NEWS AND ANALYSIS

Incisive market commentary from David Morrison

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'>(342)</span>2017 (342)
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)
Expand September <span class='blogcount'>(41)</span>September (41)
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)
Collapse May <span class='blogcount'>(42)</span>May (42)
PM Bulletin: BOJ and the yen
31 May 2016
AM Bulletin: Quiet start following holiday weekend
31 May 2016
PM Bulletin: Meanwhile in China
27 May 2016
AM Bulletin: Yellen in focus ahead of holiday weekend
27 May 2016
PM Bulletin: FTSE breaks above 6,200 again
26 May 2016
Holiday Schedule: Memorial Day 30th May 2016
26 May 2016
AM Bulletin: Brent crude tops $50
26 May 2016
PM Bulletin : Crude Chart
25 May 2016
AM Bulletin: “Risk-on” trade continues
25 May 2016
PM Bulletin: Another poll boost for sterling
24 May 2016
AM Bulletin: Equities slip as rate hike worries persist
24 May 2016
PM Bulletin: Changing expectations
23 May 2016
Weekly Bulletin: I’ll see your hike and raise you two
23 May 2016
PM Bulletin : Significant events ahead of June FOMC
20 May 2016
AM Bulletin: Preparing for a summer rate hike
20 May 2016
PM Bulletin : Gold struggles as dollar strengthens
19 May 2016
AM Bulletin: FOMC more hawkish than anticipated
19 May 2016
PM Bulletin : FOMC minutes and the S&P
18 May 2016
AM Bulletin: FOMC minutes in focus
18 May 2016
PM Bulletin: Cable rallies on latest poll
17 May 2016
AM Bulletin: US equities lead bounce-back
17 May 2016
Weekly Bulletin : Waiting on Central Banks
13 May 2016
PM Bulletin : Apple
13 May 2016
Holiday Schedule Whit Monday Market Holiday
13 May 2016
AM Bulletin : US Retail Sales in focus
13 May 2016
PM Bulletin : Silver and Gold
12 May 2016
AM Bulletin: Investors wary after Wall Street sell-off
12 May 2016
PM Bulletin: Two headaches for Elon Musk
11 May 2016
AM Bulletin: Stock indices pull back after rally
11 May 2016
PM Bulletin: Yen pulls back on jawboning
10 May 2016
AM Bulletin: Markets steady on commodity bounce
10 May 2016
PM Bulletin: Precious metals give back recent gains
09 May 2016
Weekly Bulletin: Poor Non-Farm Payroll causes concern
09 May 2016
May: Non Farm Payrolls Out Today
06 May 2016
PM Bulletin: A dismal Non-Farm Payroll number
06 May 2016
AM Bulletin: Non-Farm Payrolls in focus
06 May 2016
PM Bulletin: Non-Farm Payroll look-ahead
05 May 2016
AM Bulletin: Crude bounce lifts equities
05 May 2016
PM Bulletin: Apple update
04 May 2016
AM Bulletin: Equities under pressure
04 May 2016
PM Bulletin: Aussie dollar slumps
03 May 2016
AM Bulletin: RBA cuts by 25 basis points
03 May 2016
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)
 
 
 

 
Indices Update
 

The major global stock indices were relatively subdued in yesterday. Some closed with small losses and others with modest gains. It’s a similar picture again this morning. The major indices appear to be consolidating following two explosive sessions earlier in the week which brought consecutive triple digit gains for the Dow. Investors are girding their loins ahead of Janet Yellen’s speech early this evening. At the same time, many will be wary of going into the long weekend (it’s US Memorial Day on Monday) with too much risk exposure.

The sharp move higher in equities took many investors by surprise. After all, it followed recent hawkish comments from Fed members which have raised the probabilities of a summer rate hike. The rally in equities is due in part to increased confidence in the US economy and hopes that it is strong enough to withstand further monetary tightening. However, all eyes are on the dollar now. If the greenback continues its recent rally this will put pressure on China and increase the possibility of a yuan devaluation. It should also put downside pressure on dollar-denominated commodities. But for now all seems well – particularly with near-month Brent and WTI crude both pushing back above $50 yesterday.

We now have to see if the major global indices can consolidate and build on recent gains. It is worth noting that China’s Shanghai Composite has failed to respond to the US/European rally. This is probably due to concerns over recent dollar strength which is also lifting the yuan. A stronger yuan damages China’s competitiveness and export market. So it’s important to keep an eye on developments here – particularly in terms of the USD/yuan peg.

Aside from this, the outlook for global indices will depend on how the major US indices behave over the next few weeks in the run-up to the Federal Reserve rate decision. In the meantime it’s possible that investors will want to reduce their market exposure ahead of Fed Chairman Janet Yellen’s speech this evening and that may keep equities in check ahead of the weekend. Before that we have the first revision to US first quarter GDP. But next week is key as far as data releases and economic events are concerned. The ECB meets on Thursday while Manufacturing PMIs are due out from just about everywhere. Rounding things off, the latest US Non-Farm Payroll release is on Friday.

