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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

Shares in Deutsche Bank (DBK) have slumped again this morning. The stock opened down around 8% and hit a fresh 24-year low. The sell-off followed on from a weaker performance in the US last night which spilled over into the rest of the market. The Dow Jones ended over 1% lower, although it managed to recover from its worst levels.

Deutsche’s problems are well-documented. It fared badly in both US and European banking stress tests and was singled out as the world’s riskiest systemically significant bank by the IMF. Then it got hit with a $14 billion fine from the US Department of Justice and rumours started to fly (hotly denied all round) that the German government was planning some kind of bailout for the country’s largest bank. Last night investors got spooked after it was revealed that a number of funds that clear derivatives trades through Deutsche had withdrawn excess cash from the bank. The danger is that this loss of confidence snowballs and leads to a solvency issue for the giant lender.

It was a choppy old session for stock markets yesterday. European equities rallied sharply in early trade playing catch-up with Wall Street following its Wednesday night rally. Investors regained their risk appetite after OPEC announced that its members were prepared to cut output by around 800,000 barrels per day to around 32.5 million. However, European and US stock indices pulled back from their best levels late yesterday afternoon. The sell-off came despite a further rally in crude oil.

The OPEC news came as a big surprise as most commentators thought that the cartel couldn’t reach agreement over a production freeze let alone a cut. But there was precious little detail in the announcement concerning when the cut would be implemented, which OPEC members would be affected, were non-OPEC producers (such as Russia) getting involved and how the cartel would ensure compliance. It looks as if these details will be hammered out at OPEC’s formal meeting at the end of November. Crude oil had pulled back from its best levels by mid-afternoon but then rallied again as Europe closed.

The FTSE 100 ended the day 70 points higher at 6,919.4

The German DAX fell 32.8 points or 0.3% to end the day at 10,405.5

The US30 closed 195.8 points lower to finish at 18,143.5 The S&P 500 ended down 0.9% at 2,151.1 while the Nasdaq 100 fell 0.8% to close at 4,838.3

Equities

Capita (CPI) was the biggest faller on the FTSE100 yesterday. The outsourcing company is responsible for operating London’s congestion charge, recruiting for the British Army and collecting the BBC’s license fees. In other words, it rests on a nice comfy mattress of government contracts. Yet it issued a profit warning for 2016 saying that its customers had held back from making big investment decisions due to uncertainty ahead of the UK’s referendum on EU membership. The stock ended the day down 26.7% at 698 pence.

Commodities Update

Crude oil surged higher yesterday followed the surprise news that OPEC’s members had reached an agreement to cut production. The plan is to reduce overall output by around 800,000 barrels per day to around 32.5 million. The news came as a big surprise as most commentators thought that OPEC couldn’t reach agreement over a production freeze let alone a cut. But there was precious little detail in the announcement concerning when the cut would be implemented, which OPEC members would be affected, were non-OPEC producers (such as Russia) getting involved and how the cartel would ensure compliance. It looks as if these details will be hammered out at OPEC’s formal meeting at the end of November. Crude oil had pulled back from its best levels by mid-afternoon but then rallied again as Europe closed.

Aside from the OPEC news, crude got a lift earlier in the week following the latest updates for US inventories. The American Petroleum Institute (API) reported a drop in stockpiles of 752,000 barrels for the week ending 23rd September. The consensus expectation had been for a build of 3 million barrels. Then on Wednesday afternoon the Energy Information Administration (EIA) reported a decline in crude inventories of 1.9 million barrels on expectation of a 2.4 million build. Crude oil bounced initially but then fell sharply once traders realised that gasoline inventories posted their biggest build in four months.

Gold and silver spent most of yesterday drifting lower. Both metals have pretty much given back all their gains following last week’s Federal Reserve meeting. This was when the US central bank voted to keep its headline interest rate unchanged within a band of 0.25-0.50%. However, they have ticked higher in early trade this morning. Investors are getting a little nervous about the situation at Deutsche Bank which is developing along the lines of Bear Stearns or even a repeat of that “Lehman Moment” back in 2008.

Precious metals can do well under a number of different scenarios. They are often sought out as safe havens in times of uncertainty or during market routs. They can also do well in inflationary environments as investors seek out hard assets rather than holding on to depreciating cash. But as we have seen this year they also do well in a low growth, deflationary environment. This is because central banks are forced to cut the cost of borrowing which benefits assets which don’t pay either a yield or dividend. This is because the lost-opportunity cost of owning gold or silver decreases as “risk-free” returns decline elsewhere. But what this also means is that investors bail out of precious metals when interest rates begin to rise. Consequently, we can expect gold and silver to decline whenever we get positive economic data or hawkish commentary from central bankers. Yesterday US second quarter GDP was revised up to +1.4% from +1.1% and this weighed on precious metals. However, gold and silver recovered a touch following an unexpected fall in US Pending Home Sales.

Forex Update

Yesterday’s biggest mover in FX-land was the Japanese yen. The yen weakened substantially overnight following OPEC’s surprise announcement that it was preparing to cut production. The news led to an increase in risk appetite as crude oil surged and equities bounced. When risk appetite is high investors typically borrow (sell) the yen, taking advantage of its ultra-low interest rate and use the proceeds to buy higher yielding assets. Also, yesterday morning Bank of Japan (BOJ) Governor Haruhiko Kuroda said the BOJ was ready to ease policy further by cutting its short- and long-term interest rate targets, or expanding its asset purchase programme. He went on to say that the central bank saw no serious problems with the stability of Japan's financial system. The USDJPY pulled further away from the 100.00 danger zone.

Otherwise, it was another quiet day in Forex. It’s worth noting how the dollar remains trapped in a relatively narrow trading range which began to establish itself in early 2015. Since then, the Dollar Index has rarely been above 100 or below 94. Perhaps this is the clearest indication that investors don’t expect the US Federal Reserve to do much to tighten monetary policy either this year or next.

Upcoming events

Today’s significant economic events include the release of the Swiss KOF Economic Barometer and the Italian Unemployment Rate. From the UK we have the Current Account, Final GDP, Index of Services and Business Investment. We also have Euro zone CPI and Unemployment. From the US we have Core PCE (the Fed’s preferred inflation measure), Personal Spending, Personal Income, the Chicago PMI, Consumer Sentiment and Inflation Expectations. 

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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