Incisive market commentary from David Morrison

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AM Bulletin: Troubles at Deutsche rile investors
30 Sep 2016
AM Bulletin: OPEC “deal” sends oil soaring
29 Sep 2016
Video Update: Trouble at Deutsche Bank
28 Sep 2016
AM Bulletin: Banks lead equity rally
28 Sep 2016
PM Bulletin: USDJPY – set to break below 100?
27 Sep 2016
AM Bulletin: Equities rally after “Clinton win” in presidential debate
27 Sep 2016
Trading Guides: How margin works with spread betting
26 Sep 2016
Weekly Bulletin:Fed rate hike: postponed or cancelled?
26 Sep 2016
AM Bulletin: Equities dip after central bank-driven rally
23 Sep 2016
Video Update: FOMC keeps rates on hold
22 Sep 2016
AM Bulletin: Fed loses the (dot) plot
22 Sep 2016
PM Bulletin: FOMC in focus
21 Sep 2016
AM Bulletin: Mixed messages from BOJ
21 Sep 2016
PM Bulletin: BOJ look-ahead
20 Sep 2016
AM Bulletin: Stock indices swing on oil price
20 Sep 2016
Trading Guide:Fundamentals - Developing trading ideas
19 Sep 2016
Weekly Bulletin: All eyes on the Fed and BOJ
19 Sep 2016
PM Bulletin: Developed World Top Trumps
16 Sep 2016
AM Bulletin: Weak US data boosts equities
16 Sep 2016
Video Update: What to expect from the Fed
15 Sep 2016
AM Bulletin: US Retail Sales and BoE rate decision ahead
15 Sep 2016
PM Bulletin: The BoE and Beyond
14 Sep 2016
AM Bulletin: Investors nervous ahead of Fed meeting
14 Sep 2016
PM Bulletin: US stock indices coming under pressure
13 Sep 2016
AM Bulletin: Fed keeps us guessing
13 Sep 2016
Weekly Bulletin: Central banks remain in focus
12 Sep 2016
Trading Guides: How to make money spread betting
12 Sep 2016
Comparing major Central Banks
09 Sep 2016
AM Bulletin: ECB disappoints
09 Sep 2016
Video Update: Is the Fed really data-dependent
08 Sep 2016
AM Bulletin: ECB rate decision in focus
08 Sep 2016
Video Update: ECB Look- ahead
07 Sep 2016
AM Bulletin: Weak US data reduces likelihood of September hike
07 Sep 2016
PM Bulletin: EURUSD – still range bound
06 Sep 2016
AM Bulletin: Traders back after long US weekend
06 Sep 2016
Weekly Bulletin: Poor NFP suggests no September rate hike
05 Sep 2016
PM Bulletin: Non-Farm Payrolls disappoint
02 Sep 2016
Holiday Schedule: Labour Day, 5th September 2016
02 Sep 2016
AM Bulletin: All eyes on US Non-Farm Payrolls
02 Sep 2016
Video Update: Look-ahead to Friday's Non-Farm Payrolls
01 Sep 2016
AM Bulletin: Stock indices bounce back
01 Sep 2016
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Indices Update

The US was closed for Labor Day yesterday – the holiday that unofficially marks the end of the summer. This meant that US investors had an extra day to consider the ramifications of Friday’s disappointing Non-Farm Payroll release without having to face a full trading session.

Last week’s employment data appears to have reduced the chances of a rate hike following the Federal Reserve’s two-day meeting over 20th and 21st September. At 151,000 the headline payroll number came in well below the consensus estimate of 180,000. However, the twelve-month average is hovering around 200,000 which is comfortably above the estimated 150,000 job creation which is considered to be the break-even replacement rate to cover new entrants into the labour market. But despite this, inflation is still running below the Fed’s 2% target and with Average Hourly Earnings coming in at just +0.1% month-on-month, there’s very little danger of any upside inflationary pressures coming via wage growth.

On top of this, last week’s release of the US ISM Manufacturing PMI for August was also disappointing. This came in at 49.4 - well below both the consensus expectation of 52 and July’s reading of 52.6. Construction Spending came in flat for July after rising 0.9% in June while Manufacturing Prices also slipped suggesting a decline in inflationary pressures. Put together, the data suggested a less optimistic outlook for the US economy and could provide further ammunition for doves on the FOMC who want to delay any rate hike until after the US Presidential Election.

In other news, over the weekend German Chancellor Angela Merkel was humiliated in a state election when her Christian Democratic Union (CDU) party was beaten into third place. The CDU came behind the centre-left Social Democrats (SDU) and Alternative fuer Deutschland (AfD). In a further blow, CDU only managed to pick up around 19% of the vote which was the party’s worst-ever result in a state which included Mrs Merkel’s own constituency. The result has led some commentators to speculate that the Chancellor may step down ahead of next year’s general election. This seems unlikely. Anyway, Chancellor Merkel will be hoping for better news as Berlin holds its own state election in two weeks’ time.

