Incisive market commentary from David Morrison

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Expand 2017 <span class='blogcount'>(348)</span>2017 (348)
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Expand December <span class='blogcount'>(23)</span>December (23)
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Collapse October <span class='blogcount'>(37)</span>October (37)
Central banks and US payrolls in focus - Weekly Bulletin
31 Oct 2016
Revised Trading Hours - UK British Summer Time (BST) ends, 30th October 2016
28 Oct 2016
US GDP in focus - AM Bulletin
28 Oct 2016
US stock indices still range-bound
27 Oct 2016
Equities drift on mixed earnings
27 Oct 2016
Earnings season, oil and the US dollar - Video Update
26 Oct 2016
Apple disappoints - AM Bulletin
26 Oct 2016
Silver range-bound - PM Bulletin
25 Oct 2016
Equities up on deals and earnings - AM Bulletin
25 Oct 2016
Spread betting charges – overnight financing - Trading Guide
24 Oct 2016
USD rally continues - Weekly Bulletin
24 Oct 2016
Deutsche Bank trades at pre-DOJ fine levels : AM Bulletin
21 Oct 2016
ECB Decision in less than 400 words - PM Bulletin
20 Oct 2016
Oil’s move to a 15-month high supports global markets - AM Bulletin
20 Oct 2016
Intel buck earnings trend as the Fed takes centre stage again - PM Bulletin
19 Oct 2016
WTI eyes resistance around June highs - PM Bulletin
18 Oct 2016
US/UK inflation data in focus - AM Bulletin
18 Oct 2016
How to know what to spread bet on : Trading Guides
17 Oct 2016
Dollar up on December rate hike speculation - Weekly Bulletin
16 Oct 2016
Oil sparks recovery on Wall Street - AM Bulletin
14 Oct 2016
FOMC minutes - hawkish or dovish? - PM Bulletin
13 Oct 2016
Weak Chinese trade number hits miners - AM Bulletin
13 Oct 2016
US indices range-bound ahead of election - Video Update
12 Oct 2016
FOMC minutes in focus - AM Bulletin
12 Oct 2016
Sterling at fresh multi-year lows : PM Bulletin
11 Oct 2016
Brent crude hits 12-month high - AM Buleltin
11 Oct 2016
How Spread Betting Works : Trading Guides
10 Oct 2016
Another disappointing US payroll report - Weekly Bulletin
09 Oct 2016
Sterling “flash crash” and US Non-Farm Payrolls - AM Bulletin
07 Oct 2016
Non-Farm Payroll look-ahead - PM Bulletin
06 Oct 2016
AM Bulletin: Equities up on data releases and oil
06 Oct 2016
Video Update: OPEC’s production cut promise poses some questions
05 Oct 2016
AM Bulletin: Precious metals slump on USD rally
05 Oct 2016
PM Bulletin: Sterling lurches lower
04 Oct 2016
AM Bulletin: Firmer start for global equities
04 Oct 2016
Trading Guide: How to use Stop Losses in spread betting
03 Oct 2016
Weekly Bulletin: Important week for data releases
03 Oct 2016
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Indices Update

There was relatively little activity in European equities on the open, but buyers crept in as the session progressed. Investors continue to keep a close eye on the price of oil which has been an important driver of stock market moves over the last couple of years. In the current environment the markets are positively correlated – that’s to say that higher oil prices tend to support equities. Not only is this because many major corporations have their profits tied to the oil price directly (oil producers, related equipment manufacturers and services etc.), but also due to the large about of corporate debt which relies on a high oil price for servicing. However, it’s worth remembering that cheaper oil is great for consumers as it helps to keep a lid on not just transport costs and heating but also food, clothing and pretty much everything in the supply chain. Analysts argue about the “equilibrium” point for oil – in other words, where it goes from being positive for equities to negative. The band is thought to be anywhere between about $65 and $80 per barrel, so we’re some way off from it currently.

European markets recovered from session lows and ended yesterday’s trading session in positive territory.  This followed news that the European Central Bank (ECB) opted to keep interest rates unchanged. The decision was widely expected. However, equity and currency traders had to suffer a volatile trading period as ECB President Mario Draghi held his subsequent press conference.  Despite repeated questioning, Mr Draghi insisted there had been "no discussion" regarding the timing of the bank's bond-buying programme being either tapered or extended. This means that all attention now switches to the ECB’s meeting on 8th December.

