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Weekly Bulletin: Equity rally continues
29 Feb 2016
PM Bulletin: Chart for the EURUSD
29 Feb 2016
AM Bulletin: Auction postponement linked to risk rally
26 Feb 2016
PM Bulletin: FOMC members add to confusion over monetary policy
26 Feb 2016
AM Bulletin: US stock indices rebound
25 Feb 2016
PM Bulletin: Lloyds Banking Group
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
AM Bulletin: Netflix leads Nasdaq lower
19 Feb 2016
PM Bulletin: FTSE revisited
18 Feb 2016
AM Bulletin: Oil still leading equities
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
15 Feb 2016
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
02 Feb 2016
PM Bulletin: Charts for USDJPY
01 Feb 2016
Weekly Bulletin: Central banks respond to sell-off
01 Feb 2016
Expand January <span class='blogcount'>(39)</span>January (39)
 
 
 

 

Indices Update

Equity markets across the Asian Pacific region had a broadly positive start to the week. In particular, the Shanghai Composite closed 2.4% higher. Sentiment has improved somewhat thanks to a steadier oil price. In addition, Chinese investors are feeling less anxious after the Governor of the People’s Bank of China indicated that there was no foundation to the view the yuan was overvalued. This reduces the likelihood of aggressive downward fixes in the future – something which was seen as panicky, as well as being deflationary for the rest of the world. European equities and US stock index futures have also rallied sharply in early trade.

After a storming start, last week’s equity market rally petered out on Thursday and Friday. Nevertheless, the bounce was a significant reversal in which the major global indices made back a good proportion of the losses suffered so far in February. However, it is still too early to say if this marks a change in the negative sentiment which has overwhelmed the market since the beginning of the year.

Stock market bulls could take some encouragement from Friday’s price action. The major US indices recovered from an early sell-off in the face of lower oil prices. In addition, it has been a while since big rallies haven’t met with a wall of selling. As Friday’s close approached, it was noticeable that investors stood aside and passed on the opportunity to go short at higher levels. However, volumes were light.

This week we can expect investors to keep a close eye on oil and the Japanese yen. If crude shows signs of weakening while the yen continues to strengthen, then equities look likely to struggle.

There’s not much in the way of data out this week. Most of the releases are of secondary importance with the most significant being US Durable Goods and the first update to US fourth quarter GDP. This could turn out to be a week for consolidation before the next big move in equities.

The FTSE 100 index closed at 5,950.2, down 21.7 points on the day, or around 0.4%

The German DAX fell 75.6 points or 0.8% to finish at 9,388.1

The US30 closed down 21.4 points to finish at 16,392. The S&P 500 ended unchanged at 1,917.8 while the Nasdaq 100 rose 0.3% to close at 4,164.1

Equities Update

Just under two weeks ago Hornby (HRN) fell over 70% in the space of two days. This followed a warning from the iconic model maker that losses for the financial year were set to come in between £5.5 and £6 million, far worse than expected. The company which owns Airfix, Scalextric and Corgi announced that it had written down £1m of stock and was in danger of breaching banking covenants. Last week the stock recovered some lost ground after Roger Canham, Hornby’s chairman since 2013, replaced Richard Ames as CEO. Mr Ames had only been in the job a year, but investors had lost confidence in him and his expensive turnaround plans. On Friday the shares ended 5.6% higher at 37.5 pence.

Commodities Update

Oil looks set to continue to be the major driver of risk appetite this week. There is relatively little economic data due out while we have to wait until March for the first major central bank meeting since last year. The ECB kicks things off on 10th March, followed a week later by the Bank of Japan (14th/15th March) and US Federal Reserve (15th/16th March).

Crude oil rallied sharply last Wednesday after Iran signalled its support for an agreement reached between Russia, Saudi Arabia, Venezuela and Qatar. This was to implement a production “ceiling” based on January’s record output. Iran had previously branded the agreement “illogical” so news that they were prepared to consider the ceiling led to a torrent of short-covering and fresh buying. However, oil came off its best levels and closed lower on both Thursday and Friday. Many analysts believe that an agreement to limit, rather than cut, output will be of little consequence.

Despite being sharply lower this morning, gold continues to hold and consolidate above significant support levels. It looks as if $1,200 is viewed as a solid level as buying has come back in whenever gold has pulled back towards here. If there is a break below here then $1,180 will be the crucial level to watch. Last week silver managed to hold above $15.20 per ounce despite pulling back sharply from highs made earlier in the month. On 11th February silver came within 5 cents of $16 – a level not seen since last June. Both precious metals held up well last week despite a rising dollar. But silver is sharply lower in early trade this morning and has slipped back below $15. The bulls would like to see it recover and close back above here. Otherwise, $14.60/70 looks like the most obvious area for support to creep back in.

Forex Update

The British pound is this morning’s biggest mover. Sterling has taken a hit as Prime Minister Cameron returned from his tour of Europe with concessions wrangled from EU members. As a consequence, senior Conservatives are now allowed to break their silence and campaign for a Brexit. Perhaps most significantly, these include London Mayor Boris Johnson. Mr Johnson is seen as a potential leader of the Tories, and therefore a future Prime Minister. But he needs to be on the winning side of the EU referendum. So he has finally crossed his own Rubicon in what will turn out to be a career-defining decision for this most ambitious of politicians.

The Japanese yen strengthened again last week. It is up over 7% so far this month against the US dollar despite the Bank of Japan moving to a negative deposit rate. Much of the yen’s rally has been down to the loss of investor risk appetite. The yen is a major “funding currency” thanks to its ultra-low borrowing costs. Traders sell (borrow) the yen and use the proceeds to buy riskier (and higher yielding) assets. When investors are nervous they sell equities and then buy back the yen that they’re borrowed, so driving up the price of the currency.

As far as a technical analysis of the EURUSD is concerned, there a slight upside bias to the pair which is apparent on the daily chart. This makes sense as investors continue to assess the likelihood of the US Federal Reserve raising rates this year. The FOMC’s Economic Projections from the December meeting included the “dot plot.” This suggested that a majority of committee members expected a full 100 basis points-worth of tightening in 2016. However, ambiguous (or even disappointing) data releases together with the New Year stock market sell-off have led analysts to doubt that the US central bank will hike rates at all this year. This has helped to lift the euro and send the dollar lower. But looking at the weekly EURUSD chart suggests that the pair is still stuck in a trading range with support around 1.0600 and resistance coming in near 1.1400. There’s little chance of a break-out from this until we hear what the ECB and Fed have to say at their rate setting meetings in March.

Upcoming events

Today’s significant data releases include Flash Manufacturing and Services PMIs from France, Germany and the Euro zone. From the UK we have CBI Industrial Order Expectations and from the US the Flash Manufacturing 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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