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PM Bulletin: Exxon Mobil - a proxy for crude?
29 Apr 2016
AM Bulletin: Equity sell-off continues
29 Apr 2016
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28 Apr 2016
AM Bulletin: BOJ disappoints
28 Apr 2016
Holiday Schedule: Early May Bank Holiday
27 Apr 2016
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27 Apr 2016
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27 Apr 2016
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26 Apr 2016
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26 Apr 2016
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25 Apr 2016
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25 Apr 2016
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22 Apr 2016
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22 Apr 2016
PM Bulletin: Silver’s pump and dump
21 Apr 2016
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21 Apr 2016
PM Bulletin: ECB meeting look-ahead
20 Apr 2016
AM Bulletin: Silver surge drags gold higher
20 Apr 2016
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19 Apr 2016
AM Bulletin: Dow tops 18,000
19 Apr 2016
PM Bulletin: US indices continue to push higher
18 Apr 2016
Weekly Bulletin: The Fed, China, oil and the yen
18 Apr 2016
PM Bulletin: Brent crude
15 Apr 2016
AM Bulletin: Quiet start to Friday’s trade
15 Apr 2016
PM Bulletin: EURUSD chart
14 Apr 2016
AM Bulletin: Equity rally continues
14 Apr 2016
AM Bulletin: Equities push higher
14 Apr 2016
PM Bulletin: JP Morgan Chase
13 Apr 2016
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12 Apr 2016
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12 Apr 2016
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11 Apr 2016
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11 Apr 2016
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08 Apr 2016
AM Bulletin: “Risk-on” again as yen retreats
08 Apr 2016
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07 Apr 2016
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07 Apr 2016
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06 Apr 2016
AM Bulletin: Firmer start for global indices
06 Apr 2016
PM Bulletin: USDJPY heading towards 110.00
05 Apr 2016
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05 Apr 2016
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04 Apr 2016
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04 Apr 2016
April: Non Farm Payrolls Out Today
01 Apr 2016
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01 Apr 2016
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01 Apr 2016
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Indices Update

European equities and US stock index futures are a touch weaker this morning. Partly this reflects the pull-back in Wall Street last night where the major indices (led by tech stocks) gave back most of their early gains. But it is also as a result of a slide in crude as the Kuwaiti oil strike is now over.

The global equity rally continued for most of yesterday, despite losing some momentum towards the US close. All the major indices pushed higher as crude rallied further despite the abject failure of Sunday’s oil producer meeting to agree to an output freeze. Investors seem to be emboldened (or desperately covering their shorts) on expectations that the first quarter US earnings season may not be quite as negative as previously feared. Of course, there will come a time when investors realise that higher energy prices are a real cost for consumers – whether private individuals or corporations. But for now the feeling is that the crude rally is coming to the rescue of those oil companies that borrowed against an oil price over $60 per barrel, and the banks that lent to them.

There will also come a time when investors realise that stock prices cannot go on rising when reported earnings and revenues are declining quarter-on-quarter. It is one thing to buy equities when the results come in above dismal expectations. But it is another to hang on to those stocks when those same corporations experience falling sales and declining earnings for three full quarters in a row – especially when forward guidance is lukewarm at best.

But countering this as always is the hope of additional central bank stimulus. Some analysts have suggested that the estimated negative economic impact of the Japanese earthquakes may give the Bank of Japan just the excuse they need to ease monetary policy further at their meeting next week.

The FTSE 100 index closed at 6,405.4 up 51.8 points on the day, or 0.8%

The German DAX rose 229.3 points or 2.3% to finish at 10,349.6

The US30 closed up 49.4 points to finish at 18,053.6 The S&P 500 ended 0.3% higher at 2,100.8 while the Nasdaq 100 fell 32.2 or 0.7% to close at 4,537.1

Equities Update

Goldman Sachs (GS) reported earnings per share of $2.68 beating expectations of $2.48 by miles. However, just to show how pessimistic analysts have become ahead of this quarter, this was still a 55% plunge in earnings from this time last year. Revenues were also down year-on-year coming in at $6.34 billion compared with $10.62 billion. However, this was below the consensus forecast of $6.73 billion and the worst revenue quarter for the investment bank since Q4 2011. The stock fell about 0.3% pre-market. By the close of trade Goldman ended 2.3% higher at $162.65

