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Dark clouds ahead?
29 Jul 2016
BOJ underwhelms – JPY soars
29 Jul 2016
PM Bulletin: BOJ look-ahead
28 Jul 2016
AM Bulletin: FOMC leaves rates unchanged
28 Jul 2016
PM Bulletin: Yen swinging wildly on stimulus talk
27 Jul 2016
AM Bulletin: Fed rate decision and FOMC statement in focus
27 Jul 2016
PM Bulletin: FOMC look-ahead (and Japanese stimulus talk)
26 Jul 2016
AM Bulletin: FOMC meeting begins today
26 Jul 2016
Platform Tours: CFD Trading - Check Open P & L
25 Jul 2016
PM Bulletin: EURUSD breaks below 1.1000
25 Jul 2016
Weekly Bulletin: Fed and BOJ in focus
25 Jul 2016
PM Bulletin: Sterling looking vulnerable again
22 Jul 2016
AM Bulletin: Stocks lower as oil weighs
22 Jul 2016
PM Bulletin: The EURUSD and the ECB
21 Jul 2016
AM Bulletin: ECB rate decision ahead
21 Jul 2016
PM Bulletin: ECB look-ahead
20 Jul 2016
AM Bulletin: Q2 earnings keep markets buoyant
20 Jul 2016
PM Bulletin: A look at the yen
19 Jul 2016
AM Bulletin: More records for US equities
19 Jul 2016
PM Bulletin: Precious metals pull back
18 Jul 2016
Weekly Bulletin: It’s all about stimulus
18 Jul 2016
PM Bulletin: European banks in trouble
15 Jul 2016
AM Bulletin: Sombre mood following Nice atrocity
15 Jul 2016
PM Bulletin: The BoE rate decision
14 Jul 2016
AM Bulletin: All eyes on Bank of England
14 Jul 2016
PM Bulletin: BoE Rate Decision in focus
13 Jul 2016
AM Bulletin: Equities drift lower after record US close
13 Jul 2016
PM Bulletin: Global indices pushing higher
12 Jul 2016
AM Bulletin: Equity rally powers on
12 Jul 2016
PM Bulletin: Fresh record high for S&P500
11 Jul 2016
Weekly Bulletin: The markets called, NFPs answered
11 Jul 2016
AM Bulletin: The calm before the storm; Markets await today’s NFPs
08 Jul 2016
PM Bulletin: Non-Farm Payroll look-ahead
07 Jul 2016
AM Bulletin: As the Fed turns dovish, the markets turn bullish
07 Jul 2016
AM Bulletin: Concerns continue as Sterling touches $1.27
06 Jul 2016
AM Bulletin: Markets open higher, weak UK Construction PMI data removes confidence
05 Jul 2016
Weekly Bulletin: Central Banks react to Brexit vote
04 Jul 2016
AM Bulletin: When Carney speaks, the markets listen
01 Jul 2016
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Indices Update


European stock indices are lower this morning following yesterday’s late sell-off on Wall Street. Investors trimmed their positions and the Dow ended a winning streak, which, with the exception of last Friday’s weaker close on the back of the Turkish coup attempt, has lasted a fortnight. The ongoing pull-back in oil prices was the main reason for the sell-off, although there have also been a few disappointments on corporate earnings.

European stock indices drifted lower in early trade yesterday morning. Investors were keeping their powder dry ahead of the ECB’s rate announcement and the EURUSD was managing to hold above support around 1.1000. But major global stock indices suddenly lurched lower following the broadcast of comments from Bank of Japan (BOJ) Governor Haruhiko Kuroda who had taken part in a Radio 4 programme called: “How low can rates go”. During an interview Mr Kuroda said that “Helicopter Money” was neither needed nor possible. The USDJPY dropped sharply and broke below 106.00 but subsequently bounced.

The ECB surprised no one yesterday when it kept all of its key interest rates unchanged. The central bank also kept its monthly bond purchase programme unchanged in terms of size and duration. There was speculation that the ECB may look to change the rules in terms of increasing the percentage of peripheral debt it can buy. This follows concerns that the ECB is running out of eligible bonds to purchase thanks to the ongoing slump in yields. Bonds that yield less than the Deposit Rate (-0.4%) are ineligible for the bank’s bond purchase programme. Bond yields were already near record lows prior to the UK’s EU referendum. But the Brexit vote sent them even lower. This has led to around 55% of German bonds targeted by the ECB now being ineligible – up from 38% in early June. So at some stage the ECB may widen the scope of its bond purchase programme to include riskier assets – for instance holding a bigger percentage of bonds from troubled peripheral countries such as Spain, Portugal, Ireland and Italy, or changing the rules on eligibility.

