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Tory Poll Lead Narrows Sharply - Video Update
31 May 2017
S&P 500 and NASDAQ break winning streak
31 May 2017
Sterling swings on polls - PM Bulletin
30 May 2017
Equities drift after long holiday weekend - AM Briefing
30 May 2017
Crude oil slumps on OPEC disappointment - AM Briefing
26 May 2017
OPEC disappoints while FOMC minutes provide cheer - Video Update
25 May 2017
OPEC expected to agree 9-month extension - AM Briefing
25 May 2017
Look-ahead to OPEC - Video Update
24 May 2017
Markets quiet ahead of FOMC minutes and OPEC - AM Briefing
24 May 2017
Crude oil update - OPEC meeting in focus - PM Bulletin
23 May 2017
Markets shrug off atrocity in Manchester - AM Briefing
23 May 2017
Equities mixed, but supported by oil
22 May 2017
Nerves steady after firmer close on Wall Street - AM Briefing
19 May 2017
Political fall-out continues to weigh on markets - Video Update
18 May 2017
Slide in European indices accelerates - AM Bulletin
18 May 2017
Trump’s woes hit markets - Video Update
17 May 2017
Trump’s woes lead to market wobble - AM Briefing
17 May 2017
EURUSD hits six-month high - PM Bulletin
16 May 2017
Crude oil extends rally - AM Briefing
16 May 2017
US inflation data and retail sales in focus - AM Briefing
12 May 2017
Crude oil recovers after “flash crash”- Video Update
11 May 2017
Crude oil soars while equities drift - AM Briefing
11 May 2017
Are investors too complacent? - Video Update
10 May 2017
Investors rattled after Trump fires FBI head - AM bulletin
10 May 2017
Crude oil’s “flash crash” leads to OPEC desperation - PM Bulletin
09 May 2017
Equities rally as oil steadies - AM Briefing
09 May 2017
Forex: Top Ten Tips for beginners - Trading Guides
08 May 2017
Markets little moved after Macron win - AM Briefing
08 May 2017
Payrolls in focus - AM Briefing
05 May 2017
NFP look-ahead - Video Update
04 May 2017
FOMC hints at rate hike in June - AM Briefing
04 May 2017
FOMC look-ahead - Video Update
03 May 2017
Apple disappoints on sales numbers - AM Briefing
03 May 2017
CFD Trading Tips - Trading Guides
02 May 2017
European traders return after May Day - AM Briefing
02 May 2017
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Early moves

European indices push higher

Crude oil extends rally

European stock indices were mixed ahead of the open this morning. However, all the majors subsequently turned higher in early trade. The UK’s inflation data, as measured by Headline CPI, Core CPI and the RPI all came in above expectations. Once again, this showed that inflation, even as measured by Core CPI (which excludes food and energy and is currently the most benign of all measures) is well above the Bank of England’s preferred 2% target. The news helped to lift sterling as investors believe the Bank may have to consider tightening soon, even if that means just reversing the ridiculous 0.25% cut made in the aftermath of the Brexit vote.

In other news, the dollar (as measured by the Dollar Index) traded down to lows last seen in November in the immediate aftermath of Trump’s unexpected election win. Meanwhile, crude oil continues to push higher on speculation that OPEC and non-OPEC producers are prepared to extend their output cuts by nine months to March 2018. Prices also got a lift this morning after the International Energy Agency (IEA) claimed the oil market was on course to reach a supply-demand balance this year, despite falling demand growth.

Stock Index Update

FTSE100 and NASDAQ hit fresh record highs

Energy stocks boosted by crude

The FTSE100 hit an all-time high yesterday. The key UK index was lifted by the energy sector which flew higher after crude oil prices surged. The move in oil also helped to lift the NASDAQ to a fresh record high. Traders largely ignored a weak reading on the Empire State Manufacturing Index which fell to -1.0 on expectations of a positive 7.2 reading.

At the end of last week European equities were pushing higher, boosted by German first quarter GDP. This was up 0.6% from the previous quarter, indicating a pick-up in the rate of economic growth which was +0.4% in the first quarter.

Friday saw the release of two important US economic data points. First up, headline Retail Sales (which include autos) rose +0.4% in the month of April. This was lower than the +0.6% expected following on from a flat reading in March. Year-on-year, Retail Sales were up 4.5%, down from last month’s +5.2% reading. The news was somewhat unsettling, particularly when one considers the importance of consumer spending in the US economy, and the dire results coming in from bricks-and-mortar retailers, such as Macy’s.

