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Markets mixed ahead of weekend - AM Briefing
23 Jun 2017
Investors concerned over oil sell-off - AM Briefing
22 Jun 2017
Crude oil hits seven-month low - Video Update
21 Jun 2017
Sell-off in crude weighs on equities - AM Briefing
21 Jun 2017
Crude falls back to November lows - PM Bulletin
20 Jun 2017
Fresh records for US indices - AM Briefing
20 Jun 2017
Equity rally resumes - AM Briefing
19 Jun 2017
Markets steady ahead of weekend - AM Briefing
16 Jun 2017
FOMC surprises with “hawkish rate hike” - Video Update
15 Jun 2017
Fed unveils “hawkish rate hike” - AM Briefing
15 Jun 2017
FOMC rate decision in focus - Video Update
14 Jun 2017
Investors expect another Fed rate hike - AM Briefing
14 Jun 2017
FOMC look-ahead - PM Bulletin
13 Jun 2017
NASDAQ futures recover in early trade - AM Briefing
13 Jun 2017
Equities slide after US tech sell-off - AM Briefing
12 Jun 2017
May-hem! Tories chuck away majority - AM Briefing
09 Jun 2017
Brief notes on gold - PM Bulletin
08 Jun 2017
Markets calm as investors take “Risky Thursday” in their stride
08 Jun 2017
ECB cuts inflation outlook - Video Update
07 Jun 2017
Markets becalmed ahead of “Risky Thursday” - AM Briefing
07 Jun 2017
Sterling, events on Thursday and the UK election
06 Jun 2017
Safe havens in demand - AM Briefing
06 Jun 2017
Trading Guides - How CFD trading works
05 Jun 2017
Sterling steady after terror attack - AM Briefing
05 Jun 2017
Non-Farm Payrolls in focus - AM briefing
02 Jun 2017
Non-Farm Payroll look-ahead - Video Update
01 Jun 2017
Crude bounces after US inventory data - AM Briefing
01 Jun 2017
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Early moves

Friday’s tech sell-off continues

UK election fall-out continues

As European stocks closed on Friday it felt as if the market had easily survived a difficult week. Global stock indices were holding up well and the US majors were hitting fresh record highs. However, later in the US session there was a sharp sell-off in tech stocks which saw the NASDAQ100 end the session 1.8% lower. Yet the S&P500 was little-changed while the Dow finished 0.4% higher and at a fresh record high. The tech sell-off followed a warning from Goldman Sachs that Facebook, Amazon, Apple, Alphabet (Google) and Microsoft looked overvalued.

The question now is if we can expect the pull-back to continue, and more importantly, will this spread to the wider market? Early indications suggest that investors remain nervous. NASDAQ100 futures are around 1% lower in early trade and there are also losses across Europe and the other US majors.

On top of this, the fall-out from Theresa May’s disastrous election campaign continues. Most UK political commentators feel that she won’t be prime minister by year-end, yet the Tories will be desperate to avoid another General Election. This leaves the UK particularly vulnerable as it looks to begin negotiations to leave the European Union.

Stock Index Update

US Tech stocks slump

But Dow closes at fresh record high

Tech stocks tanked on Friday evening in a move that saw the NASDAQ100 end the session 1.8% lower. Yet the S&P500 was little-changed while the Dow finished 0.4% higher and at a fresh record. Commentators have been warning for some time now that there has been an overreliance on tech stocks with investors hoovering up growth stocks and ignoring value plays. This has led to a concentration in high profile companies, in particular Facebook, Amazon, Apple, Alphabet (Google) and Microsoft. Friday saw profit-taking come in and drive these names lower. However, the fact that there was no corresponding sell-off across the wider market suggests that there’s little reason to panic-just yet.

