Incisive market commentary from David Morrison

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Collapse 2017 <span class='blogcount'>(348)</span>2017 (348)
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Bounce in oil helps to steady equities - AM Briefing
30 Mar 2017
US stock indices consolidate - Video Update
29 Mar 2017
Risk appetite returns - AM Briefing
29 Mar 2017
S&P500 - Topping out, or consolidating? PM Bulletin
28 Mar 2017
Risk appetite returns after the Trump wobble - AM Briefing
28 Mar 2017
Beware hidden relationships between seemingly unrelated markets - Trading Guides
27 Mar 2017
Risk assets slump in wake of Trump’s healthcare debacle - AM Briefing
27 Mar 2017
Congress vote puts markets on hold - AM Briefing
24 Mar 2017
Markets on hold ahead of crucial vote - Video Update
23 Mar 2017
Tranquil markets await big data - AM Briefing
23 Mar 2017
Investors rattled after equity sell-off - Video Update
22 Mar 2017
US Markets Snap 109-Day Streak - AM Briefing
22 Mar 2017
Crude oil update - PM Bulletin
21 Mar 2017
European markets stable on the open - AM Briefing
21 Mar 2017
Dollar slips after G20 communique - AM Briefing
20 Mar 2017
FOMC post-mortem - Video Update
16 Mar 2017
Rate hike sends stocks higher - AM Briefing
16 Mar 2017
FOMC rate decision and Dutch election in focus - Video Update
15 Mar 2017
Oil rally gives markets lift - AM Briefing
15 Mar 2017
Crude trades at lowest levels since production cut agreement - PM Bulletin
14 Mar 2017
Politicians take centre stage again - AM Briefing
14 Mar 2017
Trading Psychology: Risk Management - Trading Guides
13 Mar 2017
Article 50 deadline approaches - AM Briefing
13 Mar 2017
European stocks push higher after Draghi’s hawkish stance - AM Bulletin
10 Mar 2017
Non-Farm Payroll look-ahead - PM Bulletin
09 Mar 2017
Fed rate hike seems certain - AM Briefing
09 Mar 2017
Market expects Fed to hike rates next week - Video Update
08 Mar 2017
Another twist in the French election - AM Briefing
08 Mar 2017
Odds slashed on Fed rate hike - PM Bulletin
07 Mar 2017
Investors lacking direction this morning - AM Briefing
07 Mar 2017
Fibonacci Retracement - extensions - Trading Guides
06 Mar 2017
Equities slip in early Monday trade - AM Briefing
06 Mar 2017
Modest profit-taking sees US indices post rare loss - AM Briefing
03 Mar 2017
Crude struggles to break above resistance - Video Update
02 Mar 2017
UK baffled by the origins of their favourite brands - PM Bulletin
02 Mar 2017
Fresh record highs for major indices - AM Briefing
02 Mar 2017
All eyes turn to the Fed - Video Update
01 Mar 2017
Markets react positively to Trump speech - AM Briefing
01 Mar 2017
Expand February <span class='blogcount'>(36)</span>February (36)
Expand January <span class='blogcount'>(39)</span>January (39)
Expand 2016 <span class='blogcount'>(483)</span>2016 (483)


Early movers

Mixed open for European stock indices

Crude oil steadies, lifting energy stocks

We’ve seen another mixed open for European stock indices following last night’s close on Wall Street. This brought modest gains for the S&P 500, a positive close on the NASDAQ but saw the Dow end the session in the red. The Dow differs from most other major stock indices in that it is price-weighted rather than market cap weighted. This means that a $1 move in a $10 stock has the same effect as a $1 move on a $100 stock. Yesterday’s loss on the Dow was primarily the fault of a sell-off in UnitedHealth.

Soon after the open European indices were all trading in the black, helped by strong gains in the energy sector. This is being lifted by the recent recovery in crude prices which have come under pressure following record US inventory growth and some lopsided positioning. But there are signs of a slowdown in US stockpile builds and recent trade has helped to rebalance the market in terms of a reduction in speculative longs. There is also some speculation that OPEC/non-OPEC producers will extend their agreement to curb output beyond the June cut-off date.

Stock Index Update

Mixed session for indices

Hawkish rhetoric from Fed

It was a mixed session for global stock indices yesterday. The European majors were all sharply higher on the open following a recovery on Wall Street on Tuesday evening. The buying continued pre-market yesterday. However, the US indices gave up initial gains and the Dow fell back into negative territory in the afternoon session. This saw European stock indices pull back from their best levels and the Italian MIB and Spanish IBEX both end lower on the day.