Netflix (NFLX) released its results after Monday’s close and the stock tanked in after-hours trading. But this wasn’t in response to a miss on earnings as these came in at $0.06 per share, up from $0.05 from the same time next year. Analysts had only expected earnings of $0.03 per share for the quarter. Revenues also improved from this time last year. These came in at $1.96 billion, up from $1.57 billion, although they were a tad below the consensus expectation of $1.97 billion. So far so good. But looking forward Netflix anticipates opening a net 2 million international streaming accounts. This is way short of the 3.45 million anticipated. Competition is hitting Netflix hard. The stock ended ar $94.34 down 13%

Commodities Update

Crude soared higher yet again yesterday as traders focused on the oil worker strike in Kuwait that has reduced output to approximately 1.1 million barrels per day (bpd) from 2.8 million bpd. Of course, this reduction may prove to be short-lived if the strike is resolved quickly (it has been overnight, and crude has pulled back moderately). Nevertheless, it is just one fresh factor which is now being considered as market participants re-evaluate the supply-demand fundamentals for the rest of the year. This follows last week’s report from the International Energy Agency (IEA) which said that falling US production and a drop in output from non-OPEC producers would help the oil market "move close to balance" in the latter half of 2016. However, it is still worth remembering that US shale oil producers will be anxious to get mothballed rigs back on stream as soon as oil rises sufficiently to make economic sense. They will also look to hedge current production in the forward market which could eventually cap prices.

The OPEC/non-OPEC oil producers’ meeting in Doha could be seen as an abject failure on a number of levels. Hopes of an output freeze were dashed completely. On top of that the meeting highlighted worsening relations between two key OPEC members – Saudi Arabia and Iran. This suggests that an agreement to cut output at OPEC’s next meeting in June looks like a non-starter. But on the plus side oil has bounced strongly ever since Saudi Arabia, Russia, Venezuela and Qatar first made public a plan to take measures to limit output. This was a major catalyst in reversing the structure of the futures market which saw short-sellers cover their positions.

Silver screamed higher yesterday morning and hit its highest intra-day level since June last year. Once the rally had started it barely looked back and by mid-afternoon it briefly broke above $17 per ounce. This kind of move is typical of silver and one that can frighten off would-be investors and speculators. While it’s wonderful to be on the right side of such a move, it’s fairly grim if the move reverses.

Gold also benefited from the silver surge and smashed back above resistance at $1,240. The dollar was weaker yesterday and the Dollar Index briefly broke below support around 94.00. But that aside, the rally in the two precious metals in the current trading environment is of particular interest. It comes as the Dow and S&P are within spitting distance of the all-time highs hit just under a year ago. This suggests to me that investors are hedging their bets to some extent by taking on exposure to precious metals at a time when risk appetite appears strong and stock market volatility (as measured by the VIX) is low. Perhaps this is further evidence that not everyone is comfortable increasing their exposure to the general equity market at current levels. 

Forex Update

It wasn’t just equities, oil and precious metals that experienced market volatility yesterday - there was plenty of movement in FX too. The US dollar fell sharply with the Dollar Index breaking below support around 94.00. It gave up ground against most of the majors with the biggest move coming against the British pound. However, it put in a decent rally against the Japanese yen. This won’t come as a surprise to traders who are used to seeing the yen decline when risk assets are in demand. This is due to the currency’s low borrowing costs and liquidity which make it the ideal funding instrument for leveraged speculation. Investors typically borrow (sell) the yen and use the proceeds to buy up riskier (higher yielding) assets. However, speculators will be on the lookout for any change in sentiment as the yen could rally very sharply if risk appetite declines and these trades get unwound. This is especially dangerous now given the sharp rallies that the yen has undergone in recent weeks. Even the prospect of further monetary stimulus from the Bank of Japan next week may be unable to prevent a risk-off yen surge.

The euro found support after the German ZEW Economic Sentiment survey for April jumped to 11.2 points from 4.3 points last month. In the breakdown of its survey, ZEW said growth prospects in China remained a drag on the German economy and worries about the UK voting to leave the European Union were also on the rise.

Upcoming events

Today’s significant economic events include the release of UK employment data and the Swiss ZEW Economic expectations survey. From the US we have Existing Home Sales and Crude Oil Inventories. ECB President Mario Draghi is scheduled to speak in Frankfurt, and there are also speeches expected from BOE MPC member Ian McCafferty and BOC Governor Stephen Poloz. 

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

Tagged: AM Bulletin

Category: AM Bulletin


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