Incisive market commentary from David Morrison

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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

US stock indices stage late rally

European equities drift after strong open

European stock indices got off to a storming start this morning as investors responded to a late bounce-back on Wall Street last night. But Europe’s gains were short-lived and the major indices were all trading in negative territory little more than an hour after the open. Investors may not be ready to dump equities on a large scale, but they also appear reluctant to add to current exposure. Yesterday equities came under pressure following news of the failure of President Trump’s healthcare reform. This happened after it became apparent that there wasn’t enough support for the repeal and replacement of Obamacare from Republican senators. On top of this there was a sell-off in banks after Goldman Sachs and Bank of America reported a downturn in trading revenues.

Stock Index Update

US indices stage late rally

But politics/bank earnings weigh

Last night US stock indices staged a late comeback after falling sharply earlier in the session. The Dow was down around 1% at one stage following the latest trading update from Goldman Sachs. The bank is a major constituent of the price weighted index and so can affect it disproportionately. Yesterday afternoon Goldman Sachs fell around 2.5% after reporting a 40% slump in bond trading revenues in the second quarter. Bank of America also fell as it reported a 14% decline in FICC (fixed income, currencies and commodities) revenues. Despite this, both banks managed to beat expectations for revenues and earnings.

But the NASDAQ had pushed higher by the close to post its longest winning streak since 2015. The tech-heavy index was helped by a 13% rally in Netflix which took the stock price to an all-time high. The company reported that it had added 5.2 million subscribers in the second quarter - way above the 3.2 million expected.

There was a sharp sell-off across European indices yesterday morning as investors reduced their exposure to equities. The moves followed news from the US of the collapse of Republican plans to repeal and replace the affordable Healthcare Act (Obamacare). This happened after it became apparent that the Republicans no longer have enough support in their own party for a clear majority in the Senate. This is yet more bad news for President Trump who promised to make the repeal and replacement of Obamacare a priority on entering the White House. The sell-off in equities comes as the Trump presidency continues to disappoint in terms of its legislative programme.

Commodities Update

Crude boosted by Saudi export cut chatter

Gold and silver continue to recover

Overnight the American Petroleum Institute (API) reported an unexpected build in crude stockpiles. This saw WTI and Brent slide initially, although prices recovered thanks to inventory drawdowns in gasoline and distillates. Overall, crude managed to make gains yesterday. Prices jumped around the middle of the trading session following a report that Saudi Arabia is preparing to cut exports by one million barrels per day (bpd). But both WTI and Brent pulled back later in the session as the overall market continues to struggle with oversupply. Yesterday OPEC member Ecuador announced that it will start raising crude production this month. The country faces budget issues and is unable to meet its commitment to lower output by 26,000 bpd to 522,000 bpd. The concern is not so much that there will be an additional 26,000 bpd added to global supplies, but more that it creates a dangerous precedent. Many commentators thought Venezuela would be first OPEC member to renege on its output cut agreement. It wasn’t, but now that Ecuador has made a move Venezuela could go next. Venezuela will have more of an impact as the country agreed to a 95,000 barrel per day cut to 1,972,000 barrels. Venezuela is the 6th biggest producer out of 11 countries included in original output cut agreement.

Meanwhile, US shale oil production continues to pick up. On Monday the Department of Energy said it expects shale output to rise in August for the eighth consecutive month.

Gold shot higher yesterday and traded above $1,240 for the first time since 3rd July. This was when it crashed below support around $1,240 to register its biggest one-day loss since mid-December 2016 when it hit a twelve-month low. Silver also put in a solid performance yesterday, tacking on around 1% for the second successive trading session. Both precious metals are looking considerably healthier in both price and technical terms when compared to this time last week. While it’s fair to say that the two metals were oversold back then and due a bounce, it would have been an act of daring to buy either of them. Both metals were shunned by investors - not only were they out of favour as safe havens and from a technical perspective, but the fundamentals also worked against them. Investors were adapting to an environment of monetary tightening from the US Federal Reserve against a backdrop of falling inflation. But Janet Yellen’s testimony on Wednesday has convinced investors that the US central bank won’t raise rates further should inflation continue to fall. This should help to support gold and silver for the time being.

Forex Update

US dollar slides as healthcare bill collapses

Dollar downtrend now in 7th month

The US dollar fell again yesterday in a move which saw the Dollar Index post a fresh 10 month low. Meanwhile the EURUSD surged to trade above 1.1500 for the first time since early May 2016. The dollar sell-off followed the news that the Republicans have had to postpone repealing and replacing the affordable Healthcare Act (Obamacare). It became apparent that the Republicans did not have enough support in their own party for a clear majority in the Senate. The dollar also lost ground against the Japanese yen, Swiss franc and Canadian dollar. Sterling was also sharply higher against the dollar in early trade, breaking above 1.3100 to hit its best level since the end of September last year. However, the British pound subsequently gave back these early gains following the release of weaker-than-expected inflation data. The pull-back in headline CPI to 2.6% in June from 2.9% the previous month was thought to take some pressure off the Bank of England in terms of tightening monetary policy. At the Bank’s last MPC meeting, three out of eight members voted for an immediate rate hike. This was up from 1 member previously.

But the failure to repeal Obamacare is just the latest issue weighing on the dollar. The greenback has been in a downtrend since the beginning of this year after it hit a fourteen-year high against the euro. Last week it sold off in the immediate aftermath of dovish testimony from Fed Chair Janet Yellen. It is also coming under pressure as investors increasingly come to believe that the European central Bank will soon announce plans to taper its €60 billion per month bond purchase programme.

Upcoming events

Today’s significant events and economic data releases include US Building Permits, Housing Starts and Crude Oil Inventories.


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Posted by David Morrison

Category: AM Bulletin

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