The FTSE 100 index closed at 6,265.7 up 2.8 points on the day, or 0.04%

The German DAX rose 67.5 points or 0.7% to end the day at 10,272.7

The US30 closed down 23.2 points to finish at 17,828.3. The S&P 500 fell 0.4% to close at 2,090.1 while the Nasdaq 100 gained 0.3% to close at 4,488

Equities

Daily Mail & General Trust (DMGT), the parent company of the Daily Mail, Mail Online and Metro said that its latest financial results were “broadly in line with expectations.” However, profits were down 29% for the six months to the end of March. The Group said this was due to a slump in print advertising. Ad revenues were down 13% for the period. However, the decline in revenues accelerated over the first quarter of 2016. The stock ended down 10.8% at 664 pence.

     
Commodities Update
 

Crude continued to rally yesterday with the front-month Brent contract finally trading above $50 per barrel for the first time in seven months. WTI soon followed, but struggled to hold on to this psychologically significant level. Nevertheless, the momentum remained with the buyers.

This week data from the American Petroleum Institute (API) and Energy Information Administration (EIA) showed much bigger-than-expected drawdowns in US crude inventories. The API data recorded a reduction of 5.14 million barrels – far more than the 2 million draw expected. This was the largest drawdown since December 2015. On Wednesday the EIA recorded a drawdown of 4.2 million barrels, way above the 1.7 million barrel reduction expected.

Crude has been getting support from a number of supply disruptions. The Canadian wildfires are estimated to have cut over 1 million barrels per day (bpd) of oil sands output. Meanwhile, Nigerian oil output has slumped to a 20-yr low amid series of attacks claimed by a militant group called the Niger Delta Defenders. On top of this, Venezuela is struggling to maintain output amid power cuts and other issues related to ongoing civil disruption. Not only that, but most of the country’s output heads straight to China in payment of the loans taken out when the oil price was considerably higher.

In related news the US active oil rig count is now at its lowest level since October 2009 and more producers are facing bankruptcy. Of course, those US shale oil producers that are still standing could now ramp up production, assuming they can raise the funds to get their rigs working again.

Back in February, estimates suggested that the global economy was oversupplied by about 1.7 million bpd. But that surplus is now down to around 1 million bpd due mainly to cuts in US shale oil production. On the flip side, demand growth appears relatively robust. However, it is unclear if this is due to genuine economic activity or stockpiling, particularly by China.

Gold managed to steady in early trade yesterday. This followed a sharp sell-off which began last week and accelerated on Tuesday. Gold managed to find support around $1,220 and bounced off this level yesterday. However, it gave back most of its gains from the European session having traded above $1,230 earlier in the day. Gold was given a lift by the US dollar which fell against most of the majors. But traders are struggling to know how to play this currently. The prospect of a summer rate hike from the US Federal Reserve has knocked some of the stuffing out of the precious metals bulls.

If gold breaks and closes below $1,220 tonight then further losses look possible. There’s some support coming in around $1,200 which roughly approximates to the 38.2% Fibonacci retracement of the December 2015-May 2016 rally. A break below here would open up the possibility of a retreat back to $1,180 or so. This would represent both the 50% retracement of the Jan-Dec 2015 sell-off and the Dec-May counter-rally. Meanwhile, silver continues to find support around $16.20. It bounced strongly off this level yesterday but was unable to hang on to its gains. 

Forex Update
 

The US dollar retreated yesterday for a second successive session. The EURUSD briefly pushed back above 1.1200 while the Dollar Index slipped back below 95.00 to hit its lowest intra-day level in over a week. The USDJPY fell back below 110.00 as investors trimmed back their equity market exposure ahead of the weekend and Janet Yellen’s speech later this evening. The yen is a favourite funding currency for risk traders due to its low borrowing costs and liquidity. Traders sell the yen and use the proceeds to buy higher yielding assets when risk appetite is strong. This process gets reversed when investors become more cautious.

Sterling is making headlines currently as it rallies back as the “Remainers” establish a substantial poll lead. Much of this has been on the back of a succession of economic scare stories – including the inevitability of a recession if the UK were to leave the EU. However, this could be seen as particularly disingenuous. We’re already well overdue a recession – EU or no EU. And as 2008 proved conclusively, Gordon Brown didn’t bring about the end of “boom and bust.” The second estimate of 1st quarter UK GDP came in at +0.4% as expected and unchanged on the first estimate. Cable ended lower on the day but still above support (previously resistance) around 1.4640.

Upcoming events

 

Today’s significant economic events include G7 meetings in Japan. From the US we have Preliminary GDP, Consumer Sentiment and Inflation Expectations. Later on Federal Reserve Chairman Janet Yellen will take part in a panel discussion at Harvard.

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


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.