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Central banks and US payrolls in focus - Weekly Bulletin
31 Oct 2016
Revised Trading Hours - UK British Summer Time (BST) ends, 30th October 2016
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Equities drift on mixed earnings
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Earnings season, oil and the US dollar - Video Update
26 Oct 2016
Apple disappoints - AM Bulletin
26 Oct 2016
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USD rally continues - Weekly Bulletin
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Deutsche Bank trades at pre-DOJ fine levels : AM Bulletin
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ECB Decision in less than 400 words - PM Bulletin
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Intel buck earnings trend as the Fed takes centre stage again - PM Bulletin
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How to know what to spread bet on : Trading Guides
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Sterling “flash crash” and US Non-Farm Payrolls - AM Bulletin
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Non-Farm Payroll look-ahead - PM Bulletin
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 Wednesday 26 October 2016

Apple disappoints - AM Bulletin

 

 

Indices Update

Apple, the largest S&P500 stock by market capitalisation, fell sharply in after-hours trading following the release of its fourth quarter results. The company reported earnings per share of $1.67 which was a touch above the $1.66 expected. However, it posted revenues of $46.9 billion –which was a slight miss on the $47.0 expected. This time last year the company made $1.96 per share on sales of $51.5 billion. This represented its third consecutive quarter of year-on-year revenue declines.

The news has helped to keep a lid on equity prices this morning with most US and European indices trading in negative territory. The only exceptions are the Spanish IBEX and Italian MIB which have risen in early trade. Spanish banking giant Santander surprised markets with a rise in third quarter profits.

European equities and US stock index futures were firmer first thing yesterday morning. However, markets came off their best levels soon after the open and by lunchtime were little-changed. By the European close only the FTSE100 was still up on the day. Investors appear to be wary of pushing equity prices much higher until they have a better idea of how the third quarter earnings season is shaping up. This week brings updates from over 600 US companies (including 181 in the S&P500) together with more than 100 companies in the European Stoxx 600 scheduled to report.

Some of the initial euphoria which greeted last week’s announcement of the proposed $85.4 billion takeover of Time Warner by AT&T has dissipated. This followed concerns that the deal may face political and regulatory roadblocks.

In other news, Eurozone officials approved a €2.8 billion tranche of financial aid for Greece. The funds were unlocked after Greek policymakers showed evidence of progress on pension restructuring, bank governance and revenue collection. The country also made reforms to its energy sector. Greece has so far received €31.7 billion of the €86 billion bailout agreed in July 2015 - the third one since 2010.

The US30 closed down 53.8 points to finish at 18,169.3. The S&P 500 ended 0.4% lower at 2,143.2 while the Nasdaq 100 ended down 0.4% at 4,891.5

Equities

Caterpillar (CAT) reported quarterly earnings of $0.85 per share yesterday. This was much better than the $0.76 per share consensus expectation. However, this was well below the $1.05 per share that the company earnt for the same period last year. Not only that but this quarter’s revenue came in at $9.16 billion on expectations of $9.86. The stock fell over 2% on the news in pre-market trading. The company is a market bellwether in that it manufactures heavy duty construction and manufacturing equipment. Chairman and CEO Doug Oberhelman said that there was “an abundance of used construction equipment” in North America along with “a significant number of idle mining trucks” around the world. While he said there were some “early signals of improvement in some areas” the company faced a number of challenges. The company lowered its full-year outlook for 2016 and doesn’t expect a significant improvement next year.

Commodities Update

After a quiet and uneventful morning’s trade, oil prices drifted lower later in the European session. The move saw the near-month WTI contract slip back below $50 per barrel. Traders appeared to be wary of sitting on long-side exposure ahead of last night’s US oil inventory update from the American Petroleum Institute (API). They were right to be cautious. The API data showed an inventory build of 4.8 million barrels on expectations of a 1.7 million barrel increase. The news has led to a further pull-back in prices this morning.

Later today the Energy Information Administration (EIA) will release its own update for the week ending 21st October. The consensus expectation is for a build of 700/800,000 barrels. If so, this would represent a big swing-around from last week’s 5.2 million barrel drawdown.

