NEWS AND ANALYSIS

Incisive market commentary from David Morrison

Stay ahead with our market commentary and webinars from our in house market strategist

Open a Live AccountOpen a Demo Account
 
+ Show blog menu

Categories

Menu

Expand 2017 <span class='blogcount'>(342)</span>2017 (342)
Collapse 2016 <span class='blogcount'>(483)</span>2016 (483)
Expand December <span class='blogcount'>(23)</span>December (23)
Expand November <span class='blogcount'>(41)</span>November (41)
Expand October <span class='blogcount'>(37)</span>October (37)
Expand September <span class='blogcount'>(41)</span>September (41)
Expand August <span class='blogcount'>(52)</span>August (52)
Expand July <span class='blogcount'>(38)</span>July (38)
Expand June <span class='blogcount'>(42)</span>June (42)
Collapse May <span class='blogcount'>(42)</span>May (42)
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
Expand April <span class='blogcount'>(45)</span>April (45)
Expand March <span class='blogcount'>(41)</span>March (41)
Expand February <span class='blogcount'>(42)</span>February (42)
Expand January <span class='blogcount'>(39)</span>January (39)
 
 
 

 
Indices Update
 

European equity markets were on the back foot in early trade yesterday morning. This followed a lacklustre US session and a sell-off in Asian Pacific markets. Crude oil was weaker first thing while the dollar was a touch firmer.

However, there was a dramatic turnaround just ahead of the US open. Equities stormed higher led by the major US indices which had tacked on over 1% each by mid-afternoon. It was difficult to pin down a single reason for the move. On one hand, crude oil reversed an early decline and rallied sharply into positive territory. This supported equity markets. In addition, the latest opinion poll on the UK referendum showed that the Remain campaign had opened up a 13 point lead over the Leavers. This news helped to boost sterling and also calmed investors who were nervous of any disruptions which would follow a vote in favour of a Brexit.

One thing is certain, investors appear less concerned over the prospect of monetary tightening from the US Federal Reserve than they were last week. This could be because they don’t believe it’s coming, or more likely they feel that the market will be able to cope with it. Certainly, another rate hike should boost lending margins in the banking sector, but it won’t help US multinationals if the dollar continues to strengthen.

Late on Monday Philadelphia Federal Reserve President Patrick Harker toed the Fed’s official line when he said: “I can easily see the possibility of two or three rate hikes over the remainder of the year," while insisting that a June rate increase would be appropriate should the upcoming economic data be supportive. We will hear from other Fed speakers this week. However the main event is a speech from Janet Yellen on Friday.

German investor confidence slid in May, falling to 6.4 from 11.2 points last month, and way below the long-term average of 24.4 points. The result was also worse than the consensus estimate where analysts expected an increase to 12. In the breakdown of its survey, ZEW said "uncertainties regarding developments such as a possible Brexit currently inhibit a more optimistic outlook."

The FTSE 100 index closed at 6,219.3 up 82.8 points on the day, or 1.4%

The German DAX rose 215 points or 2.2% to end the day at 10,057.3

The US30 closed down 8 points to finish at 17,492.9. The S&P 500 fell 4.3 to close at 2,048 while the Nasdaq 100 slipped 0.2% to close at 4,355.1

Equities

Deutsche Bank (DB) continues to be in the news for all the wrong reasons. Yesterday Moody’s Investors Service cut the bank’s credit rating for the second time this year. The ratings agency cut unsecured senior debt to Baa2, leaving the grade just two levels above junk. It also cut the lender’s long-term deposit rating one notch to A3 from A2. Moody’s cited a lack of confidence in the lender's restructuring plan. The downgrade also follows a new SEC investigation into Deutsche Bank following suggestions that in 2013 the bank inflated the value of certain Mortgage-Backed Securities and attempted to hide losses. Moody’s also drew attention to Deutsche’s “weak” performance recently pointing out that the bank made a loss of €6.8 billion last year. Nevertheless, shares ended the day 2.6% higher at $15.56

     
Commodities Update
 

Oil prices were heading lower in early trade yesterday. Once again the continuing rally in the US dollar helped to take some of the recent froth off crude prices. However, oil reversed sharply soon after the US open. It was difficult to identify a specific reason for the rally, but it appeared to tie in to a general “risk-on” move by investors. This is despite the increased threat of a rate hike from the US Federal Reserve this summer.

