Incisive market commentary from David Morrison

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Collapse 2017 <span class='blogcount'>(348)</span>2017 (348)
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Using the RSI in FX - Trading Guide
31 Jul 2017
HSBC share buy-back helps lift indices - AM Briefing
31 Jul 2017
Amazon triggers tech tumble - AM Briefing
28 Jul 2017
Fed reinforces dovish credentials - Video Update
27 Jul 2017
Facebook results boost NASDAQ - AM Briefing
27 Jul 2017
Crude breaks above resistance - PM Bulletin
26 Jul 2017
Equities rally on positive earnings - AM Briefing
26 Jul 2017
Look-ahead to tomorrow’s rate decision from the Fed
25 Jul 2017
Alphabet/Google falls 3% in after-hours trade
25 Jul 2017
Equities start the week on back-foot - AM Briefing
24 Jul 2017
Euro surges on “hawkish” comments from Draghi - AM Briefing
21 Jul 2017
Equities firmer ahead of ECB meeting - AM Briefing
20 Jul 2017
Europe firmer after late US rally - AM Briefing
19 Jul 2017
US Fed turns dovish - PM Bulletin
18 Jul 2017
Dollar slumps on US healthcare gridlock - AM Briefing
18 Jul 2017
Wall Street leads equity rally - AM Briefing
17 Jul 2017
US bank earnings in focus - AM Briefing
14 Jul 2017
Yellen flip-flops to reassure investors - AM Briefing
13 Jul 2017
Oil rallies, but volatility high - Video Update
12 Jul 2017
Yellen to testify in Washington - AM Briefing
12 Jul 2017
A look-ahead to Janet Yellen’s testimony - PM Bulletin
11 Jul 2017
Second quarter earnings in focus - AM Briefing
11 Jul 2017
Jobs data boost sentiment ahead of earnings - AM Briefing
10 Jul 2017
Investors nervous; Non-Farm Payrolls in focus - AM Briefing
07 Jul 2017
Non-Farm Payroll look-ahead - Video Update
06 Jul 2017
Investors shrug off FOMC minutes - AM Briefing
06 Jul 2017
Investors shrug off FOMC minutes - AM Briefing
06 Jul 2017
Look-ahead to FOMC minutes - Video Update
05 Jul 2017
Markets quiet and waiting for fresh guidance from US - AM Briefing
05 Jul 2017
Crude continues to push higher - PM Bulletin
04 Jul 2017
Dow closes at fresh record high - AM Briefing
04 Jul 2017
Positive start to second half of 2017 - AM Briefing
03 Jul 2017
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Early moves

·         US dollar remains under pressure

·         Netflix up 10% on subscriber numbers

The US dollar fell sharply overnight following news that the Republicans have had to postpone repealing and replacing the affordable Healthcare Act (Obamacare). Last night it became apparent that the Republicans no longer have enough support in their own party for a clear majority in the Senate. This latest round of US dollar weakness comes on top of last week’s sell-off following the apparent turnaround in thinking at the Federal Reserve. This is yet more bad news for President Trump who promised to make the repeal and replacement of Obamacare a priority on entering the White House. The dollar has reversed all its post-election gains and more as the Trump presidency continues to disappoint in terms of its legislative programme and as it continues to be mired in controversy.

After last night’s US close Netflix reported that it had added 5.2 million subscribers in the second quarter - way above the 3.2 million expected. The company also reported higher-than-expected revenues ($2.79 billion versus $2.76 billion) although it missed on earnings. This came in at $0.15 against an expected $0.16. The stock soared 10% on the news in after-hours trade.

Stock Index Update

·         NASDAQ posts seventh successive positive close

·         Earnings mixed

It was another mixed session for European and US stock indices yesterday. Last night on Wall Street brought modest losses for the Dow and S&P500 while the tech-heavy NASDAQ went on to post its seventh consecutive positive close.

US indices got off to a quiet and uneventful start yesterday. Investors appeared unwilling to push equities much higher after Friday night’s rally, but there was no evidence of any rush to book profits either. By the European close Wall Street was modestly firmer. The earnings calendar was relatively light apart from Netflix after the close, and BlackRock (the world’s largest asset manager) being the only notable companies to report. BlackRock posted a disappointing set of results with earnings per share coming in at $5.24 against an expectation of $5.40 on revenue of $2.97 billion against a consensus forecast of $3.02 billion. The stock came under immediate selling pressure and was down over 3% in early trade. BlackRock’s miss comes after some disappointing numbers from the banks on Friday. While JP Morgan and Citigroup managed to beat analysts’ expectations on revenues and sales, Wells Fargo and PNC Financial’s results were mixed. All four banks ended Friday’s session lower and struggled to make back these losses yesterday. Nevertheless, market participants don’t seem to be paying much attention to the earnings season so far as recent buying has been broad-based.