It’s worth noting that both WTI and Brent have been unable to break and close convincingly above the highs made back in early June, around $51.60 and $52.80 respectively.

Over the weekend Iraq’s oil minister Jabar Ali al-Luaibi said that the nation should be exempted from production cuts due to its ongoing war with Islamic militants. Iraq expects to increase its output a touch from last month’s 4.77 million barrels per day. However, Falah al-Amiri, head of Iraqi state oil marketer SOMO, claimed the country would be producing 9 million barrels per day if it wasn’t for the hostilities currently blighting the country. There are already questions over exemptions being extended to Iran, Nigeria and Libya as all three countries have been unable to maximise production due to previous sanctions (in the case of Iran) and because of hostilities in Nigeria and Libya. Meanwhile, Russian Energy Minister Alexander Novak told reporters that Russia considers an oil output freeze to be an effective tool for stabilizing global oil markets.

Gold and silver spent most of yesterday’s session trading in positive territory. Yet again, this ongoing consolidation is playing out despite US dollar strength. Yesterday the Dollar Index briefly broke above 99.00 to hit its highest level since the beginning of February this year. The Dollar Index continues to close in on resistance around the 100.00 area which has been in place for around 18 months now. Typically gold and silver find it difficult to make gains when the dollar is strengthening. This is because it becomes more expensive for non-dollar holders to convert their currencies to buy precious metals and other dollar-denominated currencies. The greenback continues to get support from the increased prospect of a December rate hike from the Fed. In addition, non-interest/dividend paying assets (such as gold and silver) tend to lose their attraction when yields are rising as investors seek out a “risk free” return on their funds.

Gold appears to have found support around $1,260 while silver has managed to steady and consolidate over the last few weeks trading between $17 and $18.

Forex Update

The Aussie dollar has bounced overnight following the latest update on Australia’s CPI inflation data. This came in at +0.7% quarter-on-quarter, well above both last month’s +0.4% reading and the market expectation of a 0.5% rise.

The US dollar pushed higher for most of yesterday’s session. The Dollar Index briefly broke above 99.00 to hit its highest level since the beginning of February this year. Meanwhile the EURUSD fell further below 1.0900 to trade at its lowest level in over six months. The currency pair is now closing in on support around 1.0800. This marks the 23.6% Fibonacci Retracement of the August 2015 – December 2016 sell-off. If it breaks below here then it potentially opens up the possibility of a retest of 1.0500 or even the multi-year lows hit back in March 2015.

Investors are herding back into the US dollar on the rising probability that the US Federal Reserve will raise interest rates at its December meeting.  The CME’s FedWatch Tool (which uses the fed funds futures contract to measure interest rate expectations) continues to price in a 74% probability of a rate hike in December. This number has got a boost over the last few weeks as the latest polls suggest that Hillary Clinton will win the election on 8th November. If so, this should smooth the way for the US Federal Reserve to proceed with its gentle pace of monetary tightening. In contrast, a win for Donald Trump could delay a rate hike as it would result in considerable market uncertainty. Adding to general hawkishness were comments on Monday from Chicago Federal Reserve President Charles Evans. He said the US central bank could raise rates three times between now and the end of 2017, just as long as inflation expectations and the labour market continue to improve. Last week San Francisco Federal Reserve President John Williams and New York Federal Reserve President William Dudley both hinted that tighter monetary policy was on its way.

Sterling was another currency in the news yesterday. The British pound turned sharply lower soon after midday. The sell-off saw the GBPUSD hit its lowest intra-day level since the UK referendum decision to quit the EU. However, sterling made back some of its losses as Bank of England Governor testified about the economic consequences of the Brexit Vote before the House of Lords Economic Affairs Committee. Mark Carney backtracked on the Bank’s previous suggestion that it was prepared to loosen monetary policy further, saying that the BoE would "undoubtedly" take sterling's weakness into account at its rate-setting meeting next week.

Upcoming events

Today’s significant economic events include the release of the GfK German Consumer Climate survey, German Import Prices, Italian retail Sales and UK Mortgage Approvals. From the US we have Wholesale Inventories, Flash Services PMI, New Home Sales and Crude Oil Inventories.

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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