Incisive market commentary from David Morrison

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Collapse 2017 <span class='blogcount'>(348)</span>2017 (348)
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EURUSD breaks above resistance - PM Bulletin
31 Jan 2017
Equities recover after Monday’s sell-off - AM Briefing
31 Jan 2017
Trending markets and Andrews’ Pitchfork -Trading Guide
30 Jan 2017
Investors rattled by Trump’s curbs - AM Briefing
30 Jan 2017
Dow holds above 20,000 as dollar firms - AM Briefing
27 Jan 2017
Dow breaks above 20,000 - Video Update
26 Jan 2017
Dow at 20,000 boosts risk appetite - AM Briefing
26 Jan 2017
Dow finally breaks 20,000 - PM Bulletin
25 Jan 2017
Wall Street leads stocks higher - AM Briefing
25 Jan 2017
Consolidation continues - Video Update
24 Jan 2017
Dollar recovery helps lift sentiment - AM Briefing
24 Jan 2017
Money management and stop-losses -Trading Guide
23 Jan 2017
Stocks fall on US protectionism fears - AM Briefing
23 Jan 2017
Trump inauguration in focus - AM Briefing
20 Jan 2017
A look-ahead to Trump’s inauguration - Video Update
19 Jan 2017
ECB President Draghi’s press conference in focus - AM Briefing
19 Jan 2017
Dollar steadies after sell-off - Video Update
18 Jan 2017
Equities drift in featureless trade - AM Briefing
18 Jan 2017
Dollar pull-back lifts precious metals- PM Bulletin
17 Jan 2017
Dollar slumps in early trade - AM Briefing
17 Jan 2017
Charting analysis for beginners - Trading Guide
16 Jan 2017
Sterling slumps on “Hard Brexit” concerns - AM Briefing
16 Jan 2017
Earnings in focus - AM Briefing
13 Jan 2017
Fourth quarter earnings in focus - Video Update
12 Jan 2017
Market Info Update: Martin Luther King Day Monday 16th January 2017
12 Jan 2017
Dollar lower as Trump skips stimulus talk - AM Briefing
12 Jan 2017
Trump news conference - Video Update
11 Jan 2017
Trump press conference in focus - AM Briefing
11 Jan 2017
Has gold turned a corner? - PM Bulletin
10 Jan 2017
Another mixed start for Europe - AM Briefing
10 Jan 2017
Trading Psychology - Trading Guides
09 Jan 2017
Sterling slips on "Hard Brexit" fears - AM Briefing
09 Jan 2017
Non-Farm Payrolls in focus - AM Briefing
06 Jan 2017
Non-Farm Payroll look-ahead - Video Update
05 Jan 2017
FOMC minutes viewed as hawkish - AM Briefing
05 Jan 2017
Look-ahead to release of FOMC minutes - Video Update
04 Jan 2017
FOMC minutes in focus - AM Briefing
04 Jan 2017
Strong start to 2017 - PM Bulletin
03 Jan 2017
Equities push higher in first session of 2017 - AM Briefing
03 Jan 2017
Expand 2016 <span class='blogcount'>(483)</span>2016 (483)


Early moves

Stock markets steady after yesterday’s sell-off

Bank of Japan leaves rates unchanged

Equity markets are steadier this morning following yesterday’s sharp sell-off. Last night the US majors bounced off their lows but still registered their biggest one day falls so far this year. Investors had rushed to cut their exposure to equities following President Trump’s selective travel and immigration ban - an executive order which he signed on Friday. While the controversial move continues to garner severe criticism, there are those who say that Trump is merely following through on his campaign promises. In that respect, people shouldn’t be surprised when he takes this kind of action. So investors should take the time to look through Trump’s proposals and prepare accordingly. In this regard, tax cuts, regulatory roll-back, infrastructure spending, protectionism and anti-immigration policies are inflationary which would suggest bond yields are going higher. It’s also quite evident that the days of political spin are over. Trump sees no need to butter up and explain before taking action.

The Bank of Japan (BOJ) met overnight and left their main policy rate unchanged at -0.1%, as expected. Officials also voted to keep to their target of a zero yield for the 10-year JGB and to continue their bond purchases at an annual rate of 80 trillion yen. The Japanese yen has given back some of yesterday’s gains which came as investors flocked to safe havens following surprise at President Trump’s immigration ban. This time last year the BOJ shocked everyone when it adopted negative interest rates. This came little more than a week after BOJ Governor Haruhiko Kuroda said the central bank had no intention of adopting such a policy.

