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Collapse 2017 <span class='blogcount'>(348)</span>2017 (348)
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Investors on edge after Wall Street sell-off
30 Jun 2017
Central bankers keep traders guessing - Video Update
29 Jun 2017
Markets mixed ahead of weekend - AM Briefing
23 Jun 2017
Investors concerned over oil sell-off - AM Briefing
22 Jun 2017
Crude oil hits seven-month low - Video Update
21 Jun 2017
Sell-off in crude weighs on equities - AM Briefing
21 Jun 2017
Crude falls back to November lows - PM Bulletin
20 Jun 2017
Fresh records for US indices - AM Briefing
20 Jun 2017
Equity rally resumes - AM Briefing
19 Jun 2017
Markets steady ahead of weekend - AM Briefing
16 Jun 2017
FOMC surprises with “hawkish rate hike” - Video Update
15 Jun 2017
Fed unveils “hawkish rate hike” - AM Briefing
15 Jun 2017
FOMC rate decision in focus - Video Update
14 Jun 2017
Investors expect another Fed rate hike - AM Briefing
14 Jun 2017
FOMC look-ahead - PM Bulletin
13 Jun 2017
NASDAQ futures recover in early trade - AM Briefing
13 Jun 2017
Equities slide after US tech sell-off - AM Briefing
12 Jun 2017
May-hem! Tories chuck away majority - AM Briefing
09 Jun 2017
Brief notes on gold - PM Bulletin
08 Jun 2017
Markets calm as investors take “Risky Thursday” in their stride
08 Jun 2017
Markets becalmed ahead of “Risky Thursday” - AM Briefing
07 Jun 2017
Sterling, events on Thursday and the UK election
06 Jun 2017
Safe havens in demand - AM Briefing
06 Jun 2017
Trading Guides - How CFD trading works
05 Jun 2017
Sterling steady after terror attack - AM Briefing
05 Jun 2017
Non-Farm Payrolls in focus - AM briefing
02 Jun 2017
Non-Farm Payroll look-ahead - Video Update
01 Jun 2017
Crude bounces after US inventory data - AM Briefing
01 Jun 2017
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Early moves

European equities in positive territory

Investors eye ADP Payroll number

European equities got off to a cautious start this morning but it wasn’t long before the major indices began to push higher. Buyers were encouraged to some extent by a recovery on Wall Street last night. Although the US majors ended the session in negative territory, all bounced off lows made earlier in the day. Oil prices are also firmer this morning, responding to an unexpectedly large drawdown in US crude inventories as reported by the American Petroleum Institute after last night’s close. Later today we get the latest inventory update from the Energy Information Administration. If this confirms last night’s data we should expect crude to extend its gains. On top of this we’ve seen a clutch of Manufacturing PMIs from across Europe. While there were a few disappointments with French and Italian PMIs a touch lower than the prior month, overall the numbers were viewed positively.

This afternoon we’ll see the US ADP Non-Farm Employment Change for May. The consensus expectation is for an increase of 181,000 - a modest increase from the prior reading of 177,000. The ADP data foreshadows tomorrow’s official Non-Farm Payroll number. However, traders will be wary of reading too much into today’s release as it has recently proved to be a poor predictor of the government’s data.

Stock Index Update

Investors rattled by weak data and crude

Fed still expected to raise rates this month

US stock indices slumped on yesterday’s open in a move which saw the S&P500 lose 0.4% in the first 30 minutes of trading. The sell-off was linked to the fall in crude prices although the banking sector took a tumble after JP Morgan and Bank of America both warned that second quarter revenues would be significantly lower than a year ago.

There was also some concern following the release of some disappointing US economic data. The Chicago PMI dropped to 55.2 from 58.3 in the prior month while Pending Home Sales fell 1.3% in April on expectations of a 0.7% increase.

It’s worth bearing in mind that we had disappointing US inflation data earlier this week. Core PCE continues to trend downwards and at 1.5% annualised is a long way below the Fed’s 2% target. Nevertheless, the consensus expectation is that the US central bank will raise rates by 25 basis points in a few weeks’ time. On Tuesday FOMC-voting member Lael Brainard said that she still expected a Fed rate hike soon. However she also noted that “if the soft inflation data persist, that would be concerning and, ultimately, could lead me to reassess the appropriate path of policy”. Ms Brainard is also well known for being one of the more dovish members on the FOMC although she has been more upbeat of late.