Meanwhile, US inflation, as measured by Core CPI (which excludes food and energy) fell to a 19-month low. April’s number showed a year-on-year rise of 1.9%. Not only was this below the Fed’s preferred 2% target rate, but it was also the weakest print since September 2015. CPI inflation has been declining for most of this year and seems to be trending downwards. The trouble is that this is happening as the Fed looks to pick up the pace of monetary tightening, suggesting that further hikes to dampen inflation further and weigh on economic growth.

Commodities Update

Crude surges on output cut extension speculation

Precious metals push higher

Crude soared yesterday following comments from energy ministers from Saudi Arabia (which leads the OPEC cartel) and Russia (top dog out of non-OPEC producers). Both said that the current output cut agreement should be extended into 2018. While this has been mooted for some time, this is the first time there’s been public agreement between these two key players.  

Crude oil put in a solid performance last week. WTI and Brent tacked on decent gains to post their first positive weekly performance in a month. While both contracts pulled back from their best levels as Friday’s European close approached, WTI and Brent managed to hang on above support at $47 and $50 respectively.

Oil bounced back after a torrid three weeks since mid-April. This sell-off culminated in a “flash crash” just over a week ago which saw crude slump by 4% in around 15 minutes. This took both Brent and WTI back down to levels last seen in early November - before OPEC and other global producers agreed to cut output by 1.8 million barrels per day. Last week’s recovery was spurred by a huge US inventory drawdown and on renewed speculation that the OPEC output cut agreement will be extended beyond June. In fact, there was talk of extending it to March 2018 with the prospect of raising the daily output cut further as well.

However, US shale production continues to rise and this is capping prices to some extent. In addition a report by VITOL, the world’s biggest independent oil trading company, warned that global demand growth was slowing. The company reported that demand growth was running at 800,000 barrels per day - well below the 1.3 million barrels forecast recently by OPEC and the International Energy Agency.

Gold and silver rallied yesterday building on gains from Friday. While it’s still early days the two precious metals appear to have found some support as some tentative buying creeps in. It would be tempting to credit the turnaround to weakness in the US dollar. While there may be some basis to this, it’s been noticeable that neither gold nor silver has paid much attention to the dollar in recent weeks. Some commentators claim that interest in precious metals picked up after President Trump sacked FBI Director James Comey. But while there’s been a blast of hot air from Washington, speculation that Trump is a step nearer to impeachment seem wide of the mark. It could be that this holds up the legislative process when it comes to major reforms and tax cuts, but there’s a counter-argument that Republicans may act with a greater sense of urgency in order to look like they’ve achieved something ahead of mid-terms in 2018. Really, last week’s recovery in gold and silver looks like little more than short-covering. So we’ll see this week if it has legs.

Forex Update

Dollar continues to slide

Pressured by weak data

The dollar continues to pull back from an intermediate high made last Thursday. This was when the Dollar Index filled a gap made after the euro shot higher after the first round of the French presidential election. But the pull-back since then has seen the dollar basket hit its lowest level since the US presidential election in November. The greenback has had to cope with a clutch of weak economic data. Yesterday the Empire State Manufacturing Index slumped into negative territory for the first time since October last year.

The dollar slipped on Friday afternoon following the release US CPI inflation and Retail Sales. Headline CPI (including food and energy) came in at +0.2%, just a touch below expectations. It’s worth noting that oil prices were around 20% higher this April when compared to the same period last year. Core CPI was also a touch softer than expected. But it’s fair to say that traders were focusing more on the Retail Sales number. Firstly, Headline Retail Sales (which includes auto sales) has been trending lower over the past three months. Secondly, Friday’s release came hot on the heels of Macy’s grim trading results which triggered a sharp sell-off across bricks-and-mortar retailers on Thursday.

Many analysts blamed the disappointing March number on the Easter break. Consequently, they were expecting a sharp bounce-back of +0.6% in April, so the +0.4% reading was a disappointment. This suggests that estimates for second quarter GDP could be revised downwards again. At the beginning of last week the Atlanta Fed’s GDPNow forecast slipped to +3.6% from +4.2% previously.

Upcoming events

Today’s significant events and economic data releases include UK CPI, RPI, HPI and PPI. We also have the German and Euro zone ZEW Economic sentiment Index and Euro zone Flash GDP. From the US we have Building Permits, housing Starts, Capacity Utilisation, Industrial Production and Mortgage Delinquencies.

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 briefing

Category: AM Bulletin


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