Incisive market commentary from David Morrison

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Dark clouds ahead?
29 Jul 2016
BOJ underwhelms – JPY soars
29 Jul 2016
PM Bulletin: BOJ look-ahead
28 Jul 2016
AM Bulletin: FOMC leaves rates unchanged
28 Jul 2016
PM Bulletin: Yen swinging wildly on stimulus talk
27 Jul 2016
AM Bulletin: Fed rate decision and FOMC statement in focus
27 Jul 2016
PM Bulletin: FOMC look-ahead (and Japanese stimulus talk)
26 Jul 2016
AM Bulletin: FOMC meeting begins today
26 Jul 2016
Platform Tours: CFD Trading - Check Open P & L
25 Jul 2016
PM Bulletin: EURUSD breaks below 1.1000
25 Jul 2016
Weekly Bulletin: Fed and BOJ in focus
25 Jul 2016
PM Bulletin: Sterling looking vulnerable again
22 Jul 2016
AM Bulletin: Stocks lower as oil weighs
22 Jul 2016
PM Bulletin: The EURUSD and the ECB
21 Jul 2016
AM Bulletin: ECB rate decision ahead
21 Jul 2016
PM Bulletin: ECB look-ahead
20 Jul 2016
AM Bulletin: Q2 earnings keep markets buoyant
20 Jul 2016
PM Bulletin: A look at the yen
19 Jul 2016
AM Bulletin: More records for US equities
19 Jul 2016
PM Bulletin: Precious metals pull back
18 Jul 2016
Weekly Bulletin: It’s all about stimulus
18 Jul 2016
PM Bulletin: European banks in trouble
15 Jul 2016
AM Bulletin: Sombre mood following Nice atrocity
15 Jul 2016
PM Bulletin: The BoE rate decision
14 Jul 2016
AM Bulletin: All eyes on Bank of England
14 Jul 2016
PM Bulletin: BoE Rate Decision in focus
13 Jul 2016
AM Bulletin: Equities drift lower after record US close
13 Jul 2016
PM Bulletin: Global indices pushing higher
12 Jul 2016
AM Bulletin: Equity rally powers on
12 Jul 2016
PM Bulletin: Fresh record high for S&P500
11 Jul 2016
Weekly Bulletin: The markets called, NFPs answered
11 Jul 2016
AM Bulletin: The calm before the storm; Markets await today’s NFPs
08 Jul 2016
PM Bulletin: Non-Farm Payroll look-ahead
07 Jul 2016
AM Bulletin: As the Fed turns dovish, the markets turn bullish
07 Jul 2016
AM Bulletin: Concerns continue as Sterling touches $1.27
06 Jul 2016
AM Bulletin: Markets open higher, weak UK Construction PMI data removes confidence
05 Jul 2016
Weekly Bulletin: Central Banks react to Brexit vote
04 Jul 2016
AM Bulletin: When Carney speaks, the markets listen
01 Jul 2016
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Indices Update

European indices and US stock index futures were modestly higher on the open this morning. The markets have lost some of their upside momentum but investor sentiment remains positive thanks to a decent start to the second quarter earnings season and the promise of additional central bank monetary stimulus.

There was a weaker tone to equity markets in early trade yesterday with all the major European indices starting off in negative territory. The IMF published its World Economic Outlook and downgraded its forecast for global growth. The IMF now expects this to come in at +3.1% for 2016 which is 0.1% lower than its April forecast and 0.6% lower from its 2016 outlook from the same time last year. It also marked down its 2017 prediction to +3.4% from +3.5% in April. UK growth for 2016 was downgraded to +1.7% from +1.9% in April and to +1.3% in 2017 from +2.2%. The 2017 forecast for the Euro zone was knocked down to +1.4% from +1.6%. The IMF blamed the UK’s decision to leave the EU for the downgrades although it also downgraded 2016 growth in the US to +2.2% from +2.4% blaming a poor first quarter. The forecast for China was held steady at +6.6% in 2016 slowing to +6.2% in 2017.

Meanwhile in the aftermath of the attempted coup on Friday ratings agency Moody's has put Turkey's credit rating on review for a downgrade while it assesses the” medium-term impact" of the unrest. Turkey currently has a rating of Baa3 which is the lowest level of investment grade. Both the EU and US are keeping a close eye on how President Erdogan reacts in the aftermath of the failed coup. US Secretary of State John Kerry stressed that NATO countries had a requirement when it came to democracy and "will measure very carefully what is happening.”

In other news it emerged from the ongoing Republican convention that the party may side with the Democrats and seek a return of Glass-Steagall. This would include the repeal of the Financial Services Modernization Act of 1999 which was signed into law by Bill Clinton. Glass-Steagall was the banking law launched in 1933 designed to prohibit commercial banks from engaging in the investment business. Many blame its repeal as one of the major factors leading to the 2008/9 financial crisis. The news has unnerved Wall Street banks to some degree although most observers believe the Republican move is just a populist ploy which has no hope of passing through Congress or Senate.

The FTSE 100 index closed at 6,697.4 up 1.95 points on the day, or 0.03%

The German DAX fell 81.9 points or 0.8% to end the day at 9,981.2

The US30 closed up 25.96 points to finish at 18,559. The S&P 500 fell 0.14% to close at 2,163.8 while the Nasdaq 100 fell 0.35% to close at 4,603.3


Rio Tinto (RIO) fell 5% in early trade yesterday after reporting that second quarter iron-ore production rose a weaker-than-expected 8%. The stock ended the day 3.5% lower at 2,377 pence.

