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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
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Indices Update

US and UK markets were closed for national holidays yesterday. However, European equity markets were open and many built on last week’s gains. The German Dax rose around 0.5% to close at a one month high.

At the end of last week equity markets headed higher led by the US majors. The S&P500 narrowly missed closing back above 2,100 for the first time since 20th April. On Friday investors focused in on Fed Chairman Janet Yellen as she took part in a panel discussion at Harvard. She didn’t have a great deal to say about monetary policy. However, perhaps her key comment was the following:

“It’s appropriate, and I’ve said this in the past I think, for the Fed to gradually and cautiously increase our overnight interest rate over time, and probably in the coming months such a move would be appropriate."

This was Mrs Yellen at her most hawkish for quite a while. Her comments appeared in line with those of other Fed officials over the last two weeks which have all worked to keep live the possibility of a summer hike. Currently, the thinking is that while the June meeting would typically be the best time to announce tightening (given that this is when the FOMC updates its summary of economic projections and is also when Janet Yellen holds a press conference), any decision could be delayed until July. This is due to concerns over the UK referendum on EU membership which takes place one week after the June meeting.

Also on Friday, the first revision to first quarter US GDP was released. This came in at +0.8% quarter-on-quarter as expected and well above the Advance reading of +0.4%

The question is how this affects the odds on a Fed rate hike this summer? The answer is, probably not very much. However, it certainly keeps the prospect alive. What should prove far more significant is this week’s raft of manufacturing PMIs along with the latest US Non-Farm Payroll release.

The thing is that while the normalisation of interest rates is long overdue and probably a “good thing”, overall a hike isn’t good for equity markets. It may boost bank margins but it will also lift the dollar, particularly as the Fed is the only developed world central bank currently set on tightening monetary policy. A strong dollar causes problems in the current environment. It makes US exporters less competitive, although in fairness the US is less reliant on exports than most major economies. It also hurts US multinationals in terms of sales and translated earnings. But crucially it is a problem for China. The Chinese yuan is pegged to the US dollar. When the dollar goes up, so does the yuan. This makes China less competitive when compared to its neighbours. This is the last thing the country wants with growth rapidly slowing. China’s response to a strong dollar is to devalue the yuan. This happened twice in one week last August and again in January this year. In both cases equity markets tanked.

On Friday the FTSE 100 index closed at 6,270.8 up 5.1 points on the day, or 0.08%

Yesterday the German DAX rose 46.9 points or 0.5% to end the day at 10,333.2

Also on Friday the US30 closed up 44.9 points to finish at 17,873.2. The S&P 500 rose 0.4% to close at 2,099.1 while the Nasdaq 100 gained 0.6% to close at 4,512.5


US and UK stock markets were closed yesterday     

Commodities Update

Crude was a touch firmer yesterday although volumes were low due to holidays in the US and UK. Chart-wise, both WTI and Brent have found support around $48 but have spent the last few sessions unable to break decisively above $50 per barrel. 

There is an OPEC meeting in Vienna on Thursday. The general expectation is that there won’t be any market-moving news from the meeting. This is hardly surprising given the OPEC/non-OPEC production freeze shenanigans from earlier in the year. The general feeling is that OPEC has lost a good part of its influence over the oil market due to dissent within the group and the fact that its share of global production is now lower than it has ever been. OPEC has been unable to agree on an output freeze in an effort to support prices. Ahead of the meeting, Iraq has announced an increase in its export quota.

Crude has been getting support from a number of supply disruptions. The Canadian wildfires are estimated to have cut over 1 million barrels per day (bpd) of oil sands output. However, it now looks as if production could come back on line this week. Meanwhile, Nigerian oil output has slumped to a 20-yr low amid series of attacks claimed by militant group, the Niger Delta Defenders. Venezuela is struggling to maintain output amid power cuts and other issues related to ongoing civil disruption. Not only that, but most of the country’s output heads straight to China in payment of the loans taken out when the oil price was considerably higher.

Back in February, estimates suggested that the global economy was oversupplied by about 1.7 million bpd. But that surplus is now down to around 1 million bpd due mainly to cuts in US shale oil production. On the flip side, demand growth appears relatively robust. However, it is unclear if this is due to genuine economic activity or stockpiling, particularly by China.

At the end of last week the US dollar rallied putting downside pressure on precious metals. Gold fell back below support around $1,220 although silver was doing quite well and hanging on around $16.20. However, yesterday brought further losses for both precious metals. Gold briefly broke below $1,200 although it managed to rally later in the session to close back above here. Nevertheless, it does look vulnerable and a move down to $1,180 can’t be ruled out. This level marks both the 50% retracement of the Jan-Dec 2015 sell-off and the Dec-May counter-rally. Meanwhile, silver was unable to hold on to the $16.20 support level and ended yesterday’s main electronic trading session below $16.00.

In both cases the break of significant support could be down to Monday’s thin trading volumes thanks to US and UK holidays. However, traders will continue to focus on the US dollar. The prospect of a summer rate hike from the US Federal Reserve (and the subsequent dollar rally) really has knocked the stuffing out of the two precious metals. 

Forex Update

FX trading volumes were light yesterday as UK and US markets were closed for public holidays. The dollar hit a one-month high against the Japanese yen after Federal Reserve Chairman Janet Yellen helped raise expectations of a summer rate hike from the Fed.

Meanwhile it was reported yesterday that Japanese Prime Minister Shinzo Abe may delay a sales tax increase scheduled for next April by two and a half years. Such a move means less income for the government, although policymakers are hoping delaying the tax could keep consumer spending going and so goose the economy. However, there is also a risk of a downgrade to Japan's sovereign rating. In addition, ditching the proposed tax suggests that Mr Abe’s policies to turn around Japan’s economy have been a dismal failure.

Japan is expected to compile a supplementary budget in an effort to finally stimulate its moribund economy. This should come ahead of the Bank of Japan’s meeting later this month which is expected to yield up further monetary stimulus.

Upcoming events


Today’s significant economic events include German Unemployment Change, Euro zone M3 Money Supply, Euro zone CPI and Euro zone Unemployment. From the US we have the Core PCE Price Index, Personal Spending, Personal Income, S&P/Case Shiller House Price Index, Chicago PMI and the CB Consumer Confidence. 


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Posted by David Morrison

Category: AM Bulletin

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