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Weekly Bulletin: Equity rally continues
29 Feb 2016
PM Bulletin: Chart for the EURUSD
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26 Feb 2016
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26 Feb 2016
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25 Feb 2016
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25 Feb 2016
AM Bulletin: Stocks slip on lower crude
24 Feb 2016
PM Bulletin: Gold
24 Feb 2016
PM Bulletin: Crude oil, yen and equities
23 Feb 2016
AM Bulletin: Equities slip after strong start to week
23 Feb 2016
Sterling dumps on Brexit fears
22 Feb 2016
AM Bulletin: Stronger start for global equities
22 Feb 2016
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PM Bulletin: FTSE revisited
18 Feb 2016
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18 Feb 2016
PM Bulletin: The yen, Nikkei and negative interest rates
17 Feb 2016
AM Bulletin: Oil and FOMC minutes in focus
17 Feb 2016
PM Bulletin: WTI and Brent
16 Feb 2016
AM Bulletin: Equities, USD, oil rally while precious metals slide
16 Feb 2016
Weekly Bulletin: Yellen keeps us guessing
15 Feb 2016
PM Bulletin: A multi-year look at the FTSE100
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PM Bulletin: Andrews’ Pitchfork on S&P500
12 Feb 2016
AM Bulletin: Equities remain vulnerable to further selling
12 Feb 2016
PM Bulletin: EURUSD – what now?
11 Feb 2016
AM Bulletin: Yellen fails to calm nerves
11 Feb 2016
PM Bulletin: Yellen steers through Clashing Rocks
10 Feb 2016
AM Bulletin: Yellen testimony in focus
10 Feb 2016
PM Bulletin: Japanese sell-off spooks investors
09 Feb 2016
AM Bulletin: Investors nervous as crude flirts with $30
09 Feb 2016
PM Bulletin: Big “risk-off” moves to start the week
08 Feb 2016
Weekly Bulletin: Investor jitters raises volatility
08 Feb 2016
February: Non Farm Payrolls Out Today
05 Feb 2016
PM Bulletin: Big miss for Non-Farm Payrolls
05 Feb 2016
AM Bulletin: Non-Farm Friday
05 Feb 2016
PM Bulletin: Non-Farm Payroll look-ahead
04 Feb 2016
AM Bulletin: Dollar slumps; oil spikes
04 Feb 2016
PM Bulletin: Tomorrow’s MPC press conference in focus
03 Feb 2016
AM Bulletin: Weaker crude weighs on equities
03 Feb 2016
PM Bulletin: A look at the EURUSD
02 Feb 2016
AM Bulletin: Google can’t lift indices
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01 Feb 2016
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01 Feb 2016
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 Wednesday 24 February 2016

AM Bulletin: Stocks slip on lower crude

 

 

Indices Update

European equities and US stock index futures came under renewed selling pressure in early trade this morning. Once again, oil was key as crude prices retreated after last week’s rally. Certainly, it feels as if all the “euphoria” which greeted the rag-tag agreement led by Saudi Arabia and Russia for a production freeze/ceiling has now evaporated. It now appears that Saudi Arabia has rejected production cuts while Iran has made it clear that a production freeze is unworkable.

Global equities came under pressure on Tuesday and gave back some of their gains from the previous session. Once again, this was pretty much a function of the oil price which fell in early trade. WTI and Brent crude had crept back into positive territory by lunchtime. This helped to lift European and US stock indices off their lows. However, investors seemed underwhelmed and unwilling to take on too much additional exposure to stocks.

This was just as well. Crude turned sharply lower soon after the US open and European and US stock indices followed it down.

