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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

Initially, there was a cautious tone to yesterday’s main session as US traders came back after their long holiday weekend. US stock indices fell sharply at one stage. This followed the release of the US ISM Non-Manufacturing PMI. This fell sharply to 51.4 in August from 55.5 in the previous month. This was also well below the 55.4 survey reading anticipated. The decline in this services component of the ISM report follows on from last week’s disappointing Manufacturing PMI. This registered contraction in August, falling to 49.4 after a reading of 52.6 in July. The weak data adds to fears that the US economic recovery is slowing. Friday’s Non-Farm Payroll number came in well below the consensus expectation while the first revision to second quarter GDP weakened to just 1.1% annualised. With inflation as measured by Core PCE still well below the Fed’s 2% target, and with Janet Yellen reiterating the point that the US central bank is “data dependent” when it comes to deciding monetary policy, the likelihood of a September rate hike appears to be declining every day. Of course it could be argued that equities should do well if the Fed holds off from hiking rates this month. However, investors are finding it difficult to ignore this constant stream of disappointing data.

European stock indices ended the session mixed after some disappointing economic data releases. German Factory Orders rose 0.2% in July. This was better than the 0.3% decline recorded in June but well below the +0.5% expected. Later on, Euro zone second quarter GDP rose 0.3% when compared with the previous quarter, which was as expected. So growth in the single currency zone remains tepid while inflation expectations are subdued. This has led a number of analysts to predict that the ECB’s Governing Council will look to boost its monetary stimulus programme further when it meets today and tomorrow. This could mean once again extending the size and duration of the programme. It could also mean that the ECB cuts its Deposit Rate further into negative territory. Some analysts believe that it may shave another 10 basis points off the rate taking it to -0.50%. However, it seems more likely that the Governing Council will hold off from announcing additional stimulus for now, preferring to hold off until later in the year in the hope of maximising the effects of further action.

Meanwhile, it appears that the Greek government has only implemented 2 out of 15 political reforms that are conditions for receiving Euro zone bailout money. In particular policymakers have been slow to privatize state assets. EU diplomats said that the Euro zone won’t release additional bailout money for Greece at a meeting in Bratislava later this month.

The FTSE 100 ended the day 53.4 points lower at 6,826.1

The German DAX rose 14.9 points or 0.1% to end the day at 10,687.1

The US30 closed up 46.2 points to finish at 18,538.1. The S&P 500 rose 0.3% to close at 2,186.5 while the Nasdaq 100 gained 0.6% to close at 4,829.5

Equities

Yesterday morning saw UK housebuilders rally sharply after Berkeley Group (BKG) said it would meet its £2bn profit target and pay a £1 per share dividend on 15th September. The news came just days after the group was dropped from the FTSE100 after its share price plummeted in the aftermath of the UK’s vote to leave the EU. Berkeley Group reported yesterday that reservations for its properties had fallen by 20% from the same time last year. The company said trading conditions had been made more difficult by the EU referendum and stamp duty tax changes. However, the company also noted that site visitor numbers and enquiries had held up well when compared to the same period last year, demonstrating the strength of underlying demand. The stock ended 3.5% higher at 2,783 pence. Meanwhile, Redrow (RDW) closed 8.9% higher at 418.5 pence after posting record results.

Commodities Update

Yesterday saw both Brent and WTI pull back following Monday’s sharp rally. The surge in crude at the start of the week came after Russia and Saudi Arabia said that they would be making a joint statement concerning the oil market at the G20 meeting in Hangzhou, China. Investors felt sure that the world’s two top producers would announce their backing for an output freeze which is due to be discussed at a side meeting of the International Energy Forum conference in Algeria later this month. However, the joint statement proved to be something of a disappointment. Rather than declaring an intention to support a production freeze, Saudi Arabia and Russia said they would set up a working group to observe the market and then make suggestions regarding future investment in order to bring price stability. The first meeting of this new group is set to take place in October – after this month’s get-together in Algeria. Russian Energy Minister Alexander Novak described the joint announcement as an "historic moment" in relations between OPEC and non-OPEC members.

Later on, Mr Novak said a production freeze would be one way to stabilize prices. However, the Saudi energy minister, Khalid al-Falih, said that a freeze was a “favourable option, but not necessary today.” Crude soon gave back most of its early gains. 

Overall, there’s little likelihood of a deal being reached later this month. Iran, OPEC's third largest producer, has said it would only cooperate in talks if fellow exporters recognized its right to regain market share back to pre-sanction levels. Iran is currently pumping around 3.8 million barrels a day and wants to boost production to 4 million within the next few months. Yet as with the Doha meeting in April, it seems unlikely that Saudi Arabia will be prepared to grant Iran an exemption from any production freeze.

Anyway, as analysts have pointed out, the current record output levels by major producers, together with high stockpiles and an uncertain demand growth outlook means that producers need to cut rather than freeze production to have any significant effect on prices. On top of this, as soon as the oil price pushes above $50, US shale oil production picks up.

Gold and silver shot higher yesterday afternoon as the US dollar pulled back sharply. The two precious metals have had a lift over the past few days following the release of a pile of disappointing US data. This has included weak ISM Manufacturing and Non-Manufacturing PMIs, a poor second quarter GDP reading and Friday’s Non-Farm Payroll miss. On top of this, Average Earnings and the latest Core PCE update suggest that inflationary pressures remain weak which will make it particularly difficult for the Fed to reach its 2% inflation target anytime soon. Taken all together, investors decided that the probability of a September rate hike had fallen considerably. This led to a sell-off in the US dollar and a corresponding rally in gold and silver. The two precious metals tend to fare well in a low US interest rate environment. This is because the lost-opportunity cost of holding non-yielding assets is reduced when interest rates are low or falling.

Forex Update

The US dollar drifted lower again yesterday morning. But the pace of selling picked up following the release of the US ISM Non-Manufacturing PMI. This fell sharply to 51.4 in August from 55.5 in the previous month. This was also well below the 55.4 survey reading anticipated. The decline in this services component of the US ISM report follows on from last week’s disappointing Manufacturing PMI. This registered contraction in August, falling to 49.4 after a reading of 52.6 in July. The weak data adds to fears that the US economic recovery is slowing. After all, Friday’s Non-Farm Payroll number came in well below the consensus expectation while the first revision to second quarter GDP weakened to just 1.1% annualised. With inflation as measured by core CPI still well below the Fed’s 2% target, and as Janet Yellen reiterating the point that the US central bank is “data dependent” when it comes to deciding monetary policy, the likelihood of a September rate hike appears to be declining every day.

In other news yesterday the Australian dollar rallied after the Reserve Bank of Australia (RBA) kept its Cash Rate unchanged at 1.5%. The RBA said that low inflation, steady growth and a number of mixed labour market reports (which nevertheless indicate expansion) were all reasons for the central bank to keep rates unchanged at a record low of 1.5%. However, the RBA said that any strengthening in the Australian dollar could jeopardise the country's economic recovery.

Meanwhile, Eurozone GDP growth rose just 0.3% in the second quarter, as expected. This confirmed that Euro zone economic growth had slowed from the 0.5% recorded in the first three months of the year.

Upcoming events

Today’s significant economic data releases include UK Manufacturing Production, Industrial Production and Inflation Report Hearings. The Bank of Canada will make its rate decision and release its latest rate statement. From the US we have JOLTS Job Openings and the Fed’s Beige Book. FOMC voting member (and hawk) Esther George will speak at 15:00BST.

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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