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21 Apr 2016
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18 Apr 2016
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15 Apr 2016
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15 Apr 2016
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11 Apr 2016
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06 Apr 2016
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05 Apr 2016
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05 Apr 2016
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04 Apr 2016
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04 Apr 2016
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01 Apr 2016
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01 Apr 2016
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01 Apr 2016
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 Friday 01 April 2016

AM Bulletin: Waiting for Non-Farms

 

 

Indices Update

European equities and US stock index futures began today's trading session on the back foot. The selling follows on from yesterday's weaker finish for the main indices as we came to the end of the first quarter and ahead of today's US Non-Farm Payroll data. Investors also decided to lighten up on their holdings after the Japanese Nikkei ended 3.6% lower overnight. This followed disappointing Tankan surveys for Manufacturing and non-Manufacturing. Earlier in the week data showed a slump in Japanese Industrial Production. Investors ignored a decent uptick in Chinese Manufacturing.

Yesterday the major indices all pulled back from their best levels after a buying splurge triggered by a dovish speech on Tuesday from the head of the US Federal Reserve. The dollar steadied at lower levels while both WTI and Brent crude fell back below $40 per barrel. Precious metals were also steadier with a slight upside bias.

But stocks recovered as the European session progressed. Once again, equities appeared to take their lead from the oil market which had made back all its early losses as the US markets opened. Overall trading was relatively subdued. Investors appeared to be catching their breath following the sharp rally which followed Janet Yellen's comments. This was understandable as yesterday was the last day of a tumultuous first quarter, while today sees the release of US Non-Farm Payrolls.

The FTSE 100 index closed at 6,174.9 down 28.3 points on the day, or 0.5%

The German DAX fell 81.1 points or 0.8% to finish at 9,965.5

The US30 closed down 31.6 points to finish at 17,685.1 The S&P 500 fell 0.2% to close at 2,059.7 while the Nasdaq 100 lost 0.2% to close at 4,483.7

Equities Update

Shares in travel giant Tui AG (TUI) flew higher yesterday after it said trading was solid and delivered an upbeat full year earnings forecast. Although total customer numbers were flat, revenues were up 3%. Tui has sold 47% of its summer programmes which is broadly in line with last year. Revenue was up three per cent, with both customer bookings and the average selling price on the rise. UK revenues are up eight per cent. It also reported that 93% of the winter programme has been sold so far, one percentage point ahead of last year, with a 12 per cent rise in long haul bookings. Demand was particularly high for Mexico, Dominican Republic and Jamaica. Short haul bookings were up 1% on the previous year with the Canaries, Spanish mainland and Cape Verde all doing well. Bookings to Turkey were subdued thanks to recent terrorist attacks. The stock ended at 1,079.9 pence up 5.1%

Commodities Update

Crude fell sharply on Wednesday and was unable to hold on to its post-Yellen gains. It was lower again yesterday morning with both WTI and Brent trading below $40 per barrel. But both contracts pushed higher later in the session. Some analysts put the reversal down to weakness in the US dollar. This is perfectly reasonable, although crude was very slow to react to the sell-off in the greenback.

Overall, crude has had a fairly decent month as it approaches the end of the quarter. This is despite WTI falling around 10% since the 18th March. For the first quarter as a whole WTI closed out roughly 3% higher than it finished 2015. Brent managed to tack on around 6%.

Oil traders will be keeping a close eye on the dollar over the next quarter. But the main event is the OPEC/non-OPEC meeting which is scheduled for 17th April in Qatar. This is when many of the world's major oil producers will gather to discuss implementing a price freeze. However, there will be some significant absences, such as the US. In addition, while it now looks as if Iran may attend the meeting, there doesn't appear to be any likelihood that they will agree to a production freeze. Any comments ahead of this event from participants are bound to have a short-term effect on oil prices. However, it now feels as if market participants are once again turning their attention back to the realities of actual supply and demand fundamentals. These should continue to weigh on prices.

Gold and silver rallied yesterday thanks mainly to a pull-back in the US dollar. Both metals bounced strongly after chalking up significant losses on Wednesday. The two precious metals had a solid start to March, building on their gains from earlier in the year. Just a few weeks ago silver hit its highest level since the end of October last year. Meanwhile gold hit its highest intra-day level since February 2015. Both metals have pulled back since then however. Partly this has been down to the US dollar which had a brief bounce in mid-March. But also, there has been some consolidation and profit-taking which crept in following the strong performance of both metals since mid-December. Nevertheless, many analysts believe that further gains are possible for gold and silver, particularly now that US Fed Chair Janet Yellen has indicated that a rate hike is off the table for the foreseeable future. However, gold is currently running into resistance around $1,240.

Forex Update

The US dollar was a touch weaker yesterday. Investors continue to reposition themselves following Tuesday's speech from the Federal Reserve Chairman Janet Yellen. Mrs Yellen pushed out expectations for the central bank's next interest rate hike. There is now growing speculation that the Federal Reserve will hold off from further tightening until September at the earliest. But otherwise FX markets were relatively subdued as investors prepared themselves for today's Non-Farm Payroll release. This is always a major monthly event which usually leads to sharp market movements, particularly if the headline number comes in significantly higher or lower than the consensus market expectation. But given Janet Yellen's speech earlier this week, there could be a more muted impact to this month's release. The consensus expectation is for a payroll increase of 206,000. A weak number (say 180,000 or below) would reinforce the view that US rates aren't going up anytime soon. This should hurt the dollar and boost commodities. A strong number (220,000 and above) should lift the dollar and be bad for gold, as it would suggest the Fed has more reason to raise rates. But given Mrs Yellen's comments on Monday, a rate hike before September looks unlikely. Traders should also look out for any rise in Average Hourly Earnings. A pick-up here (+0.2% or above month-on-month) should quickly feed through to consumption and inflation. This would be particularly positive for risk assets– especially if the Fed has no intention of tightening monetary policy in response.

Upcoming events

Today's economic calendar is dominated by the release of US Non-Farm Payrolls, Unemployment and Average Hourly Earnings at 13:30 BST. Earlier in the day we have Swiss, Spanish, Italian, French, German, Euro zone and UK Manufacturing PMIs. We also have the Euro zone Unemployment Rate. Later on we have US Manufacturing, Consumer Sentiment, Inflation Expectations, Construction Spending and Total Vehicle Sales. Later on Federal Reserve Bank of Cleveland President Loretta Mester will speak about the economic outlook and monetary policy at the New York Association for Business Economics.

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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