NEWS AND ANALYSIS

Incisive market commentary and expert opinion

Stay ahead with our market commentary and webinars from our in house market strategist

Open a Live AccountOpen a Demo Account
 
+ Show blog menu

Categories

Menu

Expand 2017 <span class='blogcount'>(291)</span>2017 (291)
Collapse 2016 <span class='blogcount'>(483)</span>2016 (483)
Expand December <span class='blogcount'>(23)</span>December (23)
Expand November <span class='blogcount'>(41)</span>November (41)
Expand October <span class='blogcount'>(37)</span>October (37)
Collapse September <span class='blogcount'>(41)</span>September (41)
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
Expand August <span class='blogcount'>(52)</span>August (52)
Expand July <span class='blogcount'>(38)</span>July (38)
Expand June <span class='blogcount'>(42)</span>June (42)
Expand May <span class='blogcount'>(42)</span>May (42)
Expand April <span class='blogcount'>(45)</span>April (45)
Expand March <span class='blogcount'>(41)</span>March (41)
Expand February <span class='blogcount'>(42)</span>February (42)
Expand January <span class='blogcount'>(39)</span>January (39)
 
 
 Friday 16 September 2016

AM Bulletin: Weak US data boosts equities

 

 

Indices Update

European stock indices ended higher yesterday thanks to a surge in the major US indices. The trigger for the buying was the release of a clutch of disappointing US data which included Industrial Production, Business Inventories, PPI and the Empire State Manufacturing Index.

Yesterday’s most significant economic release was US Retail Sales. Core Retail Sales (excluding autos) fell 0.1% in August when compared to July which was well below the +0.3% expected. Including autos, Retail Sales fell 0.3% in August against an increase of 0.1% for the prior month. The weak data is expected to negatively affect estimates for third quarter GDP and is further evidence that the US economy is far from healthy. But this seems of little concern to equity investors who piled back into the market on the long side, taking advantage of the recent sell-off. As far as they were concerned, the weak data reduces the likelihood of a Fed rate hike after next week’s FOMC meeting.

As expected, the Bank of England (BoE) announced that it was keeping monetary policy unchanged following yesterday’s meeting. Last month it cut its headline Bank Rate by 25 basis points to 0.25% which was its first interest rate move since early in 2009. Also at last month’s meeting the Bank announced a Term Funding Scheme (TFS) to reinforce the pass-through of the rate cut, expanded its Asset Purchase Facility by £60 billion and said it would buy up to £10 billion of UK corporate bonds. This was a hefty dose of stimulus which a number of commentators deemed excessive. In fact, there was a subsequent rebound in August’s Manufacturing, Services and Construction PMIs which appears to have vindicated the Bank’s critics. It’s almost as if the Bank took this action in an attempt to justify its predictions of economic Armageddon that would surely follow a vote to leave the European Union. So far its forecasts have proved to be overly pessimistic, although it’s fair to say we’re less than three months on from the referendum and the UK government hasn’t even triggered Article 50 which is the formal intention for a country to withdraw from the European Union.

The BoE upgraded its third quarter growth forecast to +0.3% from +0.1% noting that: “Since the August inflation report, a number of indicators of near-term economic activity have been somewhat stronger than expected.” Despite this, the minutes showed that the majority of members expect to vote for a further cut in the base rate before the end of the year. This would likely take the rate to just above zero. It’s almost as if the bright sparks at the Bank would be far happier if the UK economy crashed as a result of the Brexit vote, and confirmed their dismal forecasts.

The FTSE 100 ended the day 57 points higher at 6,730.3

The German DAX rose 52.8points or 0.5% to end the day at 10,431.2

The US30 closed up 177.7 points to finish at 18,212.5 The S&P 500 rose 1% to close at 2,147.3 while the Nasdaq 100 rallied 1.6% to close at 4,819.9

Equities

Shares in Morrison’s (MRW) jumped yesterday after the retailer reported its third consecutive quarter of like-for-like sales growth. Pre-tax profits also came in better-than-expected at £143 million for the six months to 31st July – up 13.5% on the same period last year. The company closed a number of underperforming stores which led to a decline in total sales. However, like-for-like sales rose 1.4% for the first half of the year. The retailer credited its new management team for the improvement. The stock ended the day 7.5% higher at 208.1 pence.

