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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
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01 Feb 2016
Weekly Bulletin: Central banks respond to sell-off
01 Feb 2016
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 Thursday 25 February 2016

AM Bulletin: US stock indices rebound

 

 

Indices Update

This morning, European stocks have completely ignored a 6.4% slump on the Shanghai Composite index. Instead, investors are responding to yesterday’s moves on the US exchanges.

US equities had a stunning turnaround last night. The S&P 500 rallied 2.5% from its lows earlier in the day to end just shy of 0.5% higher. Most of the move took place after the European close so Europe’s major stock indices are busy playing catch-up this morning. The catalyst for the rally was the jump in oil prices. This was triggered by the release of US Crude Oil Inventories. The headline showed a much bigger-than-expected build in inventories. However, US refinery inputs, imports and gasoline inventories were all down on the previous week.

First thing yesterday a quick glance at the oil price and the Japanese yen would have told us that the major global stock indices were trading in the red. Crude oil lost ground after Saudi oil minister Ali al-Naimi said that even if they agree to them, oil producers would never deliver on output cuts. He insisted that production cuts would not happen although more countries would join a deal to freeze output. In this way, although it was set to be a slow, protracted process, excess oil inventories would eventually be worked through as global demand growth eventually met and overtook production. OPEC and non-OPEC producers who support the idea are planning a mid-March meeting.

The FTSE 100 index closed at 5,867.2 down 95.1 points on the day, or around 1.6%

The German DAX fell 249 points or 2.6% to finish at 9,167.8

The US30 closed up 53.2 points to finish at 16,485. The S&P 500 rose 8.5 to close at 1,929.8 while the Nasdaq 100 rose 0.9% to close at 4,200.7

Equities Update

The FTSE 100 loser board was once again dominated by the miners. Base metals such as copper, zinc and aluminium were mixed and so not the main drivers for the move lower. Instead, it was a general loss of risk appetite which led to investors dumping those stocks which had rallied most during the recent bounce. On top of this, the sector came under pressure after Citi cut its rating on European miners to "neutral “from “bullish.” Anglo American (AAL) was the FTSE’s worst performer ending the session 9.6% lower at 109.75 pence. BHP Billiton (BLT) lost 8.4% to close at 684.3 pence while Rio Tinto (RIO) fell 5.7% to 1,874 pence.

Commodities Update

Crude oil was sharply lower in early trade yesterday. This followed comments made by Saudi oil minister Ali al-Naimi in an interview on Tuesday. Mr al-Naimi said that even if oil producers agreed to output cuts they would never deliver on them. He made it clear that production cuts would not happen although more countries would join a deal to freeze output. It appears that OPEC and non-OPEC producers are planning a meeting to discuss the issue in March.

Yesterday’s release from the Energy Information Administration (EIA) showed that US crude inventories rose by 3.5 million barrels, well above the 2 million expected. This appeared to confirm Tuesday’s API data when inventories were close to double expectations. Despite this crude shot higher following the release. A delve behind the headline showed that oil refinery inputs, US imports and gasoline inventories were all down on the previous week.

Last week’s rally followed an agreement between Saudi Arabia, Russia, Venezuela and Qatar to freeze oil output to January’s levels. The fact that last month was a record in terms of global production was generally overlooked by traders, particularly once Iran had gone from declaring the agreement “illogical” to being a sensible starting point for curbing output. However, analysts noted that the oil price could only get a boost from a significant production cut. A freeze, or ceiling, just wouldn’t be enough and this explains why Ali al-Naimi’s comments have caused such a stir.

Technically, resistance comes in at $34 for near-month WTI and $36 for Brent and it now seems unlikely that these levels will be breached anytime soon. While it’s apparent that the major OPEC and non-OPEC players are perfectly capable of following the central banker playbook and jawboning the price higher, they appear to have been undermined by the plain-speaking Saudi oil minister.

Gold put in another strong performance yesterday although it pulled back from the day’s highs. There is a good level of support around $1,200 per ounce and this has given investors the confidence to push the price higher. Drawing a Fibonacci Retracement between the September 2011 high around $1,920 and the December low just under $1,050 suggests that $1,250 is a level worth watching. This marks the 23.6% Fibonacci Retracement of the four-year sell-off and so far it is acting as resistance. Gold may need to consolidate further before it can make a successful assault on this level, break through it and hold above it. It also will need to have a weakening dollar behind its back to help it on its way.

Forex Update

The British pound fell further against the US dollar yesterday, crashing below 1.4000 for the first time since March 2009. Support now comes in around 1.3700 followed by 1.3500. The euro is also making serious gains against sterling. Late on Tuesday the single currency suddenly took off and surged above 0.7800. Yesterday it consolidated for a bit and then zoomed again. If the GBPUSD continues its decline, then a move to 0.8000 for the EURGBP is on the cards. Despite this, the EURGBP is still trading well below its highs from early 2009. As noted yesterday, this is hardly surprising when one considers just how dangerous a Brexit would be for those countries suffering with the monetary straitjacket imposed on them through their adoption of the euro as their currency.

We now have three weeks to go until the US Federal Reserve decides whether to hike rates again or not. Naturally, there are always numerous speeches from Fed members ahead of the event, until they go into purdah around a week before. I’m not really sure why these speeches are necessary other than to give something for day traders to chew on. After all, we know the Fed is data-dependent, and we’ll go on seeing economic releases right up to the meeting. Also, surely it is the job of central bankers to guide and smooth expectations to ensure an orderly market. Yet all we get is a series of conflicting views. Fed Vice-Chairman Stanley Fischer blathered on about market volatility (while ignoring the irony of his (admittedly small) contribution to it), while Kansas City Fed President Esther George insisted that, “March was firmly on the table as far as potential rate hikes are concerned." Then in a complete contradiction Dallas Federal Reserve Bank President Robert Kaplan said that "In order to reach our inflation objective we may need to be more patient than we previously might have thought."

Overall, the dollar was generally weaker yesterday while lower-yielding funding currencies such as the Japanese yen and Swiss franc rallied. Investors sold back equities and other risk assets and bought back those currencies which they had previously borrowed to finance their trades.

Upcoming events

Today’s significant data releases include Euro zone M3 Money Supply, Private Loans, CPI and Italian Retail Sales. From the UK we have the second estimate of Fourth Quarter GDP, and Preliminary Business Investment. But the most important releases both come from the US - Durable Goods and Weekly Jobless Claims. It is also worth noting that Japanese CPI is released overnight.

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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