Incisive market commentary from David Morrison

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OPEC agrees to production cut - Video Update
30 Nov 2016
OPEC meeting in focus - AM Briefing
30 Nov 2016
A look-ahead to tomorrow’s OPEC meeting - PM Bulletin
29 Nov 2016
Mixed start for equities; crude lower - AM Briefing
29 Nov 2016
An introduction to technical analysis - Trading Guide
28 Nov 2016
Softer tone across risk assets - AM Briefing
28 Nov 2016
Crude, dollar and equities slip in holiday-shortened session
25 Nov 2016
ECB warns of uncertain outlook - Video Update
24 Nov 2016
Slow start as US closed for Thanksgiving - AM Briefing
24 Nov 2016
Gold slumps below key support
23 Nov 2016
Probability of Dec Fed hike hits 100% - AM Briefing
23 Nov 2016
Sterling slips ahead of Autumn Statement - PM Bulletin
22 Nov 2016
US stock indices hit fresh record highs - AM Bulletin
22 Nov 2016
How to read candlestick charts - Trading Guides
21 Nov 2016
US dollar pulls back from highs - AM Bulletin
21 Nov 2016
Dollar continues to surge - AM Bulletin
18 Nov 2016
Crude rebounds despite inventory rise - PM Bulletin
17 Nov 2016
Equity rally slows - AM Bulletin
17 Nov 2016
US dollar continues to rally - Video Update
16 Nov 2016
Dollar holds recent gains - AM Bulletin
16 Nov 2016
Dollar Index tests resistance - PM Bulletin
15 Nov 2016
Dollar soars as bonds slide - AM Bulletin
15 Nov 2016
What is Swing Trading?
14 Nov 2016
Markets adjust to Trump presidency - Weekly Bulletin
14 Nov 2016
Trump win sees investors rethink their portfolios - AM Bulletin
11 Nov 2016
Equities up, but bonds are down - PM Bulletin
10 Nov 2016
Market responds to Trump win - AM Bulletin
10 Nov 2016
US Election fall-out - Video Update
09 Nov 2016
Markets react to Trump win - AM Bulletin
09 Nov 2016
US Election – possible outcomes and market reaction - Video Update
08 Nov 2016
US election result is all that matters now - AM Bulletin
08 Nov 2016
What is day trading? - Trading Guides
07 Nov 2016
Election uncertainty spooks investors - Weekly Bulletin
07 Nov 2016
Market info update: US Election Market Changes
04 Nov 2016
US Non-Farm Payrolls in focus - AM Bulletin
04 Nov 2016
Non-Farm Payroll look-ahead - PM Bulletin
03 Nov 2016
Equities mixed ahead of BoE Inflation Report - AM Bulletin
03 Nov 2016
Central bank meetings and election polls - Video Update
02 Nov 2016
FOMC rate decision ahead - AM Bulletin
02 Nov 2016
Bounce-back in precious metals - PM Bulletin
01 Nov 2016
RBA and BOJ leave rates unchanged - AM Bulletin
01 Nov 2016
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Indices Update

It’s been a mixed open for European equities this morning. There will be some relief that markets appear to be taking a breather after a run of negative sessions. Crude oil is a touch firmer in early trade while the Dollar Index is only moderately lower. Last night the US Federal Reserve kept monetary policy unchanged, as expected. December remains the target meeting for a hike. But much depends on how the data comes in over the next six weeks, along with any market fall-out following next week’s election.

Investors will be keeping a close eye on today’s Bank of England (BoE) meeting despite there being little expectation that the Bank will make any changes to monetary policy. Today sees the release of the Bank’s latest Quarterly Inflation Report and it seems likely that the MPC will revise up its inflation expectations for next year. According to the National Institute for Economic and Social Research inflation as measured by Core CPI could hit 4% in the second half of next year. This would be double the Bank’s 2% target rate and put pressure on the MPC to raise rates. However, it would be unwilling to do so as inflation would come against a backdrop of weak economic growth. It seems more likely that the Bank will be content to let inflation run above target for a while. After all, it has been desperate to create inflation for years. Then, as prices rise and consumers complain, Mr Carney will be able to put the blame on the Brexit vote and sterling weakness.

Yesterday the ADP Non-Farm Employment Change showed a gain of 147,000 jobs in October. This was well below the 166,000 expected although September’s number was revised up sharply to 202,000 from 154,000. Overall, there was little market reaction to the news as investors were more concerned about the latest election polls and last night’s rate decision from the Fed. However, it is something that may trouble investors as they prepare for tomorrow’s official Non-Farm Payroll data from the Bureau of Labor Statistics.

Generally, there is little correlation between the two data sets. Nevertheless, it’s often the case that a significant divergence in the actual ADP number from the expected can foreshadow a similar result for the government’s Non-Farm Payroll data. This was the case last month when ADP payrolls came in 12,000 below expectations and Non-Farms missed by 15,000.

Global equity markets were weaker in early trade yesterday. Investors continued to trim their exposure to global stock markets amid general jitters ahead of next week’s US Presidential Election. This follows the release of the latest ABC/Washington Post poll on Monday which showed that Trump had established his first lead over Clinton since May. While Trump’s lead is less than 1%, the same poll showed a 13 point lead for Clinton just one week ago. Mrs Clinton appears to be in trouble following the FBI’s decision to reopen its investigation into emails from her private server. Any hint that Trump may be in with a chance of clinching the presidency next week has the potential to upset markets. Investors have been convinced that Hillary Clinton would win the White House and this would represent “business as usual” for Wall Street whereas Trump is considered an unknown quantity.

