Incisive market commentary from David Morrison

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AM Bulletin: Markets rise for the second day ; back to pre-referendum levels, sterling still weak
30 Jun 2016
AM Bulletin: Confidence returns – but for how long?
29 Jun 2016
AM Bulletin: The onslaught continues – and we’re not just talking the football
28 Jun 2016
Weekly Bulletin: Investors rattled by Brexit vote
27 Jun 2016
PM Bulletin: Brexit - Referendum fallout
24 Jun 2016
AM Bulletin: We’re out! And so is Cameron
24 Jun 2016
Video Update: #AskSpreadCo - EU referendum
23 Jun 2016
AM Bulletin: Markets on tenterhooks ahead of UK vote
23 Jun 2016
Spread Betting Tips
22 Jun 2016
AM Bulletin: Risk assets waft higher
22 Jun 2016
PM Bulletin:Referendum and Market Reaction
21 Jun 2016
PM Bulletin: Gold and the referendum
21 Jun 2016
AM Bulletin: Yellen testimony in focus
21 Jun 2016
PM Bulletin: Janet Yellen’s testimony
20 Jun 2016
Weekly Bulletin: It’s all about the referendum
20 Jun 2016
Market Info Update: EU Referendum Margin Changes - CFDs
17 Jun 2016
Market Info Update: EU Referendum Margin Changes - Spread Betting
17 Jun 2016
PM Bulletin: Forecasting the referendum result
17 Jun 2016
AM Bulletin: Central banks leave rates unchanged
17 Jun 2016
PM Bulletin: FOMC post-mortem
16 Jun 2016
AM Bulletin: Yen, precious metals soar post FOMC/BOJ
16 Jun 2016
PM Bulletin: FOMC look-ahead
15 Jun 2016
AM Bulletin: FOMC meeting ahead
15 Jun 2016
PM Bulletin: European equities slide
14 Jun 2016
AM Bulletin: Stocks down on oil, growth fears and UK referendum
14 Jun 2016
Weekly Bulletin: FOMC and BOJ meetings in focus
13 Jun 2016
PM Bulletin: Markets rattled by slide in bond yields
10 Jun 2016
AM Bulletin: European stock indices drift lower
10 Jun 2016
PM Bulletin: WTI at $50 – thoughts on US production
09 Jun 2016
AM Bulletin: Precious metals soar
09 Jun 2016
PM Bulletin: S&P closes in on all-time high
08 Jun 2016
AM Bulletin: Investors in limbo ahead of Fed and UK vote
08 Jun 2016
PM Bulletin: Yellen and the jobs data
07 Jun 2016
PM Bulletin: Fresh polls send sterling lower
06 Jun 2016
Weekly Bulletin: Rate hike? What rate hike?
06 Jun 2016
PM Bulletin: A dismal Non-Farm Payroll number
03 Jun 2016
AM Bulletin: Non-Farm Payroll Friday
03 Jun 2016
PM Bulletin: Non-Farm Payrolls look-ahead
02 Jun 2016
AM Bulletin: OPEC, ECB, key data releases and central bank speakers
02 Jun 2016
PM Bulletin: OPEC and the oil price
01 Jun 2016
AM Bulletin: Manufacturing PMIs in focus
01 Jun 2016
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Indices Update

Asian Pacific and European indices were sharply lower in early trade this morning following meetings from the US Federal Reserve and Bank of Japan (BOJ). Both central banks kept monetary policy unchanged, as generally expected. Stocks initially rallied last night as the Fed indicated there could be fewer rate hikes this year than previously thought. But they subsequently sold off as the market felt that the central bank was losing credibility due to its lack of coherence. The Fed has emphasised that it is data-dependent, yet has repeatedly ignored data targets when setting rates. Meanwhile, news that the BOJ has once again held back from further stimulus has seen the yen soar, precious metals fly higher and equities slip lower.

There was a firmer tone to the major indices yesterday as they made back some of their losses from earlier in the week. The European indices fared best and stormed higher. Italy and Spain were both up 2% while the FTSE, DAX and CAC all added over 1% each. This was despite ongoing fears over the outcome of next week’s UK referendum on EU membership and ahead of the conclusion of the US Federal Reserve’s two-day rate-setting meeting.

Ahead of the Fed meeting, leading fund manager Jeff Gundlach said that: "Central banks are losing control and they don't know what to do." He went on to say that the Fed “is confused and their confusion spills into investor psychology... it seems every other week the message is different. They've turned into the Zombie Fed."

Earlier yesterday it was announced that indexer MSCI decided not to include China in its Emerging Markets index due to concerns over Chinese "market integrity." This was the third year running that MSCI has snubbed China and the decision came as something of a surprise. Chinese equities opened down around 1%. But ironically they subsequently soared higher to leave the Shanghai Composite up 1.6% on the day. Analysts had no doubt the rally was a result of Chinese market manipulation. However, we shouldn’t be too smug as we’ve seen some blatant cases of intervention in our own markets over the years.