In the subsequent summary and press conference, ECB Mario Draghi made it clear that the ECB (like the BoE last week) needs more time to assess the impact of the UK’s decision to leave the EU. Nevertheless, he noted that the risks to Euro area were “tilted to downside”. The ECB President also said that inflation expectations had fallen sharply in the aftermath of the Brexit vote. Partially this was to do with a slump in nominal bond yields. However, Mr Draghi seemed surprised that inflation expectations hadn’t fully recovered to pre-Brexit levels. He does seem concerned by ongoing deflationary pressures across the Euro zone.

There was little market reaction to the news. The euro strengthened initially and this saw the EURUSD pull further away from support around 1.1000. However, the euro subsequently gave up these gains and was soon testing support once again.

The FTSE 100 index closed at 6,699.9 down 29.1 points on the day, or 0.43%

The German DAX rose 14.2 points or 0.1% to end the day at 10,156.2

The US30 closed down 77.8 points to finish at 18,517.2. The S&P 500 fell 0.4% to close at 2,165.2 while the Nasdaq 100 lost 0.2% to close at 4,647

Equities

Shares in easyJet (EZJ) closed down 5.3% yesterday at 1,067 pence. The company reported a fall in overall revenue of 2.6% to £1.2 billion for the three months to the end of June. Revenue per seat fell 8.3% over the same period. The budget airline blamed terrorist attacks, the French air traffic controllers’ strike and the post-Brexit sell-off in sterling for the poor numbers. Chief executive Carolyn McCall said that the terrorism threat was at "unprecedented" levels.

Commodities Update

Crude oil prices drifted lower again yesterday. Brent and WTI continue to come under downside pressure as oversupply worries persist. Traders are paying close attention to US inventory data which, despite some bigger-than-expected drawdowns in crude itself, still shows US stockpiles near record levels. At the same time there was some surprise that gasoline stocks are increasing. Earlier this week data from Energy Information Administration (EIA) showed that gasoline stocks rose by 911,000 barrels last week. The expectation was for gasoline inventories to come in unchanged. This is something of a conundrum given that the US driving season is well underway which usually leads to a drawdown in gasoline stockpiles.

Gold and silver found some support in early trade yesterday and pushed modestly higher. Both subsequently turned lower following the ECB’s decision to keep all its interest rates and bond purchase programme unchanged. However, the sell-off in US equities soon after the European close saw the two precious metals post decent gains by the close.

In his press conference ECB President Mario Draghi said the central bank needed more time to assess the effects of the UK leaving the European Union. Mr Draghi also made it clear that he was concerned with the ongoing deflationary pressures acting on Euro zone countries. As far as the markets are concerned, he seemed to be leaving the door open for further easing following the September meeting.

Gold spent most of the afternoon back above $1,320 while the silver price briefly topped $19.50. What is worth noting is just how resilient gold and silver have been despite recent dollar strength. While they have both pulled back from their best post-Brexit levels, they appear to have rebased and are now consolidating at higher levels. While there’s always a danger of another sharp downside move, it feels as if further consolidation could set the stage for another push higher.

Forex Update

Yesterday’s main event was the European Central Bank (ECB) rate decision which followed the bank’s first meeting following the UK referendum. As widely expected, the ECB kept all of its key interest rates and its monthly bond purchase programme unchanged. In his subsequent press conference, ECB President Mario Draghi said that the governing council needed more time to assess the impact of the Brexit vote. However, he stated that the risks to Euro area were “tilted to downside”. The ECB President also said that inflation expectations had fallen sharply in the aftermath of the UK vote and he expressed some concern that they hadn’t fully recovered to pre-referendum levels. The central bank kept the door open for looser monetary policy at its next meeting in September.

There was little market reaction to the news. The euro strengthened initially but then gave back these gains and more. The EURUSD spent the day trading around 1.1000.

Earlier in the day sterling sold off sharply following the release of some disappointing UK data. Retail Sales rose 4.3% when compared with the same month last year. However, they fell 0.9% month-on-month in June which was worse than the 0.4% decline anticipated and well down on May’s reading of +0.9%.

But it wasn’t the poor Retail Sales which really upset the markets yesterday morning. Instead it was comments from Bank of Japan (BOJ) Governor Haruhiko Kuroda who said in a pre-recorded programme for Radio 4 that “Helicopter Money” was neither needed nor possible. The USDJPY dropped sharply and broke below 106.00. It subsequently bounced, but then the yen gathered strength as the trading session wore on. This led to a sell-off in equities and a rally in precious metals.

Upcoming events

Today’s significant economic data releases include Flash Manufacturing and Services PMIs for France, Germany, the Euro zone, the UK and US. We also have Italian Retail Sales, Canadian Retail Sales and Canadian CPI. G20 meetings take place over the weekend.


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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