The FTSE 100 ended the day 15.2 points lower at 6,879.4

The German DAX fell 11.6 points or 0.1% to end the day at 10,672.2

US markets were closed for Labor Day.


Over the weekend, Marks and Spencer (MKS) announced that it was cutting around 500 jobs at its head office. The iconic British retailer said that the losses would be from amongst contractors and no stores would be directly affected. The job cuts come just two months ahead of a scheduled review of the troubled high street chain from Steve Rowe who replaced Marc Bolland as chief executive back in April this year. The shares ended 1.4% lower at 349.2 pence.

Commodities Update

Crude rallied sharply yesterday morning ahead of a joint statement from Saudi Arabian and Russian oil officials. The market was expecting the two countries to say that they would cooperate to support oil prices, and that’s exactly what happened. Saudi Arabia and Russia made the statement from Hangzhou, China where both are attending the G20 summit. The two countries said they would set up a working group to observe the market and make suggestions regarding future investment in order to bring price stability. The first meeting of this new group is set to take place in October – after this month’s get-together in Algeria when producers are expected to discuss an output freeze. Russian Energy Minister Alexander Novak described the joint announcement as an "historic moment" in relations between OPEC and non-OPEC members. However, crude soon gave back most of its early gains, apparently unimpressed by the joint statement of intent.  

Later on, Mr Novak said a production freeze would be one way to stabilize prices. But despite all the talk, few players in the oil market actually believe a deal can be reached. Iran, OPEC's third largest producer, has said it would only cooperate in talks to freeze output if fellow exporters recognized its right to fully regain market share. According to a senior official from the National Iranian Oil Company (NIOC), Iran is ready to raise its oil production to 4 million barrels per day in a couple of months depending on market demand. Back in April, Iran refused to take part in the Qatar meeting after Saudi Arabia blocked moves to exempt the country from any production freeze.

As some analysts have pointed out repeatedly, the current record high output levels by major producers, together with high stockpiles and an uncertain demand growth outlook means that producers need to cut rather than freeze production to have any significant effect on prices.

Gold and silver drifted lower yesterday morning as the dollar began the day in positive territory. The greenback built on the gains made which followed its initial post-Non-Farm Payroll sell-off. The dollar fell sharply on Friday after the headline payroll number came in below expectations. The disappointing data release appeared to take the prospect of a September rate hike from the Federal Reserve off the table. This led to a sharp rally in precious metals. Gold and silver held on to their post-data gains, even though the dollar quickly reversed direction and rallied sharply to end Friday’s session back in positive territory.

Yesterday’s trade was very quiet and volumes were light as US markets were closed for Labor Day. Gold and silver both managed to push higher throughout the afternoon session in Europe as the US dollar pulled back from its best levels and slipped into negative territory. Technically, the outlook for gold looks positive. Last week it dipped below $1,320 but managed to hold above significant support around $1,300 quite comfortably. Meanwhile, last week silver shot back above $19 per ounce and has now filled the downside gap which opened up after a sharp mark-down in mid-August. If the US dollar continues to drift lower then both precious metals should rally further.

Forex Update

After an initial rally, the US dollar lost ground against most of the majors yesterday. In particular, the Japanese yen flew higher after Bank of Japan (BOJ) Governor Haruhiko Kuroda played down the prospect of further monetary easing at the BOJ’s meeting later this month. Investors had been hoping the governor would signal a readiness to supply more stimuli following the BOJ’s two-day meeting over 20/21st September.

The dollar has experienced some big moves of late. It rallied sharply following Janet Yellen’s speech at the Jackson Hole Economic Symposium on 26th August. Dr Yellen said that the case for raising rates had strengthened over the last few months and that the Fed’s targets for unemployment and inflation were close to being hit. But it then fell sharply on Friday following the release of US payroll data for August. This showed a smaller-than-expected increase in job gains which led investors to dial back their expectations of a September rate hike. But it suddenly bounced back sharply after a number of analysts insisted that the payroll data was actually OK and that this month’s FOMC meeting is still “live” as far as monetary tightening from the Fed is concerned. It seems that investors are divided over the likelihood of a rate rise. Bullish investors say that data shows that the US economy is strong enough to handle higher borrowing costs. Others say that with inflation below the Fed’s 2% target, the central bank has a big enough excuse for holding off for now. Cynics believe that there’s no way the Fed will hike so close to the November Presidential Election in case it leads to an adverse market reaction.

In other currency news, sterling surged in early trade on Monday following the release of another strong PMI reading. The Services PMI came in at 52.9 which was way above both the prior month’s reading of 47.4 and the consensus expectation of 49.1. This update completed the UK’s PMI “triple” which has now shown a strong bounce-back in Services, Manufacturing and construction in August.

Upcoming events

Today’s significant economic data releases include German Factory Orders, Swiss CPI, Euro zone Retail PMI and Revised PMI. From the US we have the ISM Non-Manufacturing PMI, IBD/TIPP Economic Optimism survey and Labor Market Conditions Index. Swiss National Bank Chairman Thomas Jordan speaks at 17:15 BST. 


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Posted by David Morrison

Category: AM Bulletin

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