Incisive market commentary from David Morrison

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Collapse 2017 <span class='blogcount'>(348)</span>2017 (348)
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EURUSD breaks above resistance - PM Bulletin
31 Jan 2017
Equities recover after Monday’s sell-off - AM Briefing
31 Jan 2017
Trending markets and Andrews’ Pitchfork -Trading Guide
30 Jan 2017
Investors rattled by Trump’s curbs - AM Briefing
30 Jan 2017
Dow holds above 20,000 as dollar firms - AM Briefing
27 Jan 2017
Dow breaks above 20,000 - Video Update
26 Jan 2017
Dow at 20,000 boosts risk appetite - AM Briefing
26 Jan 2017
Dow finally breaks 20,000 - PM Bulletin
25 Jan 2017
Wall Street leads stocks higher - AM Briefing
25 Jan 2017
Consolidation continues - Video Update
24 Jan 2017
Dollar recovery helps lift sentiment - AM Briefing
24 Jan 2017
Money management and stop-losses -Trading Guide
23 Jan 2017
Stocks fall on US protectionism fears - AM Briefing
23 Jan 2017
Trump inauguration in focus - AM Briefing
20 Jan 2017
A look-ahead to Trump’s inauguration - Video Update
19 Jan 2017
ECB President Draghi’s press conference in focus - AM Briefing
19 Jan 2017
Dollar steadies after sell-off - Video Update
18 Jan 2017
Equities drift in featureless trade - AM Briefing
18 Jan 2017
Dollar pull-back lifts precious metals- PM Bulletin
17 Jan 2017
Dollar slumps in early trade - AM Briefing
17 Jan 2017
Charting analysis for beginners - Trading Guide
16 Jan 2017
Sterling slumps on “Hard Brexit” concerns - AM Briefing
16 Jan 2017
Earnings in focus - AM Briefing
13 Jan 2017
Fourth quarter earnings in focus - Video Update
12 Jan 2017
Market Info Update: Martin Luther King Day Monday 16th January 2017
12 Jan 2017
Dollar lower as Trump skips stimulus talk - AM Briefing
12 Jan 2017
Trump news conference - Video Update
11 Jan 2017
Trump press conference in focus - AM Briefing
11 Jan 2017
Has gold turned a corner? - PM Bulletin
10 Jan 2017
Another mixed start for Europe - AM Briefing
10 Jan 2017
Trading Psychology - Trading Guides
09 Jan 2017
Sterling slips on "Hard Brexit" fears - AM Briefing
09 Jan 2017
Non-Farm Payrolls in focus - AM Briefing
06 Jan 2017
Non-Farm Payroll look-ahead - Video Update
05 Jan 2017
FOMC minutes viewed as hawkish - AM Briefing
05 Jan 2017
Look-ahead to release of FOMC minutes - Video Update
04 Jan 2017
FOMC minutes in focus - AM Briefing
04 Jan 2017
Strong start to 2017 - PM Bulletin
03 Jan 2017
Equities push higher in first session of 2017 - AM Briefing
03 Jan 2017
Expand 2016 <span class='blogcount'>(483)</span>2016 (483)


Early moves

·         Italian banks in focus

·         Crude sell-off hits energy sector

It’s proving to be another mixed start for European equities with most of the major indices little-changed in early trade. The main exception is the Italian FTSE/MIB which is coming under pressure due to renewed concern over the domestic banking sector. Focus has now shifted to Veneto Banca and Popolare di Vicenza.

Overnight brought the release of China’s latest inflation data. This saw CPI drop back to 2.1% year-on-year from last month’s 2.3% reading. PPI jumped to 5.5% year-on-year, up from 3.3% and the fastest pick-up in producer inflation for five years. The Shanghai Composite ended a touch lower while the Japanese Nikkei lost close to 0.8% thanks to the pick-up in the yen.  

Last night the NASDAQ Composite hit a fresh record high while the Dow and S&P500 both lost ground. Tech companies are busy playing catch-up with the broader market, although energy companies took a hit from yesterday’s sharp sell-off in oil.

Investors are gearing up for the start of the fourth quarter earnings season. But they are also reassessing the outlook for further gains following the dramatic stock market rally since Donald Trump’s surprise election victory in November.  Tomorrow the president-elect is scheduled to hold his first press conference since the summer. It’s possible he will take the opportunity to expand on some of his recent Twitter outpourings.

