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AM Bulletin: Equities and oil slip in early trade
31 Mar 2016
PM Bulletin: Non-Farm Payroll look-ahead
31 Mar 2016
AM Bulletin: Yellen comments boost risk appetite
30 Mar 2016
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30 Mar 2016
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29 Mar 2016
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29 Mar 2016
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24 Mar 2016
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24 Mar 2016
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23 Mar 2016
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23 Mar 2016
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22 Mar 2016
Weekly Bulletin: US dollar on the back foot
21 Mar 2016
AM Bulletin: USD sell-off boosts oil
18 Mar 2016
PM Bulletin: A look at the S&P500 and FTSE100
18 Mar 2016
AM Bulletin: USD down on dovish Fed
17 Mar 2016
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17 Mar 2016
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16 Mar 2016
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16 Mar 2016
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15 Mar 2016
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15 Mar 2016
Weekly Bulletin: Central banks still in focus
14 Mar 2016
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14 Mar 2016
AM Bulletin: Confusion reins
11 Mar 2016
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11 Mar 2016
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10 Mar 2016
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10 Mar 2016
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09 Mar 2016
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09 Mar 2016
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08 Mar 2016
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08 Mar 2016
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07 Mar 2016
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07 Mar 2016
March: Non Farm Payrolls Out Today
04 Mar 2016
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04 Mar 2016
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04 Mar 2016
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03 Mar 2016
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03 Mar 2016
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02 Mar 2016
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02 Mar 2016
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01 Mar 2016
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01 Mar 2016
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 Friday 18 March 2016

AM Bulletin: USD sell-off boosts oil

 

 

Indices Update

European equities and US stock index futures rallied yesterday morning. Investors were relieved that the US Federal Reserve kept rates unchanged and dialled down their projections for future rate hikes to 50 basis points this year, rather than the 100 it indicated back in December. Investors were surprised by the cautiousness of the statement which cited concerns of risks to the economic outlook due to tepid global growth and market volatility.

The dollar slumped on the news while precious metals and oil soared. These moves take pressure off oil producers and their lenders, emerging economies with large dollar debts and US corporates who do business in non-dollar currencies. Meanwhile equities held up well. It could be argued that the Fed has got the perfect market response. European and US indices then turned lower suggesting that investors were more concerned by the Fed’s downbeat outlook than the prospect of a slower rate of monetary tightening. But they soon rebounded as the dollar remained under pressure and oil soared. WTI crude broke above $40 for the first time since December.

Meanwhile, the Bank of England’s MPC released its own rate decision. Predictably there was none of the excitement provided by the ECB, BOJ or Federal Reserve. The Bank held its key rate steady at 0.5%, unchanged now for seven years.

The FTSE 100 index closed at 6,201.1 up 25.6 points on the day, or 0.4%

The German DAX fell 91.2 points or 0.9% to finish at 9,892.2

The US30 closed up 155.7 points to finish at 17,481.5 The S&P 500 rose 0.7% and closed at 2,040.6 while the Nasdaq 100 ended the day down 0.1% at 4,400.3

Equities Update

It wasn’t just gold and silver which soared yesterday. Base metals such as copper, lead, nickel and zinc also tacked on decent gains. This helped UK mining stocks to fly higher making “basic materials” yesterday’s stand-out sector. Miners topped the FTSE leader board. Anglo American (AAL) rose 9.8% to close at 540.9 pence. Antofagasta (ANTO) was also in favour ending the day at 537.5 pence, up 8.3%. BHP Billiton (BLT) finished at 822 pence up 7.7% while Rio Tinto (RIO) closed 5.4% higher at 2,034 pence. But leading the pack was silver and gold miner Fresnillo (FRES) which closed out at 1,007 pence which up just shy of 10% after precious metals held on to Wednesday’s post-FOMC gains.

Commodities Update

Crude oil was on the rise ahead of yesterday’s Fed rate decision and statement. Traders continued to add to their long-side exposure following the announcement that a fresh date had been set for a meeting to discuss a production freeze. Producers are set to gather in Qatar on 17th April with Qatari oil minister Mohammed Bin Saleh Al-Sada claiming that around 15 OPEC and non-OPEC producers (but not Iran) support a production ceiling. On Wednesday Brent broke back above $40 per barrel, helped by an unexpected increase in US crude inventories. Oil got another lift following a somewhat dovish monetary outlook from the US Federal Reserve. The central bank kept interest rates unchanged and predicted two rises this year, down from four back in December. The dollar slumped on the news and this helped the front-month WTI contract (which typically trades at a discount to Brent) to also top $40 per barrel, for the first time since December last year.

Gold and silver soared higher following the release of the Fed’s statement and latest economic projections. The FOMC is now predicting a rate increase of 50 basis points throughout 2016, down from the 100 basis points suggested back at their December meeting. Precious metals gain in attractiveness as an asset class when interest rates are low as investors don’t have to worry so much about lost opportunity costs of holding yield-bearing instruments when returns are meagre. Gold and silver are also sought out as safe-havens. This factor came to the forefront on Wednesday as the Fed expressed concerns about future financial market volatility and the outlook for global growth. Gold and silver also got a boost from the sharp sell-off in the US dollar.

Forex Update

The dollar slumped yesterday following the US Federal Reserve’s rate decision, statement and summary of economic projections. The sell-off in the greenback takes pressure off oil producers and their lenders, emerging economies with large dollar debts and US corporates who do business in non-dollar currencies. However, it isn’t such good news for the ECB or BOJ who are also anxious to see their respective currencies weaken. In fact, while inflation appears to be picking up in the US and fast-approaching the Fed’s 2% target rate, it is virtually non-existent across the Euro zone and in Japan.

One of the biggest beneficiaries of the dollar sell-off was the yen. The Japanese currency soared on Wednesday evening in response to the Fed’s dovishness. But it gained even more ground yesterday as equity markets gave back earlier gains. This was a typical risk-off move as investors dumped stocks and bought back the yen originally borrowed at low rates to finance the transactions. However, the USDJPY suddenly soared just after midday, adding a full yen in little over 10 minutes. There was no obvious catalyst for the move, but the rumour was that the Bank of Japan (BOJ) was “checking rates” which is seen as a precursor of intervention.

As mentioned in an earlier commentary, there have been some contradictory signals emanating from the BOJ. On Tuesday morning BOJ member Takahide Kiuchi said that negative rates impairs the function of financial markets. But the following day Governor Kuroda appeared to slap down his colleague when he said that not only would the effects of the negative rate cut take some time to appear, but also that there is room to cut the rate further, by as much as 0.4% to minus 0.5%.

Upcoming events

Today sees the release of the Bank of England’s Quarterly bulletin. We also have Canadian CPI and Retail Sales. From the US we have Consumer Sentiment and Inflation Expectations. But most importantly we have speeches from two voting FOMC members, Federal Reserve Bank of Boston President Eric Rosengren and Federal Reserve Bank of St. Louis President James Bullard.

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

Category: AM Bulletin


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