Ahead of all this investors were back in “risk-on” mode following the resolution to a number of so-called risk events - an ECB meeting, testimony from ex-FBI Director James Comey and the UK General Election. Two of these proved to be damp squibs as far as traders were concerned. The ECB hedged itself perfectly by producing a statement that had both dovish and hawkish elements which cancelled themselves out. Meanwhile, investors heard nothing in Mr Comey’s testimony which led them to worry about Donald Trump’s position as Commander-in-Chief. Yet there was one potentially market-moving event and that was the unexpectedly poor performance of Theresa May’s Conservative Party in the UK General Election. Mrs May called the snap election back in April for the sole purpose of increasing her majority in the House of Commons and thereby shoring up her position as she went into Brexit negotiations. But unfortunately, a combination of her cack-handed campaigning, questions over her competence while Home Secretary combined with a spruced-up Jeremy Corbyn meant that she ended up losing seats overall. Surprisingly, the result was forecast by a number of polls but completely missed by the bookies and financial markets. Sterling slumped as soon as the first exit poll was released which indicated a hung parliament, and UK multinationals rallied as soon as markets opened.

Commodities Update

Crude struggles to push higher

Sell-off in precious metals continues

While other markets had a volatile session on Friday, crude oil was little-moved as the weekend approached. Brent and WTI steadied after a week which saw both contracts plunge in value. Yet neither contract was able to make back losses which followed the release of the latest data on US inventory levels. Reports from both the American Petroleum Institute (API) and Energy Information Administration (EIA) showed a much bigger-than-expected build in crude stockpiles. In fact, the EIA also reported large increases in gasoline and distillate stockpiles as well. These latest updates added to the downside pressure on prices. Both contracts have come under constant selling pressure since the OPEC meeting in Vienna on 25th May. The extension to the OPEC/non-OPEC production cut agreement has failed to persuade investors that enough has been done to bring the market back into balance. On top of this, US output continues to grow with some analysts predicting that production will hit 10 million barrels per day by year-end. US crude output has jumped more than 10 percent since mid-2016 and is currently estimated to be over 9.3 million barrels per day.

Gold and silver slumped on Friday in a continuation of the sell-off which began earlier in the week. On Tuesday gold closed out at its highest level since November last year, just before the US presidential election. Both gold and silver fell sharply after Donald Trump clinched a surprise victory as investors dumped safe havens in favour of riskier assets such as equities. Precious metals began to trend higher after hitting a 12-month low back in December. Since then, gold has made a succession of higher highs and higher lows. That pattern remains in place despite last week’s pull-back. However, it does appear that investors once again believe there are less compelling reasons for holding the two precious metals than there were this time last week.

Forex Update

Sterling falls after Tory election upset

Euro steadies following ECB meeting

There was really only one notable FX move at the end of last week and that was the post-election sell-off in sterling. The market was completely wrong-footed ahead of the vote. Investors decided it was best to ignore recent opinion polls which showed a collapse in support for the Tories and were forecasting a hung parliament. This was understandable to some extent as such polls had proved to be wildly inaccurate in the past. But rather than dismiss all the polls, investors and pundits were selective in those that they chose to believe and those that they didn’t. This meant they placed too much faith on those from the beginning of the campaign which suggested that Labour were set to be annihilated with the Conservatives winning an additional 100 seats or so. As we now know, the Tories managed to lose seats and are having to rely on Northern Ireland’s Democratic Unionist Party to get a slim majority in the House.

Sterling lost around 2% against the US dollar and the euro as soon as the first exit poll was released indicating a hung parliament was on the cards. Yet sterling’s sell-off could have been worse. After all, Theresa May has been severely damaged by this election and this will feed through to Brexit negotiations.

Meanwhile, the ECB held its latest rate setting meeting on Thursday. The ECB hedged itself perfectly by producing a statement that had both dovish and hawkish elements which cancelled themselves out. On top of this the ECB revised its three-year growth outlook up a touch, but downgraded its inflation forecasts. This led to a modest decline in the euro.

Upcoming events

Today’s significant events and economic data releases include Italian Industrial Production and the US Federal Budget Balance.

Disclaimer:

Spread Co is an execution only service provider. The material on this page is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by Spread Co Ltd or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

 

Posted by David Morrison

Tagged: AM briefing

Category: AM Bulletin


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