Yesterday brought the release of Manufacturing PMIs from across the Euro zone. There was a slight uptick in the Spanish and French PMIs and a small misses from Germany and Italy. Overall Euro zone Manufacturing rose to a 33-month high of 53.5 in October which was up from September’s 52.6 reading. However, the data had little impact on European equity markets which struggled throughout yesterday’s trading session.

The US30 closed down 77.5 points to finish at 17,959.6. The S&P 500 ended 0.7% lower at 2,097.9 while the Nasdaq 100 ended down 0.8% at 4,726.9


Next (NXT) reported results for the third quarter yesterday. The retailer announced a 5.9% drop in sales for the three months to the end of October and now expects full year sales to be "marginally lower" than it forecast back in May. This is the fourth time this year that the retailer has downgraded its annual sales guidance.  Back in September the group warned that the third quarter would be "difficult". Next said heavy discounting and tough comparisons to its performance last year were to blame for the sharp drop in sales for this quarter. For years Next has been one of the country’s most successful retailers. Much of its growth has come via Next Directory, its online and catalogue business. However, online sales were flat for the quarter although up 3.2% for the year to date.

Shares in the company have fallen by more than a third this year. However, they were up over 4% in early trade yesterday and hit their highest level in almost two months. Analysts credited the rise to the fact that the chain maintained its profit forecast.

Commodities Update

Crude fell again in early trade yesterday. After Tuesday’s close the American Petroleum Institute (API) released its latest update on US crude oil inventories for the week ending 28th October. Crude stockpiles rose by 9.3 million barrels - way above the 1.5 million expected and the largest inventory build since March. There were drawdowns in both gasoline and distillates but these did little to offset the bearish effect of the crude build.

Then yesterday afternoon the Energy Information Administration (EIA) released its own update. This is the official data from the US Department of Energy and showed an extraordinary increase in stockpiles of 14.42 million barrels on expectations of a 2 million barrel build. This represented the biggest build in inventories in the whole 34 year history of the EIA data series. The news sent both WTI and Brent back to levels last seen ahead of OPEC’s announcement at the end of September when it committed to production cuts. Both contracts subsequently rallied sharply and retested their highs from early June. However, they have pulled back since then as doubts have emerged as a succession of OPEC and non-OPEC producers have come up with reasons why they should be exempt from any output cuts.

It was another strong trading session for gold and silver yesterday.  The two precious metals rallied sharply as the US dollar continued to decline. The moves are linked to the increased possibility that Donald Trump may clinch the presidency next week as a number of fresh polls suggest the result is too close to call. Not only has this led to a sharp sell-off in the dollar which boosts the price of dollar-denominated commodities, but the two precious metals are also back in favour as safe-havens.

Yesterday gold soared back above $1,300 while silver pushed back and held above $18.50. This means that both precious metals have now broken back above those significant levels which acted as support before the melt-down at the beginning of October. However, both pulled back below these levels ahead of the close. Gold and silver now need to consolidate at these higher levels to have a chance of making further gains.

Forex Update

The US dollar continued its decline in early trade yesterday. The Dollar Index has lost 1.7% while the USDJPY is down around 2.3% since Friday evening when FBI Director James Comey announced that the investigation into Mrs Clinton’s use of a private server was being reopened. Since then a number of polls have shown Clinton’s lead over Trump evaporate, just days ahead of the presidential election on Tuesday. This is viewed as dollar-negative as a Trump victory is generally seen as disruptive for financial markets while a Clinton win represents a continuation of the status quo. On top of this, it has become abundantly clear how financial markets have attached little credence to a Trump win and are now adjusting accordingly.

The Japanese yen got an additional lift following reports of comments made by Bank of Japan (BOJ) Governor Haruhiko Kuroda.  Mr Kuroda said that, "the bank had given up a plan to boost inflation to 2%. Monetary policy isn't enough to overcome deflationary expectations and must be backed by fiscal policy and structural reform." This seems to suggest that the BOJ has given up on trying to create inflation through monetary stimulus and that the central bank has finally chucked the baton at full toss to Shinzo Abe’s government.

Investors will be keeping a close eye on today’s Bank of England (BoE) meeting despite there being little expectation that the Bank will make any changes to its monetary policy. Back in August the Bank’s MPC cut the headline Bank Rate by 25 basis points to 0.25%. At the same time it restarted its quantitative easing programme and suggested that it would cut rates again before the year-end. However, BoE Governor Mark Carney has backed away from this in recent weeks, citing sterling’s weakness as a reason to hold off from loosening monetary policy further. However, today also sees the release of the Bank’s latest Quarterly Inflation Report. This is important as it looks as if inflation could be set to take off. According to the National Institute for Economic and Social Research it could hit 4% in the second half of next year. This would be double the Bank’s 2% target rate and put pressure on the MPC to raise rates. However, it would be unwilling to do so as inflation would come against a backdrop of weak economic growth, or stagflation.

Upcoming events

Today’s significant economic events include the release of Spanish, Italian and Euro zone  Unemployment, the ECB Economic Bulletin, UK Services PMI, the BoE rate decision, Inflation Report and Monetary Policy Statement . From the US we have Challenger Job Cuts, Unemployment Claims, Factory Orders and ISM Non-Manufacturing PMI.


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Posted by David Morrison

Category: AM Bulletin

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