Commodities Update

Crude slumps below support

Gold pushes back above $1,260

The sell-off in crude oil accelerated yesterday afternoon. The front month WTI contract fell over 3% and broke below $48. Meanwhile, Brent came within a few cents of breaking below $50. Both contracts traded down to their lowest levels in a fortnight. However, both contracts rallied sharply following the latest US inventory update from the American Petroleum Institute (API). This showed an 8.67 million barrel drawdown in crude - well above the 3 million barrel reduction anticipated and the biggest drawdown since September 2016.

Despite this, the market continues to give last week’s nine month extension of the OPEC/non-OPEC production cut agreement the thumbs-down. The overriding view is that this deal won’t be enough to bring the oil market back into balance. Global inventories are still too high while the outlook for demand growth is uncertain to say the least. At the same time US shale production continues to rise as drillers continue to take advantage of the contango in oil prices. This is where oil prices are higher for future delivery than on the spot market. This situation allows US producers to lock in profits for current supply.

Gold put in a solid session yesterday, breaking above $1,270 at one stage. This saw it trade at its highest level in over a month. Meanwhile, silver fared less well and ended the day slightly weaker. It seems to be having trouble breaking above $17.40 although there does seem to be some mild support around the $17.20 level. The dollar was a touch weaker yesterday and that could have helped lift gold.

It could be that we soon see renewed interest in both precious metals thanks to the popularity of cryptocurrencies. After all, it can’t be long before serious investors examine the arguments behind owning Bitcoin and its many competitors and realise that gold and silver may not have the same convenience in terms of a medium of exchange, but are immeasurably safer as a store of value. Not only that, but both have a solid track record of preserving wealth that goes back thousands of years.

Forex Update

Sterling recovers after Tory poll bounce-back

Euro zone inflation remains subdued

The latest polls for next week’s UK General Election showed a recovery in the Tory party’s fortunes. Research company Panelbase put the Conservative lead back up to 15% and this led to a bounce-back in the British pound. Sterling slumped early on Wednesday morning after YouGov suggested the Tories could lose 20 seats and their majority. However, it’s probably best to take both polls with a pinch of salt and assume Theresa May’s party is doing better than YouGov suggests but not quite as well as Panelbase calculates.

Earlier in the day headline Euro zone Flash CPI rose 1.4% year-on-year while the core CPI (excluding food and energy) was up just 0.9% annualised. Both numbers were down from the prior month’s readings and below their respective consensus forecasts. Core CPI was expected to rise 1.0% year-on-year - still a long way short of the ECB’s target rate of 2%.

The key takeaway was that the data supports ECB President Mario Draghi’s assertion that inflation remains subdued and that “substantial” stimulus is still required. This has put a dampener on recent speculation that the ECB is getting ready to taper its bond purchase programme, let alone join the US Federal Reserve in tightening monetary policy. It may be that economic growth is picking up across the currency bloc. But while inflation remains so far below target, the current monthly bond purchases look set to continue, and could even be extended beyond the year-end cut-off date. Despite this, the euro rallied yesterday and made gains against all the majors.

But it’s not just the Euro zone where inflation is tepid. Tuesday saw the release of the US Core PCE Price Index - the Fed’s preferred inflation measure. The year-on-year inflation rate rose1.5%, down from 1.6% previously. This was well below the Fed’s 2% target and the trend so far this year has been downward. There are some analysts who have started to wonder if the Fed may hold off from hiking rates in June. However, the consensus view remains that the US central bank will hike rates in a few weeks’ time.

Upcoming events

Today’s significant events and economic data releases include Spanish, Italian, French, German, UK and US Manufacturing PMIs. Also from the US we have Challenger Job Cuts, the ADP Non-Farm Employment Change, Weekly Jobless Claims, Construction Spending, Crude Oil Inventories and Total Vehicle Sales.


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Posted by David Morrison

Category: AM Bulletin

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