In other news, there was a general feeling that Donald Trump hadn’t performed strongly enough in the third and last presidential debate to swing voters behind him. There was particular disquiet when he refused to say that he would accept the result if he lost the election.

Yesterday the FTSE 100 index closed at 7,026.9 up 5 points on the day

The German DAX rose 55.7 points or 0.5% to finish at 10,701.4

The US30 closed down 40.3 points to finish at 18,162.4 The S&P 500 ended 0.1% lower at 2,141.3 while the Nasdaq 100 ended down 0.1% at 5,241.8


Deutsche Bank (DBK) shares were firmer first thing this morning, trading at their highest level since 13th September. This was just before the US Department of Justice (DOJ) hit the bank with a $14 billion demand to settle a probe tied to residential mortgage-backed securities around 2007/8. Some investors have expressed concern that the two sides have yet to agree a settlement. Early speculation had been that Deutsche would end up paying a fine of closer to $5 billion. It is obviously in the bank’s interest to agree an acceptable number as soon as possible. However, the delay suggests that Deutsche may be having difficulties in reaching accommodation. At the same time the bank is looking a severe cost-cutting measures. Yesterday the shares rallied 3.8% following a report suggesting the Qatari royal family would be ready to take part in a capital increase of Germany's biggest lender.

Commodities Update

Crude fell sharply yesterday. The sell-off followed a rally earlier in the week which took near-month Brent through resistance at its June high around $52.80. Buyers also took WTI up to its own June high of $51.60 although it failed to close above here. Yesterday’s move looked like profit-taking triggered to some extent by the ongoing rally in the US dollar. However, the greenback is still stuck in a range when measured by the Dollar Index so it would be best not to read too much into this negative correlation at present.

On Wednesday oil got a lift following the release of the latest US inventory data from the Energy Information Administration (EIA). This showed an unexpectedly large drawdown of 5.2 million barrels for the week ending 14th October.

Traders and analysts remain split over the short-term direction for crude. Some believe that global demand isn’t set to grow as much as previously estimated while production continues to come in at record levels in many parts of the world, excluding the US. Others feel that OPEC will fulfil its commitment to cut output at its meeting at the end of November and that this should keep a bid under prices.

Gold and silver drifted lower yesterday afternoon as the rally in the US dollar took some of the gloss off recent gains. The ECB held off from making any changes to monetary policy as expected. However, ECB President Mario Draghi refused to be drawn into speculation over the future of the central bank’s bond purchase programme. During his press conference he said that bond purchases could be extended beyond the proposed end-date of March 2017 if necessary, but also made clear that “extraordinary” monetary policy measures can’t last forever. It’s worth remembering that little over a month ago there was some speculation that the ECB was planning to taper its bond purchase programme ahead of the March end-date. Ultimately, this uncertainty has led to a further loss of confidence in the euro with the EURUSD trading at its lowest level since March this year. Despite this, gold has managed to consolidate around the $1,250 area and is currently hanging in above $1,260.

Forex Update

The US dollar continues to rally and is now on course for its third successive week of gains. The Dollar Index has just hit its highest level since the beginning of March this year and within 2 cents of the upper end of a trading range which has been in place for around eighteen months. The EURUSD is also trading at its lowest point since March this year and closing in on support around 1.0800.

The greenback has been boosted by the prospect of a Fed rate hike before the year-end. According to the CME’s FedWatch Tool (which uses the fed funds futures contract to measure interest rate expectations) the probability of a December rate hike is currently hovering under 74% (up from 69.5% on Thursday). In contrast, the probability of a Fed rate hike in November (just one week ahead of the US Presidential Election) stands at just 8%.

The consensus expectation is that Hillary Clinton will win the election on 8th November, and that this should smooth the way for the US Federal Reserve to proceed with its gentle pace of monetary tightening. In contrast, a win for Donald Trump could delay a rate hike as it would result in considerable market uncertainty. However, it’s worth remembering Janet Yellen’s speech at the end of last week. In it she mused about running a “high pressure” economy with a tight labour market in order to reverse the negative effects of the financial crisis. This would suggest that she would be happy to see inflation run above the Fed’s 2% target, and for unemployment to slide well below 5% before pulling the trigger on a rate hike. In this she seemed to be talking down expectation of a rate hike this year.

Upcoming events

Today’s significant economic events include Day 2 of the EU Economic Summit, Canadian CPI and Retail Sales. FOMC-voting member Daniel Tarullo delivers a speech in New York.


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Posted by David Morrison

Category: AM Bulletin

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