Technically, the front month contracts for WTI and Brent appear to have found support around the $48 per barrel level. Both contracts look as if they are consolidating above here although they have yet to build up enough momentum to break through the $50 barrier. There is some confusion surrounding the fundamental supply and demand picture. On one side it looks as if the fires that halted production in the Canadian oil sands are no longer a threat. Workers could soon move back in to bring production back on line. In addition, Iraq's Deputy Oil Minister Fayadh al-Nema said that production was up to 4.7 million barrels per day of which 3.9 million were being exported. Meanwhile, over the weekend Iran's Deputy Oil Minister, Rokneddin Javadi, said the country continued to ramp up exports to pre-sanctions levels. On the flip side, Nigerian production continues to suffer from militant action. It will be interesting to see if crude manages to break out of its recent trading range ahead of OPEC meetings which begin a week on Thursday.

Gold had another torrid session yesterday. It fell back below $1,240 to hit its lowest level since 26th April this year. It has now posted five losing days on the trot as the prospect of a summer rate hike from the US Federal Reserve has given the dollar a boost. On Monday Philadelphia Federal Reserve President Patrick Harker echoed the sentiments of other Fed members when he said that two or three rate hikes for the rest of the year was a possibility. This included a rate increase in June should upcoming economic data be supportive. Later this week we’ll get an update on Durable Goods and revised first quarter GDP. However, the main event is a speech from Fed chairman Janet Yellen on Friday evening.

In the meantime, gold traders will be keeping an eye on the US dollar. Yesterday it briefly broke back above 110.00 against the Japanese yen, indicating that investors were back in “risk-on” mode. The EURUSD also fell back below 1.1200. If the greenback continues to strengthen then we could see gold head lower. If gold fails to push back and hold 

Forex Update
 

Sterling was yesterday’s star performer in FOREX. Cable surged through 1.4600 and tested resistance around the 1.4640 level. The EURGBP currency pair crashed below “head & shoulders” neckline support around 0.7700/20. The move followed the release of a new poll on voting intentions for the UK referendum on EU membership. The latest ORB/Telegraph poll puts Remain on 55% and Leave trailing on 42% among people who definitely intend to vote. This gives the Remain campaign a 13-point lead over the Leavers.

Meanwhile the US dollar was busy making gains against the rest of the majors. This included the Japanese yen as the USDJPY managed to push back above 110.00. While this was more a case of dollar strength than yen weakness, it could also be a late reaction to poor Japanese economic data. On Monday there was an unexpected rise in Japan’s trade surplus which hit its highest level since March 2010. This was on the back of a 23.3% year-on-year slump in imports while exports fell 10.1% over the same period. The main takeaway was that Japan’s domestic demand has cratered which doesn’t indicate a healthy economy. This should keep the downside pressure on the yen as weak data increases the likelihood of additional stimulus from the Bank of Japan when it meets next month.

The US dollar continues to make gains following last week’s outbreak of hawkishness from the US Federal Reserve. Every Fed member who has expressed an opinion since early last week has ensured that the possibility of a summer rate hike has been kept live. This should keep a bid under the dollar for now. We may get some volatility this week on the back of US Durable Goods and updates for US and UK first quarter GDP. But investors could be unwilling to stick their necks out too far until they’ve heard from Janet Yellen on Friday evening.

Upcoming events
 

Today’s significant data releases include the German Ifo Business Climate survey, Swiss ZEW Economic Expectations and EU ECOFIN meetings. From the US we have the Goods Trade Balance, Flash Services PMI and Crude Oil Inventories. We also have a rate decision and statement from the Bank of Canada.

Disclaimer:

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


Add a comment Add comment            

 

 
© 2017 Spread Co Limited. All Rights Reserved.

Spread Co Limited is a limited liability company registered in England and Wales with its registered office at 22 Bruton Street, London W1J 6QE. Company No. 05614477. Spread Co Limited is authorised and regulated by the Financial Conduct Authority. Register No. 446677.

Spread betting and CFD trading are leveraged products and can result in losses that exceed your deposits. Ensure you understand the risks.

Losses can exceed deposits. Click here to learn more.