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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
AM Bulletin: US stock indices rebound
25 Feb 2016
PM Bulletin: Lloyds Banking Group
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
PM Bulletin: Charts for USDJPY
01 Feb 2016
Weekly Bulletin: Central banks respond to sell-off
01 Feb 2016
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 Wednesday 10 February 2016

AM Bulletin: Yellen testimony in focus

 

 

Indices Update

Fed Chairman Janet Yellen testifies before the House Financial Services Committee today. No doubt she will be quizzed about the Fed’s December rate hike. She will be anxious to make the right noises in order to calm investors’ nerves and prevent a deeper and more protracted stock market sell-off. But she can only do this if she dials back on the FOMC’s projections for a full 100 basis point increase in rates in 2016. If she manages to strike the right balance between optimism over the state of the US economy yet caution over the pace of monetary tightening (blame China and Europe?) then that should give equities a lift.

It was a very quiet start for European equities and US stock index futures yesterday. The major indices were little-changed in early trade despite a 5% sell-off in Japan’s Nikkei overnight and the USDJPY trading down to 114.20. Stocks had tanked on Monday, although the major US indices rallied off their lows in the last hour of trade led by energy stocks. This prevented a complete rout.

But the sell-off gathered pace again and the US30 futures were down over 180 points ahead of the US open. Then, they recovered all these losses and more in the first 15 minutes of trading and ended the day little-changed – despite a slump in oil.

Investors are very jittery at present. The oil price is still a factor and it doesn’t help when it slips back below $30 per barrel (near-month WTI). There are also fears of a credit event occurring in the European banking sector with Deutsche Bank currently in focus. It is against this background that Fed Chairman Janet Yellen will deliver the first part of her testimony in Washington later today.

The FTSE 100 index closed at 5,632.2 down 57.2 points on the day or 1.0%

The German DAX fell just under 100 points or 1.1% to finish at 8,879.4

The US30 closed down 12.7 points to finish at 16,014.4 The S&P 500 ended at 1,852.2 down 1.2 while the Nasdaq 100 fell 0.3% to close at 3,947.8

Equities Update

If last year was all about the sell-off in energy and mining stocks, so far this year it’s been the “FANG” stocks (Facebook, Amazon, Netflix and Google) which grabbed the headlines. These four tech giants had been instrumental in supporting the major US stock indices. When they fell out of favour with investors and turned lower, there was precious little left out there to give the broader market a lift. However, problems in another sector have been festering away over the last six weeks. Banking stocks have been declining steadily since the New Year with many of the biggest UK and US names (including Barclays, RBS, Standard Chartered, Citigroup, Bank of America and Morgan Stanley) having lost as much as 25% of their market value. But the situation for some European banks is even worse. Deutsche Bank is currently hitting the headlines. It fell 10% yesterday and is now down over 40% since the beginning of the year. In an echo of the last banking crisis, investors are questioning Deutsche Bank’s solvency. Despite assurances from CEO John Cryan and German Finance Minister Wolfgang Schaeuble the share price slumped again yesterday. It ended at €13.21 down 3.2% which was a fresh record closing low.

Commodities Update

Crude oil was mixed for most of yesterday’s trading session with no overall trend. However, prices slumped later in the day with WTI coming within cents of the multi-year low hit back on 20th January this year. The International Energy Agency (IEA) released its February oil market report. The agency noted that demand growth hit a five-year high in 2015 averaging 1.6 million barrels per day (bpd) and forecast that this was set to decline to 1.2 million bpd over 2016. The IEA said that demand growth would be lower due to slowdowns in Europe, China and the US. Meanwhile, global supply dropped by only 200,000 bpd to 96.5 million bpd in January as OPEC output mostly countered a fall in non-OPEC production.

Overall, there has been no change in the fundamentals for oil. Supply outstrips demand and this looks set to continue, particularly as Iranian exports come back on stream. So inventories are growing. This dynamic is unlikely to change much for the rest of the year unless the global economy shifts up a gear. Meanwhile, there seems very little chance of any production cuts being agreed with OPEC, let alone between OPEC and non-OPEC producers.

It was a quieter session for gold and silver yesterday. Both precious metals managed to build on recent gains in early trade but slipped back later in the US session. On Monday gold briefly traded above $1,200 per ounce. This marked its best intra-day level since June 2015.

Yesterday silver once again poked its head above $15.40 which was quite an achievement given the size of its rally on Monday. Typically, silver is the more volatile of the two metals. So although it can be considered more attractive than gold on price perspective when precious metals are rallying, its large intra-day swings are often off-putting for many speculators. In addition, it can also go through periods when it underperforms gold if investors worry about slowing global growth. After all, silver is an industrial as well as a precious metal. One useful measure of gold and silver’s relative value is the gold:silver ratio. This is simply the gold price divided by the silver price. The ratio is currently coming in around 78 which is close to its best levels from early 2009. This doesn’t mean that silver is set to soar, or that gold is about to collapse, but it does suggest that there’s room for some convergence.

Forex Update

The Japanese yen was back in the spotlight yesterday as it continued to surge higher against most of the majors. The yen built on recent gains made against the US dollar, British pound and Australian dollar. However, after a strong start it lost ground against the euro. This was more about the euro’s strength than any weakness in the yen.

As discussed in yesterday’s commentary investors generally rush to buy back yen when there is a loss of risk appetite. This is one of the reasons that the yen (along with the Swiss franc) is considered a “safe haven” currency. However, this has less to do with their properties as safe-havens (although both Japan and Switzerland have developed economies and plenty of FX liquidity) and more to do with their low yields which make them cheap to borrow. When risk appetite is high investors borrow (sell) yen in order to use the proceeds to gain exposure to stocks and other higher-yielding (and riskier) assets. It’s probably more accurate to call the yen a “funding” currency rather than a safe-haven one.

It is worth remembering that the ultimate safe-haven currency is the US dollar. This is due to its liquidity, market depth, it is properly free-floating (unlike the yuan or even the Swiss franc – remember the EURCHF “floor”), the US Treasury stands behind it and, not forgetting, that it’s the world’s reserve currency. The only financial assets that work better in extremis than the dollar are gold and silver.

It remains important to listen out for any attempts of intervention from the BOJ. On Tuesday night they were “checking rates” as the USDJPY sold off. The news helped the pair rally off 114.20 to back above 115.50.

Upcoming events

Today’s significant data releases include French, Italian and UK Industrial Production, UK Manufacturing Production, US Crude Oil inventories and US Federal Budget Balance. Most importantly, Federal Reserve Chairman Janet Yellen is due to testify on the Semi-annual Monetary Policy Report before the House Financial Services Committee in Washington DC.

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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