Stock Index Update

·         Mixed close across Europe

·         UK government cuts Lloyds holding below 6%

Monday brought mixed fortunes for European stock indices. Most of the majors ended the session with modest losses, getting tied up in the general “risk-off” profit-taking which was the overall market sentiment yesterday. The FTSE100 managed to buck the trend thanks to the sell-off in sterling. Around 70% of the index is made up of multinationals that make the bulk of their sales overseas. The British pound fell sharply as the trading week got underway following comments from UK Prime Minister Theresa May over the weekend. Mrs May said it was not her intention to keep “bits of EU membership.” This suggests that the government’s plan is likely to include an exit from the single market, described by some as a “Hard Brexit.”

In other news, it was announced that the UK government has reduced its stake in Lloyds (LLOY) to below 6%. This means that it is no longer the biggest shareholder in the bank. This is a dubious honour which now belongs to BlackRock (BLK).

Commodities Update

·         WTI and Brent fall sharply

·         Gold and silver firmer on weaker dollar

Crude oil fell sharply in early trade yesterday morning and the selling continued into the US session. The move was linked to speculation that US shale oil production could easily rise and replace the output cuts made by OPEC and some non-OPEC producers back in November. Although it is early days (the agreement only came into force on 1st January) there is some evidence that these production cuts are actually taking place. Sources in Russia informed Reuters that output had fallen by 100,000 barrels per day (bpd) last week. However, OPEC's second-biggest producer, Iraq, exported a record 3.51 million bpd in December. But officials insisted that the country would comply with its commitment to lower output by an average of 210,000 bpd from January.

Nevertheless, data from oil field services conglomerate Baker Hughes showed that US producers had added oil rigs for a 10th week in a row. And according to analysts at Barclays, the US rig count could hit 850 to 875 by year-end, compared to 529 now. So once again, the cure for higher oil prices appears to be higher oil prices. Analysts at Barclays said they expected the U.S. rig count to rise from the current level of 529 to 850-875 by the end of the year, with spending on exploration and production set to increase 27 percent in North America. Support continues to come in around $52 and $54 for WTI and Brent respectively.

Gold and silver rallied in early trade on Monday as the US dollar ceded gains made on Friday. Investors appear to have regained some confidence in the two precious metals after selling both heavily in the wake of Donald Trump’s surprise election victory in early November. Ahead of the election a majority of analysts expected gold to shoot higher in the event of a Trump win. This was due to a widely held belief that the US dollar would slump while gold and silver would see safe-haven inflows. The two precious metals did bounce in the immediate aftermath of the Trump victory but then slumped as the dollar defied all predictions to storm higher. The fresh analysis explained this as a market reaction to raised inflation expectations brought about by Trump’s promises of fiscal stimulus. This meme has continued into the New Year and got a boost on Friday following a big jump in Average Hourly Earnings. However, gold and silver have managed to steady over the last few weeks as both commodities became oversold. But we may need to see the dollar fall further for both metals to make serious gains from here.

Forex Update

·         Sterling slides after comments from Theresa May

·         US dollar rally loses steam

The big news in FX yesterday was the slide in sterling. The British pound sold off as soon as Asian Pacific markets opened as traders reacted to comments from UK Prime Minister Theresa May. In an interview on Sunday Mrs May said she wasn’t interested in keeping "bits of membership" of the European Union (EU). This suggested that the UK government was preparing to take a hard stance in negotiations to leave the EU. Mrs May had previously indicated that she would trigger Article 50 and thereby begin the process of the UK’s withdrawal from the EU by March this year. However, she has refused to be drawn on the UK’s negotiating position which has angered many policymakers and bureaucrats. Any suggestion that the UK is prepared to leave the single market in order to control immigration is seen as bad for business and bad for sterling. Cable fell over 1% yesterday breaking below support around 1.2200. The EURGBP rose over 1% smashing through resistance around 0.8600.

Meanwhile the US dollar struggled against the other majors. A general “risk-off” move amongst investors saw the USDJPY briefly break below 116.00. This meant that the greenback had given back the gains made on Friday which followed the release of US unemployment data. Inflation expectations were lifted after Average Hourly Earnings spiked higher in December.

Upcoming events

Today’s significant economic data releases include French Industrial Production, Canadian Housing Starts and Building Permits. From the US we have JOLTS Job Openings and final Wholesale Inventories.


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Posted by David Morrison

Category: AM Bulletin

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