Commodities Update

·         Drop-off in OPEC compliance rate

·         Precious metals build on gains

At the end of last week oil services provider Baker Hughes reported another rise in the US rig count. This data series has now risen for 24 weeks out of 25 to stand at its highest level since April 2015. The news led some commentators to suggest that a rebalancing of supply and demand in the oil market hasn’t even started yet. US crude production continues to rise as does global oil production, according to the International Energy Agency (IEA). OPEC’s June production was 340,000 barrels per day (bpd) higher than in May driven mainly by Saudi Arabia, Nigeria and Libya. This meant that the cartel’s compliance rate dropped to 78% in June, from 95% in the prior month. This was the lowest level since the output cut agreement came into effect at the beginning of this year. Non-OPEC supply (principally the US but also Canada, Brazil and others) is also growing. Overall, the IEA reports that global oil production is up 1.2 million bpd from a year ago. Demand growth has also picked up. However, the IEA calculates that global inventories (which remain near record levels) declined by just 700,000 bpd over the second quarter. This is painfully slow and led the IEA to worry that the rebalancing anticipated in the first quarter is no longer happening.

Precious metals had another positive session yesterday. Gold spent most of the day trading above $1,230 while silver surged above $16 tacking on over 1% for the session. Both metals have made a strong recovery since this time last week. The rally has been mostly technical as gold and silver were heavily oversold after a month-long sell-off from early June. The pull-back came against a background of rising interest rates and falling inflation- a fatal combination for non-yielding assets such as these two precious metals. However, the technical bounce-back was also helped along by Fed Chair Janet Yellen’s testimony in Washington last week. Dr Yellen’s prepared comments were unexpectedly dovish. She assured policymakers that the US central bank continued to be data-dependent and was keeping a close eye on inflation updates. Additionally, she said that the key fed funds interest rate was close to reaching a neutral policy stance. This suggested that the Fed could be much closer to hitting its fed funds target than previously thought. In other words, rates may not have much further to rise. This comes alongside growing concerns that US inflation is still well below the Fed’s 2% target, and more worryingly, trending downwards. This was backed up at the end of last week by a disappointing CPI number. But this matters less to precious metals investors if the Fed appears unlikely to tighten monetary policy much more.

Forex Update

·         US Dollar Index at 10-month low

·         ECB expected to tighten next year

The US Dollar Index continues to trade around 10-month lows. Meanwhile the EURUSD is holding up at levels last seen in May 2016. This latest dollar weakness follows news that the Republicans have had to postpone repealing and replacing the affordable Healthcare Act (Obamacare). This comes as it’s now apparent that the Republicans no longer have enough support in their own party for a clear majority in the Senate. This comes on top of the apparent turnaround in thinking at the Federal Reserve last week. This followed Fed Chair Janet Yellen’s dovish testimony in Washington when she said the neutral level for fed funds was close to being hit. She also made it clear that the Fed was keeping a close eye on inflation. Yet the US central bank spent most of this year persuading market participants that it is prepared to look past weakening economic data and a declining trend in inflation and continue to tighten monetary policy. This was less dollar-positive than perhaps it should have been as traders have become increasingly convinced that the European Central Bank (ECB) is getting ready to signal that it will begin tapering its €60 billion per month bond purchase programme, perhaps early in 2018. Nevertheless, the EURUSD has also been recovering from the fourteen-year low it hit at the beginning of this year. That move has now gone full-circle, thanks in no small part to a winding down in the “Trumpflation” trade which followed Trump’s election win in November.

Yesterday sterling was in retreat as the UK met with the EU for round two of Brexit negotiations. In other news, China reported year-on-year GDP growth of 6.9%. This matched the first quarter reading and was a touch better than expected. Meanwhile, Industrial Production, Retail Sales and Fixed Asset Investment were also all strong.

Upcoming events

Today’s significant events and economic data releases include UK CPI, RPI and PPI. We also have the German and Euro zone ZEW Economic Sentiment surveys and US Import Prices. Later on Bank of England Governor Mark Carney will unveil the new £10 note featuring Jane Austen.


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Posted by David Morrison

Category: AM Bulletin

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