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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
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25 Feb 2016
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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
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01 Feb 2016
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 Wednesday 03 February 2016

AM Bulletin: Weaker crude weighs on equities

 

 

Indices Update

It has been a relatively quiet start to this morning’s trade. European equities are generally weaker in response to last night’s sharp sell-off on Wall Street. However, all the major indices have bounced off their lows as crude oil is steadier, along with the dollar.

Overnight China’s Caixin Services PMI came in at 52.4, better than the consensus expectation of 50.5 and the prior month’s reading of 50.2. The data went some way to limiting losses in the Shanghai Composite while the Nikkei and Hang Seng fell 3.2% and 2.4% respectively.

European equities and US stock index futures fell in early trade yesterday. This was despite strong fourth quarter earnings and revenues from Alphabet (Google’s parent company) which led to a 5% rally in the stock in after-hours trade. The jump in the share price meant that Alphabet overtook Apple as the world’s most valuable company. In the after-hours market Alphabet was valued around $570 billion compared with $540 billion or so for Apple. The last time Google (Alphabet) was worth more than Apple was back in 2010 when both companies were worth less than $200 billion. Back then the Mac was Apple’s biggest product in terms of revenues and the iPad was yet to launch.

But sentiment was decidedly negative yesterday. Once again, falling oil prices were blamed. Although the major US indices managed to rally off their lows, many investors are fearful that there could be more selling to come.

Iowa’s primary was certainly interesting. It could be argued that The Donald’s failure to clinch a win together with the re-emergence of Marco Rubio (seen by many in the GOP as the candidate with the best chance of taking the Presidency) as all market-positive. However, it’s really too early to call. On top of which, the near dead-heat between Hilary Clinton and Bernie Saunders will have rattled some. The idea that Mr Saunders could end up the Democratic Presidential candidate worries Wall Street more than a Trump presidency.

The FTSE 100 index closed at 5,922.0 down 138.1 points on the day or 2.3%

The German DAX fell 176.8 points or 1.8% to finish at 9,581.0

The US30 closed down 295.6 points to finish at 16,153.5 The S&P 500 ended at 1,903.0 down 36.4 while the Nasdaq 100 fell 2.2% to close at 4,193.1

Equities Update

With all the FANGs now having reported, attention turned to the old-school oil giants. Yesterday we heard from BP (BP) and Exxon Mobil Corp (XOM).

BP was first up. The stock fell around 5% in early trade as the company reported a loss of $6.5 billion for 2015 – its worst annual loss in twenty years. Fourth quarter replacement cost profit (which takes into account the fluctuations in the price of oil) came in at $196 million, well below the consensus expectation of $730 million. This compares to $2.2 billion in the previous year. Many analysts are questioning if BP will be able to maintain its chunky $0.10 per share dividend. Yet this is such an important incentive for shareholders that it’s probable that BP would rather cut costs, sell assets and issue bonds rather than cut the dividend. BP ended 8.7% lower at 335.1 pence

Meanwhile Exxon Mobil posted fourth quarter earnings per share of $0.67 versus $0.63 expected. This compares with $1.32 for the same time last year. Yet revenue over the quarter came in at $59.81 billion against $52.36 billion expected (last year it was $87.28 billion). Additionally oil-equivalent production came in at 4.25 million barrels per day versus 4.05 million previously. Exxon’s annual oil production is now at its highest level in ten years. Shares in Exxon Mobil were down 2.5% soon after the open. This was a good performance considering general market weakness.

Amid yesterday’s unsettling stock market action, Prudential (PRU) stood out as one of the big losers. This came on the back of China’s currency regulator imposing restrictions on its citizens buying overseas insurance products. This isn’t just bad news for the Prudential or the insurance sector in general. It raises fears that the Chinese authorities may take further action to limit capital controls. This is a particular worry as we head towards the extended Chinese New Year holiday break. PRU fell 8.2% to end at 1,217.5 pence.

Commodities Update

Crude oil was back on the slide again yesterday with near-month WTI breaking below $30 for the first time in over a week. One of the drivers for the weakness was news that Russian oil output hit a new post-Soviet record in January. In addition January OPEC output rose to 32.4 million barrels per day (bpd) – slightly above December’s production levels. All this comes on top of fears that China’s economy is proving less robust than previously considered. Investors remain concerned by Monday’s sub-50 readings for both of the Middle Kingdom’s Manufacturing PMIs. Oil prices are particularly sensitive to Chinese economic data as the country is the second biggest consumer of crude after the US.

Two countries most troubled by the fall in oil are producers Russia and Venezuela. On Monday the Russian Energy Ministry said that they had discussed the possibility of holding joint consultations between OPEC and non-OPEC countries in the near future. But most analysts cannot see a Saudi-led OPEC agreeing to production cuts with Russia. In addition, US producers would quickly ramp up output as soon as crude showed any signs of creeping back up towards $50.

Gold and silver traded in relatively narrow ranges yesterday. They were in positive territory for most of the European session but dipped later on as the US dollar made back early losses. Once again, it was a constructive day for the two precious metals. Over the past few years they have tended to lose ground irrespective of what was going on in other markets. Even when investors went into “risk-off” mode, gold and silver failed to behave in their traditional safe-haven mode. But there are now signs that investors are once again looking at the two metals as solid assets in times of uncertainty. With equities sliding and worries about defaults in the high-yield bond market, gold and silver should do well. The main worry for the bulls is what happens should the dollar begin to strengthen again. Much will depend on the words and actions from central banks.

Forex Update

The US dollar was lower against the majors for most of yesterday’s European session. There was general weakness in equities which played into fears of further losses to come. For currency traders this would suggest that the US Federal Reserve may soon have to dial back its projections for rate hikes in 2016. The FOMC’s Economic Projections (released in December when the Fed hiked rates) suggested that there could be an increase of 100 basis points in fed funds over the course of this year. If so, this would be very bullish for the greenback, particularly against the backdrop of negative deposit rates at the ECB and BOJ with the probability of further stimulus to come.

But the market ructions over the last month may force the Fed to reconsider. The central bank has made it clear that its policy decisions are “data dependent.” Recent data (including Monday’s contracting ISM Manufacturing PMI) must be giving them pause for thought. We’ll get an update on the employment situation this Friday. But the Fed wouldn’t be doing their job if they focused on payrolls and ignored everything else.

Upcoming events

Today’s significant data releases include Services PMIs from Spain, Italy, France, Germany, the Euro zone, UK and US. Also from the US we have the ADP Non-Farm Employment Change, ISM Non-Manufacturing PMI and Crude Oil Inventories.

Written by David Morrison 

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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