The FTSE 100 index closed up 43.3 points or 0.7% at 5,966.8

The German DAX rose 87.5 points or 0.9% to end the day at 9,606.7

The US30 closed down 34.7 points to finish at 17,640.2. The S&P 500 fell 3.8% to close at 2,071.5 while the Nasdaq 100 lost 0.4% to close at 4,409.5



Aveva Group (AVV) slumped around 18% yesterday morning after it said talks with France’s Schneider Electric for a potential reverse takeover had ended. Shares in the British software maker were suspended on Monday after it resumed talks with Schneider. The two companies had attempted a tie-up before and attempted a deal last summer. But that deal was abandoned back in December as it was considered too complicated. Back then Aveva said a merger with Schneider posed significant challenges “which could not be overcome without considerable additional risk and cost". Aveva ended the day 12% lower at 1,631 pence. 

Commodities Update

Crude oil began yesterday’s trading session lower once again and looked to be heading for its fifth consecutive down day. There have been renewed concerns over the possibility of a global glut in oil after the American Petroleum Institute (API) reported a 1.2 million barrel increase in US oil inventories for last week. The news trumped an earlier report from the International Energy Agency (IEA) which said the oil market is coming back into balance after two years of surpluses.

Also there was talk that Nigerian militants (The Niger Delta Avengers) were considering taking part in peace talks. This news should be treated with caution however, as only last week the Avengers said they had no plans to give up their campaign of attacks on Nigeria’s oil infrastructure. These acts of sabotage have sent the country’s output plunging to its lowest level in 27 years.

But crude rallied later in the session following the latest US inventory release from the Energy Information Administration (EIA). The agency reported a drawdown of just 900,000 barrels for the week ending 10th June. This was less than the 1.4 million decline expected, and considerably below the prior week’s drawdown of 3.2 million barrels. Nevertheless, both WTI and Brent continued to trade shy of $50 per barrel. Both contracts sold off later in the day after the Fed released its statement.

Gold was weaker in early trade yesterday but made back most of its losses ahead of the Fed meeting. Silver spent most of yesterday in positive territory. But both soared higher following the release of the Fed’s statement and economic projections. These implied a more dovish stance from the central bank which lifted the two precious metals. The buying has continued this morning following the BOJ’s decision to hold back from further stimulus. This has caused the yen to soar and precious metals are up on safe-haven buying.

The two precious metals continue to show resilience after rallying sharply in the immediate aftermath of the Non-Farm Payroll report earlier this month. The poor data, followed by a dovish speech from Federal Reserve Chairman Janet Yellen, was seen as effectively ending any possibility of a summer rate hike from the US central bank. This was good news for the two precious metals as both become attractive assets to hold in a low interest rate world. This is because the lost-opportunity cost of holding gold or silver is reduced when other assets yield nothing – or have negative yields as is currently the case with $10-11 trillion of global government debt.

Investors are also investing in gold and silver as protection ahead of next week’s UK referendum on EU membership. a succession of different polls have suggested that the “Leave” campaign has gained momentum and is building a slight but significant lead over the “Remainers” over the last few weeks.


Forex Update

There were some modest currency moves yesterday ahead of the Fed’s FOMC meeting, yet there was no clear overall direction amongst the majors. Sterling was up against both the US dollar and euro. There were some better-than-expected UK employment numbers which showed a bigger-than-expected drop in both the Unemployment Rate and the Claimant Count. Average Earnings were also better-than-expected coming in at +2.0% for the quarter year-on-year, up from +1.7% expected. The data triggered a small bout of profit-taking following a relentless pre-referendum sell-off. The dollar was weaker against the euro while two other “safe-haven” currencies (the Japanese yen and Swiss franc) also made gains. Once again, the USDJPY dipped below 106.00 as traders awaited not just the Fed meeting but the Bank of Japan’s as well.

The dollar sold off sharply following the release of the Fed’s rate decision, statement and summary of economic projections. These were all viewed as being more dovish in outlook than previously expected. There is also a feeling that the Fed has no coherent policy and is just reacting to events from meeting to meeting. There’s a great danger that the central bank loses mainstream credibility – it has already lost it with many market participants.

Earlier this morning the Bank of Japan held back from further monetary stimulus. The yen has soared higher this morning with the USDJPY crashing through 104.00 at one stage. This is unsettling markets generally as it suggests a policy misstep from the BOJ. If the yen strengthens much more then Japan will be desperate to intervene, but then risk the wrath of the US and China. 

Upcoming events

Today’s significant data releases and events include rate decisions from the Swiss National Bank and Bank of England. We also have UK Retail Sales, Euro zone CPI and Eurogroup meetings. From the US we have CPI, the Philly Fed Manufacturing Index, Weekly Jobless Claims and Current Account. BoE Governor Mark Carney delivers his Mansion House speech at 21:00 BST.


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Posted by David Morrison

Category: AM Bulletin

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