But the big news was the release of earnings from Goldman Sachs (GS). The bank reported second quarter earnings of $3.72 per share which was well above the $3.00 per share expected and a considerable improvement of $1.98 per share from the same time last year. Revenues for the same period came in at $7.93 billion against an anticipated reading of $7.58 billion. But year-on-year revenues were down 12.6% while investment banking revenues came in at $1.79 billion - down 11% from twelve months ago. The stock closed 1.2% lower at $161.42

Commodities Update

Both WTI and Brent crude spent most of yesterday’s session trading in negative territory. Yet despite the downside bias both contracts traded in narrow ranges ahead of the release of the latest US inventory data from the American Petroleum Institute (API) due out near the close. The API data was mixed. Crude stockpiles fell 2.3 million barrels last week which was slightly more than expected. There was a big draw in distillates but this was offset by an unexpected build in gasoline.

US inventory data continues to lead to sharp price swings in crude. Last week both the API and Energy Information Administration (EIA) reported increases in stockpiles across crude oil and distillates respectively. In addition, traders and investors continue to keep a close eye on the weekly rig count from Baker Hughes. This rose again on Monday with oil rigs up 7 and gas rigs up 1.

In other news Bloomberg reported that there has been a sharp increase in the number of barrels being stored on ships in British coastal waters. A survey of oil traders and ship-tracking data suggests that there are nine tankers holding about 9 million barrels of North Sea crude floating off the UK coast which is up from 7 million barrels in May. Bloomberg also reports that the volume of oil in storage on ships worldwide reached 95 million barrels at the end of June which is the highest since the 2008 to 2009. This was when traders held on to supplies for later delivery due to the financial crisis and subsequent economic crash. However, this time round the storage of oil suggests that high inventory levels look set to keep a cap on prices particularly as production levels remain elevated while the post-Brexit outlook for demand is uncertain.

Gold steadied yesterday and spent most of the session in positive territory. The spot contract is now down around 3% from its post-Brexit high made on 10th July. Yet despite this pull-back which saw it slice through modest support around $1,340 it has so far managed to hold and close above $1,320. Gold performed well yesterday considering that the US dollar was sharply higher. Typically gold (along with other dollar-denominated commodities) sells off on a stronger greenback as a rising dollar makes it more expensive to buy for non-dollar denominated investors.

Silver was unable to push higher yesterday. The rally in the dollar gave investors an excuse to send the metal back below support around $20 per ounce. Nevertheless, the downside correction in silver has been quite measured so far. This is despite Monday’s volatility which saw silver fall over 2% at one stage.

Forex Update

The euro was in retreat yesterday while the US dollar made gains against all the majors. The single currency came under selling pressure soon after the release of German and Euro zone economic data. Germany’s ZEW Economic Sentiment survey slumped to -6.8 in July from +19.2 previously. The Euro zone survey crashed to -14.7 from +20.2. The UK’s Brexit vote was blamed for the disappointing ZEW numbers. The EURUSD headed back towards 1.1000 – a level that has so far held as support on a closing basis ever since the euro’s sharp post-referendum sell-off (it has dipped below here in early Wednesday trade). Nevertheless, the EURUSD is still consolidating and has so far managed to trade within a range of 1.1000 to 1.1200. However, there’s a chance of a downside break now if the European Central Bank defies market expectations and appears more dovish than expected at tomorrow’s rate setting meeting and during Mario Draghi’s subsequent press conference.

Sterling also came under selling pressure yesterday thanks mainly to the IMF’s gloomy outlook for the UK’s post-Brexit economy. It ticked up a touch following the release of UK inflation data for June but was unable to build on these gains. The UK’s headline CPI ticked up to +0.5% year-on-year from +0.3% previously while the RPI came in at +1.6% from +1.4%. The pick-up in inflation was fuelled by a rise in airfares as football supporters travelled to France for the European Championships. But it’s worth noting that the data was collected before the UK referendum, so the post-Brexit sell-off in sterling wasn't picked up in the data.

The Australian dollar was sharply lower in early trade yesterday. The sell-off followed the release of minutes from the Reserve Bank of Australia’s (RBA) last meeting on 5th July when the central bank kept its Cash Rate unchanged at 1.75%. In yesterday’s minutes the RBA said that it wanted to assess the impact of fresh data concerning inflation, employment and housing which would be coming in ahead of its August Statement on Monetary Policy. Most analysts feel that inflation is key here as the last quarterly inflation report highlighted weak price growth through the first three months of the year. At the end of April CPI fell 0.2% quarter-on-quarter against an expected increase of 0.3%. This was a precursor to the central bank cutting its headline interest rate by 25 basis points in early May. The Aussie dollar was sold off as investors now expect the RBA to cut its Cash Rate again next month in an attempt to fend off deflationary pressures.

Upcoming events

Today’s significant economic data releases include UK employment data, the Swiss ZEW Economic Expectations survey, China’s Conference Board Leading Indicator, Euro zone Consumer Confidence and US Crude Oil Inventories. 


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Posted by David Morrison

Category: AM Bulletin

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