Commodities Update

Trade in crude was mixed yesterday although prices managed to push higher towards the European close. However, neither Brent nor WTI managed to make back much of their losses from Wednesday. Both contracts fell sharply following the latest US inventory release from the Energy Information Administration (EIA). The update for the week ending 9th September showed a build in distillate products of 4.6 million barrels. This was the largest increase in eight months. Additionally, gasoline stockpiles rose by 567,000 barrels against an expected drawdown of 1.1 million barrels. The rise in these two elements more than offset a drawdown of 600,000 barrels of crude which defied expectations of a 2.8 million barrel build.  

Investors are also factoring in the International Energy Agency’s (IEA) report from earlier in the week. This provided evidence of a sharp slowdown in global oil demand growth. The IEA downgraded its prediction for demand growth for 2016 by 100,000 barrels to 1.3 million barrels per day (bpd). It also said that it expects any fall in non-OPEC production to be offset by increased OPEC output – specifically Saudi Arabia, Iraq and Iran. On top of this, analysts now expect additional supply to come from Libya and Nigeria.

Gold dropped back below support around $1,320 yesterday. There was no particular reason for its weakness as trade in the dollar was relatively quiet. Meanwhile, silver spent most of the day little-changed and hovering around $19 per ounce. Investors seem unwilling to take on further exposure to either of the two precious metals ahead of the Fed’s key rate setting meeting next week.

Gold and silver should continue to benefit from the current low interest rate environment. However, there has been a sell-off across the global bond market in the past week which has rattled investors. Yields have risen sharply on speculation that the 30-plus year bull market in bonds could be coming to an end as central banks reach the limits when it comes to monetary stimulus. Gold and silver could both fall sharply should the US central bank decide to hike rates at the conclusion of the two-day meeting on Wednesday. At the end of August Fed Chair Janet Yellen insisted that the case for raising the fed funds rate had strengthened over the last few months. However, the US economic data since her speech at Jackson Hole has been disappointing. August Non-Farm Payrolls came in lower than expected, while Manufacturing and Non-Manufacturing PMIs surprised to the downside. Yesterday the latest update for US Retail Sales also indicated weakness in the sector. Despite all this, investors remain cautious. It looks as if there won’t be any significant moves until after the Fed meeting.

Forex Update

Currency markets were relatively quiet yesterday. Investors seemed reluctant to take on additional exposure ahead of next week’s key central bank meetings from the US Federal Reserve and Bank of Japan. As far as the Fed is concerned, the market expectation is that the FOMC will hold off from tightening monetary policy. A number of economic data releases over the past few weeks indicate that the US economy isn’t as robust as the Federal Reserve would like us to believe. The latest update for GDP showed annualised growth of just 1.1% annualised in the second quarter. In addition, inflation (as measured by Core PCE) stands at 1.6% annualised – still some way short of the central bank’s 2% target. We’ll get another update on inflation today with the latest CPI reading. Yesterday Retail Sales (including autos) fell 0.3% in August when compared to the prior month. The Core number fell 0.1% on expectations of a 0.3% rise. The weak data saw the probability of a rate hike next week fall to 18% from 22%, according to the fed funds futures market. The dollar spiked lower in the immediate aftermath of the release but it quickly recovered. 

Upcoming events

Today’s significant economic events include Italy’s Trade Balance and Canadian Manufacturing Sales. From the US we have CPI, Consumer Sentiment and Inflation Expectations. There is also a Bank Holiday in China. 

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


Add a comment Add comment            

 

 
© 2017 Spread Co Limited. All Rights Reserved.

Spread Co Limited is a limited liability company registered in England and Wales with its registered office at 22 Bruton Street, London W1J 6QE. Company No. 05614477. Spread Co Limited is authorised and regulated by the Financial Conduct Authority. Register No. 446677.

Spread betting and CFD trading are leveraged products and can result in losses that exceed your deposits. Ensure you understand the risks.

Losses can exceed deposits. Click here to learn more.