Federal Reserve Bank of Boston President Eric Rosengren called for four rate hikes for 2017. That would imply three further 25 basis point hikes over the rest of the year, one hike every other meeting. He said that this would be consistent with the Fed’s “gradual” path of monetary tightening and that there were signs of a “potentially overheating economy” on the horizon. Mr Rosengren was considerably more hawkish than Federal Reserve Vice Chairman Stanley Fischer who said on Tuesday that he expected just two further rate hikes this year. Chicago Fed President Charles Evans seemed closer to Mr Rosengren in his outlook when he said that it was “very safe” to forecast two further rate rises in 2017, implying that two hikes was the baseline expectation and that more could come should the economic situation warrant further tightening.

Commodities Update

Inventory data lifts crude

Gold and silver steady below resistance

Crude oil shot higher yesterday afternoon following the latest inventory update from the US Energy Information Administration (EIA). The EIA reported a build in crude stockpiles of just 0.9 million barrels which was a touch below the expected increase of 1.2 million barrels. There were also declines in gasoline and distillate inventories which helped to underpin prices. The bullish data followed on from Tuesday night’s update from the American Petroleum Institute. This also showed that US crude inventories rose less than expected for the week ended 24th March. The news helped to support crude and lift WTI back above $49 per barrel.

Crude fell sharply three weeks ago following an unexpectedly large jump in US inventories. Prices have steadied since then, albeit at lower levels. The market is struggling to deal with rising US production on one hand, and OPEC/non-OPEC output cuts on the other. November’s production cut agreement helped push WTI and Brent up to their highest levels since the summer of 2015. However, both contracts pulled back from their best levels following the exceptionally large US inventory build earlier this month. Even speculation that the OPEC/non-OPEC output cut agreement could be extended beyond June has done little to lift prices, so far.

Gold and silver spent most of yesterday’s session little-changed. This was despite a pick-up in the dollar which typically weighs on precious metals. Silver is closing in on its highs for this year. At the end of February silver came within a few cents of $18.50, yet was unable to break through this level despite a few attempts. Meanwhile, gold appears to be running into resistance around $1,260. It tried (and failed) to break above here at the end of February. This marked the end of a rally which saw gold climb around $130 from the lows hit in mid-December.

While both metals held up well yesterday in the face of dollar strength, it feels as if they’ll need to see the greenback pull back further for them to keep the rally going. Yesterday the dollar got a boost from a bout of speculative short-covering and some hawkish comments from Fed members Rosengren and Evans.

Forex Update

Euro slips against all majors

Sterling drifts lower as UK triggers Article 50  

Yesterday the euro was back in focus as it lost ground against all the majors. The move followed a report from Reuters that next month the European Central Bank is likely to tone down the hints made earlier in March that it is considering taking steps to reduce monetary accommodation. Analysts were left slightly confused after the last ECB meeting as a dovish statement was somewhat at odds with Mario Draghi’s subsequent press conference. In this, the ECB President hinted (ever so subtly) that the door was open to a change in the central bank’s policy stance.

Meanwhile, the US dollar had a better session, posting gains against all the majors except the Japanese yen. The move saw the Dollar Index pull away further from Monday’s multi-month lows. On Tuesday evening Federal Reserve Vice Chairman Stanley Fischer said that two more rate hikes in 2017 seemed "about right” while yesterday fellow Fed member Eric Rosengren said that three further rate rises may be needed.

The greenback has come under intense selling pressure over the past fortnight following the release of a less-hawkish-than-expected outlook from the Fed, tumbling bond yields and a back-up in inflation expectations. The dollar hit a fourteen-year high against the euro at the beginning of the year on expectations of a deluge of fiscal stimulus from the Trump administration. There’s some speculation that may be less likely now since Trump failed to get the repeal and replacement of Obamacare through the House.

Meanwhile, sterling rose against the euro but had another losing day against the dollar. This came as the UK officially invoked Article 50 in a letter from UK Prime Minister Theresa May to European Council President Donald Tusk. The GBPUSD fell over 2 cents between Monday and yesterday morning. Traders will now be watching to see if it can hold above 1.2400 - a level which held as support for most of February.

Upcoming events

Today’s significant economic data releases and events include the Swiss KOF Economic Barometer, Spanish CPI and German CPI. From the US we have the final reading on fourth quarter GDP and Weekly Jobless Claims. Later on Federal Reserve Bank of Dallas President and FOMC-voting member Robert Kaplan is due to speak at the US Chamber of Commerce.


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Posted by David Morrison

Category: AM Bulletin

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