Stock Index Update

Dow drops back below 20,000

Italian banks back in focus

Yesterday we saw a sharp sell-off across European and US indices. Investors were rattled by President Trump’s travel and immigration ban which he signed into effect late on Friday. Market participants were apparently thrown not just by the immediate fall-out of the decision but also the speed with which such a major headline-grabbing piece of policy was implemented. There was no spin doctoring, just the sudden announcement. There’s now the fear that there could be more of this type of policy-making which could have significant market implications. This is particularly the case when considering the possible imposition of trade tariffs and President Trump’s potential to upset other world leaders.  Consequently, yesterday saw a sudden loss of risk appetite.

The Dow was down close to 200 points within an hour of the open. It didn’t even get much of a bounce following news that Trump is set to make a bonfire of regulations. President Trump’s latest executive order is to eliminate two regulations for every new one brought into fruition. US stock indices went on to post their biggest one day drop so far this year. However, all the majors closed well above their intra-day lows.

The day began with a sell-off across European markets led by Italian banks. This followed an announcement from UniCredit, Italy’s largest bank by assets, that it would miss the ECB’s requirements for 2016. The bank is hoping to raise €13 billion through a rights issue, but yesterday the stock ended 5.45% lower.

Commodities Update

WTI and Brent head back towards support

Gold rallies on safe-haven demand

Crude oil got caught up in yesterday’s general risk-off sell-off. However, there’s still a strong feeling amongst traders and investors that a sharp pick-up in US production will offset the effects of the output cuts agreed by many of the world’s leading producers back in November. A number of OPEC and non-OPEC countries have implemented cuts designed to reduce their output by 1.8 million barrels per day (bpd). So far, the group estimates that compliance has been pretty good with a decline of 1.5 million bpd so far. However, other organisations believe that January production has only been cut by 900,000 barrels. In addition, there are a number of serious producers who aren’t party to the agreement, crucially the US. US shale oil production is on the rise, contributing to a 6.3% increase in overall US production since last summer. The oil and gas rig count continues to rise with services provider Baker Hughes reporting that the number of active rigs is now at its highest level since November 2015.

Gold rallied sharply yesterday thanks to a general loss of investor risk appetite following President Trump’s travel ban on seven countries which was imposed over the weekend. There’s been widespread condemnation of Trump’s executive action and overall his decision has been interpreted as divisive and isolationist. It’s also seen as potentially damaging economically and this led to a sharp sell-off in equities and other risk assets yesterday. This meant that the dollar had mixed fortunes. While it was out of favour in some ways as investors lightened up on their US holdings, it was also in demand as the ultimate safe-haven currency. Overall, investors hedged their bets by increasing their exposure to gold. Last week the yellow metal fell sharply with prices forming a bearish engulfing candle which is typically bearish. We’ll see this week if Trump’s actions cause a temporary or longer-lasting shift in sentiment.

Forex Update

Yen soars as risk appetite fades

Dollar Index holds above 100

After a shaky start, the dollar managed to make back most of its losses against the euro by the time the US stock exchanges opened for business. However, the Dollar Index gave back most of its early gains thanks to a very strong move in the Japanese yen. Investors went into “risk-off” mode just ahead of the US open and this led to a big rally in the yen. Due to its exceptionally low yield, the Japanese currency is typically sold (borrowed) to buy higher yielding and riskier assets when investors feel relaxed about stocks and other financial assets. The yen is also the second biggest constituent of the Dollar Index, making up 13.6% of the basket, and somewhat behind the euro with a weighting of 57.6%.

It was definitely a risk-off day yesterday as investors reacted to President Trump’s controversial immigration and travel ban. But there’s also a feeling that the new administration will be happy to see the dollar give back recent gains. At the beginning of this year the Dollar Index hit a 14-year high of 103.80 after smashing through resistance around 100 soon after Trump’s surprise election victory. But a stronger dollar crimps US exports and makes it more difficult for the country’s multinationals to prosper overseas. Trump and his new Treasury Secretary have both talked down the dollar over the last week.

Upcoming events

Today’s significant economic data releases and events include Flash CPIs from France, Spain and the Euro zone. We also have German Retail Sales and Unemployment Change. From the UK we have Net Lending, M4 Money Supply and Mortgage Approvals. From the US we have the S&P/Case Shiller House Price Index, Chicago PMI and Conference Board Consumer Confidence. European Central Bank (ECB) President Mario Draghi delivers opening remarks at a joint conference by the ECB and the European Commission in Frankfurt.


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Posted by David Morrison

Category: AM Bulletin

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