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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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 Wednesday 22 June 2016

AM Bulletin: Risk assets waft higher



Indices Update

Thursday’s referendum remains the number one risk event on the economic calendar. Despite this, there were a couple of events yesterday which helped to distract traders from the crucial UK vote on EU membership. Most importantly, US Federal Reserve Chair Janet Yellen testified on the semi-annual Monetary Policy Report before the Senate Banking Committee. US stock indices sold off initially following the release of her prepared statement. Dr Yellen said a cautious approach to monetary policy remains appropriate. And while the pace of improvement in the labour market has slowed, it was important not to overreact to one or two employment reports. She added that the UK vote to leave the EU could have significant economic repercussions. She also noted "transitory" pressure on inflation.

But Zero Hedge picked up on a key comment buried in the 44 page report which probably led to the brief US sell-off:

“Forward price-to-earnings ratios for equities have increased to a level well above their median of the past three decades.

Although equity valuations do not appear to be rich relative to Treasury yields, equity prices are vulnerable to rises in term premiums to more normal levels, especially if a reversion was not motivated by positive news about economic growth.”

Tomorrow she testifies before the House Financial Services Committee.

In other news yesterday, Germany’s Constitutional Court (GCC) rejected legal challenges against the European Central Bank’s (ECB) Outright Monetary Transactions (OMT) programme. This was the ECB’s proposal to support struggling Euro zone countries through bond purchases and separate from the central bank’s quantitative easing programme. While the GCC decided that neither the OMT nor the Bundesbank's potential participation in any OMT programme would breach the German constitution, it clearly had some reservations. The German judges ruled that the OMT programme did not “manifestly” exceed the competences which Germany had transferred to the ECB upon agreeing to monetary union. The verdict was in line with market expectations, although no doubt there was some relief in Brussels with the decision coming just two days ahead of the UK referendum.

The FTSE 100 index closed up 22.6 points or 0.4% at 6,226.6

The German DAX rose 53.5 points or 0.5% to end the day at 10,015.5

The US30 closed up 24.9 points to finish at 17,829.7. The S&P 500 rose 0.3% to close at 2,088.9 while the Nasdaq 100 rose 0.3% to close at 4,413.4


The FTSE100 eked out a modest gain yesterday following its 3% surge on Monday. It was a mixed bag in terms of individual stocks. Anglo American (AAL) topped the list of losers falling 1.8% to end at 658.3 pence. Mexican silver miner Fresnillo (FRES) was down modestly as was gold producer Randgold Resources (RRS). Miners were generally weaker as the sell-off in precious metals weighed on sentiment. 

Commodities Update

Crude fell back in early trade yesterday with both Brent and WTI spending most of the session below $50. There were reports coming from Nigeria that the government there had signed a ceasefire with militant groups, including the Niger Delta Avengers. The Avengers are one of the main groups that have been involved in extensive acts of sabotage on Nigeria’s oil infrastructure since the beginning of the year. This has resulted in a significant loss of oil output for Africa’s major producer which now stands at a 30-year low. Separately, it was reported that Saudi Arabia’s oil exports fell in April despite high levels of production. Despite this, crude prices picked up as the session progressed with both WTI and Brent ending higher. The latest inventory data from the American Petroleum Institute shower a bigger-than-expected drawdown in stocks.

As far as Thursday’s UK referendum goes, the general feeling is that oil will be relatively less affected than many other major markets. There’s the possibility of an initial risk adverse sell-off following a vote to “Leave” and a “risk-on” rally on a vote to “Remain.” However, most analysts expect such moves to be short-lived as investors and traders quickly revert back to oil’s supply and demand fundamentals as reasons to buy or sell. This suggests that as far as the oil market is concerned, any risk of a slowdown in the world’s fifth largest economy by GDP as a result of a Brexit isn’t worth bothering about. Far more important is the outlook for growth in the US and China. Chinese oil imports appear to have held up so far this year, although this may be changing. Bloomberg calculates that Chinese crude demand slipped 0.9% in May. The question is whether Chinese demand has been a result of stockpiling or on the back of genuine energy use due to economic activity. As far as the US is concerned, the Fed’s inability to raise rates as it frets about the strength of the economy contributed to oil’s pull-back earlier this month.

Gold fell sharply yesterday in a continuation of a move that began on Monday. As with other risk assets, this has been a result of repositioning as a “Remain” win now looks the most likely outcome from Thursday’s referendum. Silver also lost ground yesterday after holding up well on Monday despite gold’s weakness.

Investors have renewed their interest in gold and silver as both bottomed out in December following a bear market which lasted well over four years. The two precious metals are back in favour as an increasing number of government and corporate bonds now trade with a negative yield. This reduces the “lost opportunity” costs of holding the two metals as neither pays investors a yield. This is of little importance in a world where a number of developed-world central banks have adopted a negative interest rate policy. Gold and silver have also made gains as investors have raised their holdings as a response to increased global risks and uncertainty. The UK’s referendum is a part of that. We should expect increased volatility early Friday morning whatever the result of the vote. This could be particularly acute in precious metals as both will be trading on the low volume Asian Pacific exchanges as the results come through.

Forex Update

Sterling had mixed fortunes yesterday following its stunning rally on Monday. The rally followed a clutch of polls over the weekend which suggested that the “Leave” campaign was losing the momentum that had been building over the past fortnight.

Yesterday sterling drifted lower against the US dollar and made gains against the euro. There were another couple of polls which suggested a slight shift back in favour of the “Leave” campaign, but overall these added little to the debate and the British pound stepped back from the limelight. No doubt traders will reconsider their positions over the next couple of days as they prepare for Thursday’s referendum.

Instead yesterday saw the US dollar strengthen against most of the majors while the euro weakened. This was despite a strong reading for the German ZEW Economic Sentiment survey for June which came in at 19.2, well above both the consensus expectation of a 5.1 increase and the 6.4 recorded in the previous month. However, the EURUSD picked up from its lows soon after Fed Chair Janet Yellen released her prepared remarks prior to her testimony before the Senate Banking Committee. 

Upcoming events

Today’s significant data releases and events include Swiss ZEW Economic Sentiment, Canadian Retail Sales, US Existing Home Sales and Crude Oil Inventories. US Federal Reserve Chair Janet Yellen will testify again on the semi-annual Monetary Policy Report, this time before the House Financial Services Committee.


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Posted by David Morrison

Category: AM Bulletin

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