up to hike rates before the year-end. Some analysts have even suggested that the Fed’s meeting in early November (just one week ahead of the US Presidential Election) may be “live” when it comes to a rate rise. This view was strengthened following a speech yesterday from Richmond Fed President Jeffrey Lacker said there was a strong case to raise interest rates significantly to keep a lid on inflation.

Forex Update

Sterling slumped yesterday in a move that saw cable hit its lowest level since June 1985. Meanwhile the EURGBP traded up to highs last seen in August 2013. The sell-off in the British pound followed on from news over the weekend that the UK government will trigger Article 50 by the end of March 2017. Once done, this will start the formal process of taking the UK out of the European Union. But sterling’s decline had less to do with the UK government finally announcing a basic timetable and more to do with its attitude.  Prime Minister Theresa May and her Chancellor Philip Hammond indicated that they are ready to put control over migration above access to the single market - in other words, a "hard Brexit.” The concern is that this will lead to an exodus of banks and other financial institutions from the UK which will lead to falling tax receipts and a further widening of the budget deficit.

On top of this, Philip Hammond told the Tory party conference that leaving the EU was a big threat to the UK’s economy. He also looks set to use Brexit as an excuse to boost infrastructure spending, abandoning his predecessor George Osborne’s plan to eliminate the country’s persistent budget deficit by 2020. Mr Hammond will deliver his Autumn Statement next month.

The US dollar continued to rally yesterday. Richmond Federal Reserve Jeffrey Lacker said that there was a “strong case” for raising interest rates as the Fed's inflation and employment goals were close to being hit. While it is worth remembering that Lacker is a non-voting member of the FOMC, his comments follow on from Monday’s better-than-expected ISM Manufacturing PMI. There is now some speculation swirling around that the Fed may hike rates at its next meeting in early November. This really shouldn’t be taken seriously as the meeting comes just one week ahead of the US Presidential Election. Today sees the release of the ISM Non-Manufacturing PMI.

Upcoming events

Today’s significant economic events include the release of Spanish, Italian, French, German, Euro zone, UK and US Services PMIs. We also have Euro zone Retail Sales. From the US we have the ADP Non-Farm Employment Change, Trade Balance, Factory Orders, ISM Non-Manufacturing PMI and Crude Oil Inventories. 


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Posted by David Morrison

Category: AM Bulletin

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