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

Mild pull-back in European equities

US markets closed for Independence Day

European stock indices were weaker first thing this morning. Investors seem unwilling to push equities much higher following yesterday’s sharp gains, particularly as US markets are closed for Independence Day. On top of this, there’s been a modest pull-back in crude and this has been the trigger for some mild profit-taking in the energy sector following last week’s rally. Miners were also under pressure, thanks to a sharp sell-off in base metals such as copper, lead, nickel and zinc. On top of this, some of the heat has come off the banking sector. Banks have performed particularly well since the middle of last week following positive results from the Federal Reserve’s stress tests.

Stock Index Update

US sector rotation continues

Dow hits fresh all-time high

Yesterday saw another bout of stock rotation in the US. Once again investors reduced their exposure to those stocks which led the market rally over the first half of the year, namely Facebook, Amazon, Apple, Alphabet, Netflix and Microsoft. This led to a broader bout of profit-taking in tech stocks which led to a lower close for the NASDAQ. On the flip side, there were solid gains for the Dow and S&P500 as investors shifted back into the energy and banking sectors. The Dow gained just under 130 points to close out at a fresh record high.

European stock indices stormed higher in early trade yesterday. Soon after the open the French CAC, Italian MIB and Spanish IBEX had all posted gains of over 1%. The UK’s FTSE100 and German DAX also made solid, if less impressive, gains. Stocks in the energy and banking sectors were amongst the biggest gainers. Energy stocks were back in favour helped along by the recovery in oil prices. Meanwhile, the banking sector remains in favour following the positive outcome from last week’s Federal Reserve stress tests.

Investors currently appear unfazed by the torrent of hawkish comments from central bankers last week. European Central Bank (ECB) President Mario Draghi and Bank of England Governor Mark Carney both suggested that tighter monetary policy could be on the way. This surprised many investors as Mario Draghi gave a very dovish press conference at the beginning of this month while just over a week ago Governor Carney said conditions weren’t right for a rate hike.

Commodities Update

Oil posts eighth consecutive positive session

Precious metals continue to slide

Crude oil rallied again yesterday. This was the eighth consecutive positive session for Brent and WTI. Before this current rally, both contracts looked oversold after they lost around 18-20% in the month following the last OPEC meeting just over a month ago. Back in November OPEC and non-OPEC producers agreed to a 1.8 million barrel per day (bpd) cut to run between January and June this year. At the May meeting all parties agreed to extend the timeline by nine months to March 2018, but were unable to get approval for deeper output cuts. The resulting sell-off saw WTI hit its lowest level since last August. However, both WTI and Brent have subsequently bounced back, helped along by an uptick in US crude inventories last week. In addition, last week it was reported that US crude production registered its biggest decline since Aug 2016, dropping by 100,000 bpd to 9.25 million bpd. Also, the US oil rig count dropped 2 to 756, the first drop in almost 6 months.

Gold and silver fell sharply yesterday as investor risk appetite continued to soar. The first trading session of the second half of the year saw equities fly higher, a continued recovery in crude oil and a pick-up in the US dollar. These moves persuaded investors to shun safe havens and dump the two precious metals. Gold fell over 1% on the day, cracking through support, and now looks on course to retest $1,220 and threaten the lows hit back in early May. Silver’s sell-off was even more precipitous as the metal fell over 40 cents on the day for its biggest downside move in two months. Silver is now on course to retest its lows from early May around the $16 level. 

Forex Update

Dollar continues to recover

Cable retests resistance around 1.3000

The dollar rallied again yesterday continuing a recovery that began at the end of last week. The greenback fell sharply in the first half of last week in a move which saw the Dollar Index hit its lowest level since beginning of Oct 2016. At the same time the EURUSD broke above 1.1400 to make a 14 month high. Sterling also shot higher, at least against the dollar, as it retested resistance just above the 1.3000 level. The sell-off in the dollar, and the corresponding rallies in the euro and sterling, followed a clutch of comments from central bankers. In particular, Mario Draghi, President of the European Central Bank (ECB) and Mark Carney, Governor of Bank of England (BoE), were surprisingly hawkish. It was only a matter of a few weeks ago that both were talking down the prospect for tightening monetary policy.

The market consensus now seems to be that the Fed will pause in its tightening while the ECB and Bank of England take over the baton. Personally, I believe this is the wrong assessment and I expect the Fed to tighten further this year as they push towards normalising rates. At the same time, Draghi and Carney will continue to fight the hawks amongst their own rate setters. Sterling was firmer first thing. But it pulled back sharply from its best levels soon after the European open. The selling gathered pace following the release of the latest Manufacturing PMI update. This came in at 54.3, well below the prior reading of 56.3.

Earlier in the day the Japanese yen came under pressure. On Sunday, Japanese Prime Minister Shinzo Abe’s Liberal Democratic Party took a hammering in the Tokyo assembly election. This saw the USDJPY dip briefly below 112.00 on fears that the very fate of Abenomics was in question, as past Tokyo elections have been bellwethers for national trends. However, investors subsequently rushed to sell (borrow) the low-yielding Japanese currency and used the proceeds to buy up higher yielding equities. The USDJPY went on to trade above 113.00 for the first time since mid-May.

Upcoming events

Today’s significant events and economic data releases include Spanish Unemployment, UK Construction PMI, Euro zone PPI and the Canadian Manufacturing PMI. US banks will be closed in observance of Independence Day.


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Posted by David Morrison

Category: AM Bulletin

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