Incisive market commentary from David Morrison

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Market awaits Trump, and Fed reaction
28 Feb 2017
Markets on hold ahead of Trump speech to Congress - AM Briefing
28 Feb 2017
Fibonacci Retracement - an introduction - Trading Guides
27 Feb 2017
Investors shrug off concerns ahead of Trump speech - AM Briefing
27 Feb 2017
Equities drifting lower ahead of weekend - AM Briefing
24 Feb 2017
Dollar sells off after FOMC minutes - Video Update
23 Feb 2017
FOMC minutes send dollar lower - AM Briefing
23 Feb 2017
Crude oil pushes up against resistance - Video Update
22 Feb 2017
FOMC minutes in focus - AM Briefing
22 Feb 2017
Gold pulls back from resistance - PM Bulletin
21 Feb 2017
US traders return after market holiday - AM Briefing
21 Feb 2017
Identifying market tops, or the trend is your friend - until it isn’t
20 Feb 2017
Kraft Heinz pulls Unilever bid - AM Briefing
20 Feb 2017
Major indices drifting lower as weekend approaches - AM Briefing
17 Feb 2017
US Indices hit fresh record highs
16 Feb 2017
Trump tax promise continues to drive risk appetite - AM Bulletin
16 Feb 2017
Yellen testifies in Washington
15 Feb 2017
Yellen testimony helps lift sentiment - AM Bulletin
15 Feb 2017
Silver hovers around resistance at $18
14 Feb 2017
Focus turns to Yellen’s testimony in Washington
14 Feb 2017
An introduction to the Relative Strength Index - Trading Guides
13 Feb 2017
Equity rally continues - AM Briefing
13 Feb 2017
Trump tax talk boosts risk appetite - AM Briefing
10 Feb 2017
US dollar drivers - Video Update
09 Feb 2017
Recovery in crude lifts equities AM Briefing
09 Feb 2017
Crude volatility picking up - Video Update
08 Feb 2017
Crude lower as inventories soar - AM Briefing
08 Feb 2017
Politics set to drive FX - PM Bulletin
07 Feb 2017
Major indices drift in featureless trade - AM Briefing
07 Feb 2017
MACD - an overview -Trading Guide
06 Feb 2017
European equities drift in quiet trade - AM Briefing
06 Feb 2017
Non-Farm Payrolls in focus - AM Briefing
03 Feb 2017
Non-Farm Payroll look-ahead - Video Update
02 Feb 2017
BoE meeting in focus - AM Briefing
02 Feb 2017
FOMC meeting tonight - Video Update
01 Feb 2017
Markets steady ahead of Fed meeting - AM Briefing
01 Feb 2017
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 Wednesday 08 February 2017

Crude lower as inventories soar - AM Briefing



Early moves

Indices post modest gains after shaky start

Crude close to significant support

European indices and US stock index futures are firming up after a shaky start. This is despite a sharp pull-back in crude prices which can often weigh on equities. However, while Brent and WTI have retreated from resistance around $57 and $54 respectively, they have yet to properly test intermediate support which comes in around $51 for WTI and $54 for Brent. But it’s important to keep a close eye on these levels as a break below there could encourage investors to lighten up on their equity holdings. A large number of companies both in the energy sector and related to it can run into problems with oil below $50 per barrel. Below here, many drillers become unprofitable making it more difficult for them to service debt, let alone ready to hire fresh workers and equipment. Later today we get an update on US inventories from the Energy Information Administration. After last night’s close the American Petroleum Institute recorded another sharp rise in stockpiles of crude and refined products.

Stock Index Update

US indices pull back from highs

BP disappoints

The Dow and the NASDAQ both hit record intra-day highs yesterday. The move was a continuation of a move from last week which followed the release of a strong Non-Farm Payroll number. This encouraged investors in the belief that the US economy is continuing to improve. However, weaker-than-expected Average Earnings also convinced them that inflationary pressures are under control and the Fed has no reason to hike rates at next month’s meeting.

It was another mixed close for European indices yesterday as the majors posted an assortment of modest gains and losses. As far as individual companies were concerned BP was one of the FTSE100’s biggest losers ending the day over 4% lower. The oil giant announced fourth quarter earnings ahead of the open which were its weakest in 10 years. Underlying replacement cost profit (the metric used by the oil industry to account for profits) came in at $400 million for the quarter which was well below the $560 million expected.  Year-on-year the replacement cost profit came in at $2.59 billion for 2016 - well below the $5.9 billion from the previous year.

Commodities Update

WTI and Brent head back towards support

Gold hangs in above $1,230

After yesterday’s close the American Petroleum Institute (API) released its update on US inventories for the week ending 3rd February. These showed unexpectedly large builds in crude and refined product stockpiles putting further downside pressure on prices.

Ahead of the inventory update both WTI and Brent crude had pulled back sharply from resistance at $54 and $57 respectively. It’s apparent that the market needs some fresh bullish news to help it break out of its current trading range. The trouble is that updates on compliance from OPEC and non-OPEC producers concerning their agreement to curb output are few and far between. The last news came a week ago which showed that compliance was running at about 80% which was well above the 60% rate expected, based on prior quota implementation. This means that the weekly US inventory updates together with the Baker Hughes rig count are, in the absence of supply disruptions, the main price drivers at present. At the end of last week the Baker Hughes rig count showed that US energy companies added oil rigs for the 13th week out of 14. Support comes in around $51 and $54 for WTI and Brent respectively.

Gold and silver were both weaker first thing yesterday thanks mainly to dollar weakness. However the two precious metals recovered as the trading session progressed and as the dollar pulled back from its best levels. It feels as if investors are prepared to add both gold and silver back in to their holdings. They have taken heart from the steady price improvement in both metals since early December and the ability of gold in particular to push and hold above significant resistance levels - $1,200 and $1,220.

Forex Update

EUR down on political fears

USD bounces back after Friday sell-off

The euro fell sharply yesterday. The move saw the EURUSD drop back below 1.0700 to record its biggest daily fall so far this year. Investors have grown increasingly concerned at the possibility of right wing Eurosceptic parties picking up votes in upcoming elections across the Euro zone. The Dutch general election takes place in just over a month and as things stand Geert Wilders’ far right Party for Freedom (PVV) is set to take the biggest percentage of the vote. Then the French presidential elections take place in April and May. The euro is currently coming under pressure as there’s no end in sight to the expenses scandal surrounding conservative candidate Francois Fillon. He was viewed as being National Front Leader Marine Le Pen’s strongest opponent. But his attempt to brush off the accusation that the taxpayer paid his wife and children for work which was never carried out doesn’t appear to have worked. If she wins, Marine Le Pen has pledged to hold a referendum on France’s membership of the EU.

The sell-off in the single currency saw the Dollar Index push back above 100. This represents a sharp turnaround for the greenback which fell sharply at the end of last week following the release of employment data. The headline jobs number was actually dollar-positive, coming in well above expectations. But Average Hourly Earnings rose less than expected. This, along with a dovish FOMC statement on Wednesday reduced the likelihood of a Feed rate hike next month.

Upcoming events

Today’s significant economic data releases and events include the Canadian Housing Starts and US Crude Oil Inventories.


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Posted by David Morrison

Category: AM Bulletin

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