Incisive market commentary from David Morrison

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Collapse 2017 <span class='blogcount'>(348)</span>2017 (348)
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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

Crude rallies back above resistance

Bank of England rate decision due

Brent and WTI crude soared yesterday and have built on those gains this morning. Both contracts are trading back above significant levels ($47 for WTI; $50 for Brent) and this is helping to underpin the energy stocks, for now. But otherwise it’s been a mixed start for European equities as traders feel unable to take much guidance from the US. Wall Street continues to see gains in the S&P and NASDAQ, but these continue to be driven by the usual handful of tech stocks, including Apple, Amazon, Alphabet and Facebook.

The Bank of England’s Monetary Policy Committee (MPC) meets today and will announce its rate decision. There’s no expectation of any change to monetary policy at this time. However, it’s also time for the Bank’s quarterly inflation report and Governor Carney will face questions from the press. Traders will be listening to this carefully as Governor Carney will have to be on his best behaviour with under a month to go until the UK General Election.

In other news, after last night’s close Snap released its first set of earnings since its IPO. Net losses widened to $2.2 billion for the quarter and the stock slumped by 25% after hours.

Stock Index Update

Another mixed session for global equities

Questions over US growth

Last brought another mixed close for the US majors. The NASDAQ 100 hit another fresh record and the S&P500 eked out a modest gain. But the Dow drifted a touch. As has been the case for a while now, it is the leading “tech” stocks such as Apple, Alphabet (Google), Amazon, Microsoft and Facebook which are leading the rest of the market.

European stock indices ended the session mixed yesterday. There were modest losses for the German, French, Italian and Spanish indices and a decent gain for the UK’s FTSE100. Understandably, equity markets were relatively unaffected by President Trump’s surprise decision to fire FBI director James Comey. Instead, investors continue to focus on first quarter earnings and sector movements. As far as the UK was concerned, there were gains for retailers, banks and oil & gas. ITV lost ground on a negative outlook for advertising sales and a 3% decline in operating profits when compared to the same period last year.

In other news US Commerce Secretary Wilbur Ross said the Trump administration will not be able to achieve the 3% GDP growth it hoped for in 2017. Mr Ross blamed Congress saying they had been dragging their feet over economic policies which the administration was anxious to implement. Meanwhile, the Atlanta Fed revised down their GDPNow estimate for the second quarter to 3.6% from 4.3% just one week ago.

Commodities Update

EIA data confirms API inventory drawdown

Gold holding above $1,220

Crude oil was firmer in early trade yesterday following news of an unexpectedly-large drawdown in US inventories after Tuesday’s close. The data came from the privately-run American Petroleum Institute (API), and while WTI and Brent pushed higher on the news, gains were capped due to news of a large build in gasoline stockpiles. Not only that, but traders were hanging on for confirmation of the huge crude drawdown (5.8 million barrels against an anticipated decrease of 2 million - the biggest since 2016) when the Department of Energy’s Energy Information Administration (EIA) released its own data yesterday afternoon.

The EIA data broadly confirmed the numbers. Crude stockpiles fell by 5.2 million barrels for the week ending 5th May while there were also bigger-than-expected drawdowns in inventories at Cushing, and distillates and crucially gasoline stocks as well. This news led to a surge in crude which saw WTI and Brent blast back above resistance around $47 and $50 per barrel respectively. This move will have reduced speculative short exposure to a great extent. But it remains to be seen whether the upside momentum can build from here. That could be down to just how convincing OPEC and Russia are when it comes to extending their output cut agreement beyond June.

Gold and silver managed to tack on modest gains in early trade yesterday. Investors went from net sellers to net buyers following the news that President Trump had suddenly sacked FBI Director James Comey. The decision is proving extremely controversial with some observers claiming that it could be Donald Trump’s undoing. Mr Comey has proved to be a highly divisive figure within the FBI particularly concerning his behaviour during the US Presidential Election campaign. Yet many believe the timing of his dismissal reeks of a cover-up. Yet despite the hyperbole surrounding the news, gold and silver’s initial gains were extremely modest. Not only that but they were reversed by the European close leaving the door open for further weakness. If gold fails to hold above $1,220 then there’s a possibility of a test of its next significant support around $1,200. Meanwhile, silver looks set to break $16 and retest December’s lows.

Forex Update

USDJPY hits highest level since mid-March

Euro slips further

The dollar continued to rally yesterday, making gains against all the majors. The latest move has seen the USDJPY break above 114.00 to hit its highest level since mid-March. This followed a slight dip overnight as news came through that President Trump had fired FBI Director James Comey. But the USDJPY soon recovered. The pair has rallied strongly since mid-April, in a move which corresponds to the sell-off in precious metals and oil. This is entirely consistent with a pick-up in risk appetite. When confidence is strong, investors typically borrow (sell) the low-yielding yen and invest the proceeds in riskier, but higher-yielding, assets such as equities. Looking at global stock indices it’s apparent that money has been pouring into US tech stocks, specifically companies such as Apple, amazon, Alphabet (Google), Facebook and Microsoft.

The EURUSD continues to struggle and yesterday slipped further below 1.0900. The euro rallied at the beginning of the week after the pro-European, centrist candidate, Emmanuel Macron, clinched victory in the French presidential election. However, Mr Macron now has to win seats in next month’s parliamentary elections and face down his opponents to have any chance of pushing through his promised reforms. In addition, it’s worth remembering that Macron vision for the European Union includes Euro zone bonds, euro-wide fiscal union, pan-European unemployment insurance, common debt, and an end to Germany’s budget surplus - all things which will be fiercely resisted by Chancellor Merkel as she approaches elections herself.

Upcoming events

Today’s significant events and economic data releases include the European Central Bank’s Economic Bulletin and European Union Economic Forecasts. From the UK we have Manufacturing Production, Goods Trade Balance, Construction Output, Industrial Production and a Bank of England rate decision and inflation report. From the US we have PPI and Weekly Jobless Claims.


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Posted by David Morrison

Category: AM Bulletin

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