Incisive market commentary from David Morrison

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GDP data in focus - AM Briefing
28 Apr 2017
ECB round-up and US GDP look-ahead - Video Update
27 Apr 2017
ECB meeting in focus - AM Briefing
27 Apr 2017
ECB's Rate Meeting, a look ahead - Video Update
26 Apr 2017
High hopes for Trump tax cuts - AM Briefing
26 Apr 2017
Global stock indices storm higher - PM Bulletin
25 Apr 2017
Indices mixed after firmer open - AM Briefing
25 Apr 2017
How to use Stop Losses in FX - Trading Guide
24 Apr 2017
French vote sees risk assets soar - AM Briefing
24 Apr 2017
Mixed European open despite Wall Street rally
21 Apr 2017
French Election in focus - Video Update
20 Apr 2017
French election and oil keep investors cautious - AM Briefing
20 Apr 2017
Equities off highs but still show resilience - Video Update
19 Apr 2017
Equities continue to drift lower - AM Bulletin
19 Apr 2017
Sterling soars on early UK election, but France the biggest concern
18 Apr 2017
Europe shrugs off US rally - AM Bulletin
18 Apr 2017
Trump's mouth sends dollar skidding lower - Video Update
13 Apr 2017
Dollar slumps on Trump comments - AM Bulletin
13 Apr 2017
Uncertain outlook ahead of holiday weekend - Video Update
12 Apr 2017
Equities recover after yesterday’s wobble - AM Briefing
12 Apr 2017
USDJPY approaching support - PM Bulletin
11 Apr 2017
Equities drifting in holiday-shortened week - AM Briefing
11 Apr 2017
Look-ahead to Janet Yellen’s speech this evening - PM Bulletin
10 Apr 2017
All eyes on G7 and Yellen - AM Bulletin
10 Apr 2017
US missile attack sends investors into “risk-off” mode - AM Briefing
07 Apr 2017
FOMC minutes rattle investors - Video Update
06 Apr 2017
Stunning reversal greets Fed minutes - AM Briefing
06 Apr 2017
ADP number points to big payroll beat on Friday - Video Update
05 Apr 2017
FOMC minutes in focus - AM Briefing
05 Apr 2017
US indices flag as first quarter ends - PM Bulletin
04 Apr 2017
Disappointing start to the new quarter - AM Briefing
04 Apr 2017
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Early moves

European equities head higher

USDJPY still below 110.00

European indices have started on a positive note this morning. The gains follow on from a recovery on Wall Street last night which saw the major US indices make back the majority of early losses. However, Asian Pacific markets had a rougher ride overnight with the Nikkei ending 1% lower due to raised tensions across the Korean peninsula.

There’s been little movement on currencies this morning although it’s worth noting that the USDJPY remains below significant support around the 110.00 area. The yen shot higher yesterday on safe haven demand and equity players will want to see the dollar recover somewhat before they decide the current stock market wobble is behind them. The US Ten year Treasury yield is holding at the crucial 2.3% level – for now. Meanwhile, gold is holding up well as another hedge against current geopolitical unrest, uncertainty over the Trump administration’s ability to follow through on fiscal stimulus and fears that the Fed may be tightening just as the US economy shows signs of faltering.

Stock Index Update

European indices close sharply lower

Geopolitical risk the prime factor

European stock indices ended yesterday’s session sharply lower. This was a widespread sell-off which gathered momentum after the US exchanges opened. Investors have become increasingly unsettled by a number of recent events. The main one is the sharp escalation in geopolitical tensions since last week’s US missile attack on a Syrian airbase. In response we’ve heard bellicose rhetoric from Russia, Iran and North Korea to add into the mix. But investors also have to factor in the prospect of a more aggressive rate of monetary tightening from the US Federal Reserve as it suggests it could begin to reduce its $4.5 trillion balance sheet later this year. Unfortunately, Fed Chair Janet Yellen’s speech late on Monday failed to clarify the central bank’s thinking on the matter. However she did say that the "neutral" ending spot for short-term interest rates is "pretty low."

There are also concerns that the Trump administration is going to struggle to push its promised tax cuts and infrastructure spending plans through Congress this year, let alone before August.

We’re also heading into a holiday-shortened week with most markets closed for Good Friday. Some investors are hoping that equities will get a lift from a strong first quarter earnings season. We get results from Citigroup, JP Morgan and Wells Fargo tomorrow.

Commodities Update

Crude up on inventory drawdown/Saudi rumours

Precious metals shoot higher on geopolitical concerns

After the close last night the American Petroleum Institute (API) released its latest update on US crude inventories. This showed a 1.3 million drawdown in crude stockpiles - the biggest since December 2016. The news helped to drive both WTI and Brent to their highest levels in over a month. Both contracts were already pushing higher on anonymous reports that Saudi Arabia was canvassing OPEC and non-OPEC producers for an extension to their output cut agreement beyond June.

Crude oil has now recouped most of the losses from its sell-off in early March.  The pull-back was triggered by an exceptionally large and unexpected build in US crude stockpiles. But the sell-off was exacerbated by excessive speculative long positioning which quickly unwound as prices fell. The Energy Information Administration (EIA) will release its latest inventory update later this afternoon. But traders will be wary of pushing prices too low given that oil should remain in demand for as long as geopolitical tensions remain raised.

Gold and silver spiked higher just ahead of the opening of the US futures market. There are often large market movements around this time, but it has been quite unusual to see these to the upside. The rally saw gold burst above $1,260 - a level which has acted as mild resistance over the past month or so. Meanwhile, gold appears to be finding support on the 20-day exponential moving average. Silver put in another volatile session as it flew back above $18.00 per ounce. It’s worth remembering that it was trading below $17.80 in the previous day’s session. Both metals were in demand as investors sought out safe havens following the current escalation in geopolitical risk.

Forex Update

Dollar slips as geopolitical risk rises

USDJPY hits five month low

The dollar fell sharply yesterday along with yields in US Treasury bonds. The move was down to an escalation in geopolitical risk directly linked to the US and President Trump’s decision last week to launch a missile attack on a Syrian airbase. The Japanese yen was the biggest beneficiary of the move as it is widely considered to be the prime “safe haven” currency, away from the US dollar. When market sentiment is positive investors typically borrow (sell) the ultra-low yielding yen and use the proceeds to buy higher-yielding and riskier assets. This sends the yen lower so the USDJPY rallies. But when market sentiment sours, the trade is reversed as risk assets are sold and the borrowed yen are then bought back, pushing up the value of the currency.

Just ahead of the European close the USDJPY broke below 110.00. This marks a key area for the currency pair as it is the 50% retracement of the USDJPY’s month-long rally which directly followed Donald Trump’s election victory in November.

Upcoming events

Today’s significant economic data releases and events include the UK Claimant Count Change, Average Earnings and Unemployment Rate. From the US we have Crude Oil Inventories and the Federal Budget Balance. There is also a rate decision from the Bank of Canada. Bank of England Governor Mark Carney will deliver a speech at 09:00 BST.


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Posted by David Morrison

Category: AM Bulletin

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