The FTSE 100 index closed at 5,962.3 down 75.4 points on the day, or around 1.3%The German DAX fell 156.8 points or 1.6% to finish at 9,416.8

The US30 closed down 188.9 points to finish at 16,431.8. The S&P 500 fell 24.2 to close at 1,921.3 while the Nasdaq 100 lost 1.6% to close at 4,162.5

Equities Update

Yesterday’s big story was the proposed merger between the London Stock Exchange (LSE) and Deutsche Boerse (DB1Gn). Talks are still in the early stages, but once they became public knowledge the two parties described a possible union as being a “merger of equals.” It would create a European exchange which could square up to the US giants, CME Group and Intercontinental Exchange. LSE ended the day 13.7% higher at 2,630 pence while Deutsche Boerse rose 3.2% to close at €78.80

Commodities Update

Crude oil prices rose over 6% on Monday after the International Energy agency (IEA) reported that US shale production could fall by 600,000 barrels per day (bpd) in 2016 and by a further 200,000 bpd next year. But oil fell sharply yesterday as investors calculated that any cuts would be offset by fresh exports from Iran now that sanctions have ended. In addition, OPEC Secretary General Abdalla Salem El-Badri dampened expectations of the production freeze agreed last week between Saudi Arabia, Russia, Venezuela and Qatar, and supported by Iran as a useful first step. Attending an oil conference in Houston, Texas, Mr El-Badri suggested that it was early days regarding a production freeze deal. Following this, Saudi Arabia's oil minister Ali Al-Naimi said on yesterday that there was no chance of OPEC and non-OPEC exporters agreeing to production cuts as few countries would actually deliver.

As usual, equities rallied on the back of rising oil prices and declined as crude fell. It does seem ridiculous that higher energy prices should be considered positive for the corporate sector. After all, energy costs are probably the biggest expense for companies after personnel. Historically, stock markets in developed countries have generally been supported by cheaper oil. However, US shale oil has changed that to a large degree. The US is now the world’s third largest producer of crude after Saudi Arabia and Russia. In addition, much of the money used to finance energy projects was lent when oil was in the $80-100 range. With oil nearer $30, that debt becomes more difficult, if not impossible, to repay.

Yesterday brought yet another encouraging session for gold as it recovered all the ground lost in Monday’s session. In fact gold bounced in the Asian Pacific session and spent the rest of the day building on these gains. This was despite an early oil-inspired equity market rally which can often work to undermine support for gold. Once again, support has held around $1,200 per ounce. The longer that gold manages to consolidate above this level, then the better the outlook for further gains. Gold is beginning to look less overbought than it was just about two weeks ago, and the pause in the rally is giving the various moving averages time to settle. This could soon become a positive signal for technical traders.

Forex Update

The British pound continues to struggle to make headway against the US dollar. However, it is worth noting that it is not exactly in free-fall against the euro. While the GBPUSD is trading near the lows last seen in March 2009, the EURGBP is only back at levels reached just over a year ago. In fact, the EURGBP is currently 20% below its highs from early 2009.

This makes sense when we consider that most of sterling’s current problems are linked to uncertainty surrounding the upcoming UK referendum on whether to leave the EU or not. After all, a vote to leave would have serious ramifications for the European Union – not least that it would encourage the populations in other troubled member countries to agitate to quit.

The EURGBP is currently running into resistance around the 0.7800/20 area. A break above here puts 0.8000 as the next upside target for the euro. The euro wasn’t helped by the German Ifo Business Sentiment survey for February. This fell to 105.7 from 107.3 in January, the third successive month-on-month drop in this data series.

Meanwhile, we have to go back quite a few years to find significant support for cable. The first level comes in around 1.4000 followed by 1.3700 and 1.3500. Typically, sterling has tended to bounce after dipping significantly below 1.4000. However, we have four months to go until the referendum and plenty of opportunities for investors to panic about the outcome. On the flipside, the dollar could easily come under pressure if the Fed dials down its rate hike projections at next month’s meeting.

Yesterday morning Bank of Japan (BOJ) Governor Haruhiko Kuroda gave a speech in which he indicated that increasing the monetary base (through quantitative and qualitative easing) was not sufficient to boost inflation or inflation expectations. Instead, he suggested that lower interest rates will be the main policy tool in future. This suggests that we can expect Japanese interest rates to slide further into negative territory. However, we can’t assume that the BOJ won’t also expand its bond purchase programme further as well.

Upcoming events

Today’s economic calendar is fairly empty. The key event will be the release of US Crude Oil Inventories at 15:30 GMT. Half an hour before this we’ll see US New Home Sales. Otherwise we have some minor releases such as UK CBI Realised Sales and US Flash Services PMI.

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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