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PM Bulletin: BOJ and the yen
31 May 2016
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31 May 2016
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27 May 2016
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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
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24 May 2016
PM Bulletin: Changing expectations
23 May 2016
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23 May 2016
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20 May 2016
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20 May 2016
PM Bulletin : Gold struggles as dollar strengthens
19 May 2016
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19 May 2016
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18 May 2016
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18 May 2016
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17 May 2016
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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
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10 May 2016
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09 May 2016
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09 May 2016
May: Non Farm Payrolls Out Today
06 May 2016
PM Bulletin: A dismal Non-Farm Payroll number
06 May 2016
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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
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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

European equities and US stock index futures have turned lower in early trade this morning. The move follows yesterday’s rally which saw the Dow hit its highest level since 28th April. Investors appear to be booking some profits as crude oil has pulled back from its best levels and as the yen has strengthened once again.

There was a firmer tone across European equities and US stock indices yesterday morning. There was something of a relief rally going on as China’s Shanghai Composite steadied overnight along with commodities such as iron ore and copper. Oil rallied while the Japanese yen fell with both moves helping to lift equities.

Equities pushed higher again soon after the US open. Traders were encouraged to take on further long side exposure as the yen remained under pressure. The USDJPY topped 109.20 – the dollar’s best level (and the yen’s weakest) since 28th April. Then crude oil suddenly bounced and this helped to lift equities higher once again. The rally continued throughout the US session with the major indices all closing out near their highs and the Dow up over 200.

Investors appear to have wiped memories of Friday’s dismal Non-Farm Payrolls from their collective brains. This key jobs number came in well below the consensus expectation which caused market participants to question the strength of the US recovery. The weak data followed on from disappointing readings for US GDP, Manufacturing and Durable Goods. The alternative explanation is that we’re still stuck in the “bad news is good” mind-set. In other words, recent data releases (along with a poor first quarter corporate earnings season) makes a June rate hike from the Fed very unlikely. This is undoubtedly the case. However, a look at the Fed Funds futures market shows that not only is this the consensus view, but that it has been for some time now.

The FTSE 100 index closed at 6,156.7 up 41.8 points on the day or 0.7%

The German DAX rose 65 points or 0.7% to finish at 10,045.4

The US30 closed up 222.4 points to finish at 17,928.4 The S&P 500 ended up 1.3% at 2084.4 while the Nasdaq 100 finished up 1.4% at 4,402

Equities Update

The stock price of SolarCity Corp (SCTY) slumped over 25% on the open yesterday. The company reported a bigger-than-expected loss for the quarter and slashed its forecast for solar panel installations. SolarCity is one of Elon Musk’s (the man behind Tesla Motors (TSLA) amongst other things) biggest projects and has previously been a favourite with Wall Street thanks to its green credentials, overall innovation and Mr Musk’s backing. However, critics have pointed out that the company has relied extensively on renewable energy subsidies for its survival. Despite this, SolarCity beat its own expectations on solar panel instalments for the first quarter. Revenue came in at $122.6 million which was above the consensus estimate of $109.9 million. But there was a loss per share of $2.56 compared with the anticipated $2.32

Commodities Update

Oil began yesterday in positive territory and then added to its gains soon after Wall Street opened for business. WTI and Brent both managed to make back a significant proportion of their losses from the beginning of the week. Traders piled back in on the long side on fears that supply disruptions in Canada and elsewhere (attacks on Nigeria's oil infrastructure has pushed its output of crude close to a 22-year low) have knocked out 2.5 million barrels of daily production. The calculation is that this output cut outweighs the build in global inventories.

Of course, it’s worth bearing in mind that the supply disruptions that we’re experiencing now tend to be temporary. Any news that production is set to come back on stream earlier than expected could lead to renewed selling.

Oil sold off sharply on Monday. This was when some of the worst fears about the Canadian wildfire around Fort McMurray, the capital of Canada’s oil sand fields, were dampened on news that bad weather was helping to bring the fires under control. Oil was sold off further after oil analysts at Genscape reported a bigger-than-expected US inventory build at Cushing, Oklahoma.

Yesterday gold and silver struggled in their attempts to make back any of the losses they suffered on Monday. The sharp sell-off at the beginning of the week followed a widespread collapse in commodity prices including all base metals, iron ore and a number of agricultural products as well. The commodity rout began in China where regulators have been raising margins in an attempt to clamp down on highly leveraged speculation. Chinese trading volumes in all manner of commodities have exploded higher since the beginning of the year. But it appears that new curbs and limits may have put a brake on excessive speculation. Unfortunately, the resulting liquidation of positions took the shine off gold and silver as well as more prosaic metals.

But there was no sign of a recovery yesterday. This was despite a relatively quiet day for the dollar. However, the greenback had already put downside pressure on precious metals when it rallied sharply last week. Although the long-term outlook for gold and silver is positive, given the current low interest rate environment, both precious metals could struggle to make short-term gains while the Dollar Index remains above 94.00 and the EURUSD below 1.1400

Forex Update

Against a basket of currencies, the US dollar was little-moved yesterday. The Dollar Index traded above 94.00 for all of the session and traded in a relatively narrow range. The main reason for this was the EURUSD pair which was also relatively quiet. The euro is the major constituent of the Dollar Index. Sterling was generally firmer with some analysts giving credit to Prime Minister David Cameron for getting heavyweight backing for the BSE (Britain Stronger in Europe) campaign. However, there have been signs that UK voters are not taking kindly by being repeatedly hectored, threatened and described as xenophobes for daring to consider a Brexit. There are signs that in the UK (as elsewhere in the world) we could soon witness a backlash against the Establishment.

Once again, yesterday’s biggest FX move came in the Japanese yen which fell again against the majors. The USDJPY traded above 109.20 while the EURJPY broke above 124.30. It’s worth bearing in mind that the USDJPY hit an 18-month low just over a week ago, while the EURJPY traded down to a three year low on Friday.

The sudden sell-off in the yen is a counter-trend move and comes on the back of some concerted jawboning from Japanese policymakers. Last week Japan’s Prime Minister Shinzo Abe suggested that measures could soon be taken to weaken the currency, while his Finance Minister, Taro Aso, spoke on Monday and again yesterday. Mr Aso has gone out of his way to warn investors that intervention from Japan was perfectly possible to curb “excessive volatility in yen moves.”

But as covered in yesterday’s PM bulletin, jawboning a currency is one thing; actively intervening to drive your currency lower is another. The last time Japan intervened to weaken the yen was in March 2011 in the aftermath of the earthquake and tsunami. The danger now is that intervention proves ineffective. What if any weakening of the yen proves short-lived? Certainly BOJ governor Haruhiko Kuroda will be painfully aware of this possibility. At the end of January he surprised everyone by adopting negative interest rates. This happened just a week after he said such a move wasn’t being considered. The deposit rate cut should have weakened the yen but it shot higher instead. Japan’s policymakers can’t risk having their bluff called again. 


Upcoming events

Today’s significant economic events include the UK’s Manufacturing and Industrial Production. From the US we have mortgage Delinquencies and Crude Oil inventories. 

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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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