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Market awaits Trump, and Fed reaction
28 Feb 2017
Markets on hold ahead of Trump speech to Congress - AM Briefing
28 Feb 2017
Fibonacci Retracement - an introduction - Trading Guides
27 Feb 2017
Investors shrug off concerns ahead of Trump speech - AM Briefing
27 Feb 2017
Equities drifting lower ahead of weekend - AM Briefing
24 Feb 2017
Dollar sells off after FOMC minutes - Video Update
23 Feb 2017
FOMC minutes send dollar lower - AM Briefing
23 Feb 2017
Crude oil pushes up against resistance - Video Update
22 Feb 2017
FOMC minutes in focus - AM Briefing
22 Feb 2017
Gold pulls back from resistance - PM Bulletin
21 Feb 2017
US traders return after market holiday - AM Briefing
21 Feb 2017
Identifying market tops, or the trend is your friend - until it isn’t
20 Feb 2017
Kraft Heinz pulls Unilever bid - AM Briefing
20 Feb 2017
Major indices drifting lower as weekend approaches - AM Briefing
17 Feb 2017
US Indices hit fresh record highs
16 Feb 2017
Trump tax promise continues to drive risk appetite - AM Bulletin
16 Feb 2017
Yellen testifies in Washington
15 Feb 2017
Yellen testimony helps lift sentiment - AM Bulletin
15 Feb 2017
Silver hovers around resistance at $18
14 Feb 2017
Focus turns to Yellen’s testimony in Washington
14 Feb 2017
An introduction to the Relative Strength Index - Trading Guides
13 Feb 2017
Equity rally continues - AM Briefing
13 Feb 2017
Trump tax talk boosts risk appetite - AM Briefing
10 Feb 2017
US dollar drivers - Video Update
09 Feb 2017
Recovery in crude lifts equities AM Briefing
09 Feb 2017
Crude volatility picking up - Video Update
08 Feb 2017
Crude lower as inventories soar - AM Briefing
08 Feb 2017
Politics set to drive FX - PM Bulletin
07 Feb 2017
Major indices drift in featureless trade - AM Briefing
07 Feb 2017
MACD - an overview -Trading Guide
06 Feb 2017
European equities drift in quiet trade - AM Briefing
06 Feb 2017
Non-Farm Payrolls in focus - AM Briefing
03 Feb 2017
Non-Farm Payroll look-ahead - Video Update
02 Feb 2017
BoE meeting in focus - AM Briefing
02 Feb 2017
FOMC meeting tonight - Video Update
01 Feb 2017
Markets steady ahead of Fed meeting - AM Briefing
01 Feb 2017
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Early moves

Quiet start to European trade

Non-Farm Payrolls in focus

European stock indices looked as if they were set for a firmer open first thing. However, the majors soon gave up early gains and have begun to drift lower, depressed by European car manufacturers.  Meanwhile, crude oil is a touch firmer with WTI and Brent testing resistance around $54 and $57 respectively. Both contracts need to break and hold above these levels on a closing basis to have any hope of getting back up to $60. While output cuts are helping with this, rising US production appears to be keeping the bulls in check for now.

Gold and silver have built on their gains from Friday’s session with the former trading above resistance around $1,220. This is despite a decent recovery in the dollar following Friday’s sharp sell-off. At the end of last week the dollar slumped and US and European stock indices soared following the release of US Non-Farm Payrolls for January. These were much stronger than expected. However, an unexpected drop in Average Earnings has convinced investors that the Fed will hold off from hiking rates at next month’s meeting.

Stock Index Update

Payrolls strong but wage growth disappoints

Stock indices rise as March rate hike looks less likely

US and European stock indices had a storming end to the week, fuelled by Friday’s employment data. Headline non-farm payrolls soared above the upwardly-revised expectation of 180,000 to come in at 227,000 for January. But Average Earnings were a disappointment and the Unemployment Rate also ticked up to 4.8% from 4.7%. Stock indices soared on the news as investors looked past the volatile payroll number and focused on the weak average earnings data instead. The general feeling is that this provides yet another excuse for the Fed to hold off from hiking rates at next month’s meeting. This is because there is no upside inflation pressure coming from wages, even though the Unemployment Rate continues to come in at levels which indicate “full employment.”

The FOMC’s statement from last Wednesday suggested that they are less concerned about inflationary pressures than they were even in December. Yet survey data continues to improve. Last week brought strong readings for the ISM Manufacturing PMI although Friday’s Non-Manufacturing PMI was a slight disappointment. Overall it appears that the Fed is more concerned by “hard” data such as Durable Goods and GDP, even if it is backward-looking. Both data sets have disappointed recently. The Fed could still hike by 75 basis points this year even if they stand pat next month. But they do run the risk of appearing to be behind the curve if the data continues to improve. At the same time the Trump Administration is taking every opportunity to talk down the dollar even as it promises policies which are inflationary and dollar-positive.

Commodities Update

WTI and Brent test resistance

Gold struggles to break $1,220

Crude oil rallied on Friday in a move which took WTI and Brent up to the top end of their recent ranges. This meant that WTI was trying to break and hold above $54 while Brent was hitting its own area of resistance around $57. For once the move wasn’t directly linked to stories about US output. Instead, crude rallied after the Trump administration announced a number of sanctions against OPEC member Iran. The sanctions came in response to Iran’s testing of ballistic missiles. But it’s worth remembering that Iran was given special treatment during OPEC talks as it recovers from sanctions. Ultimately, Iran was not only exempt from cuts but allowed to raise output by 3.8 million barrels per day.

Crude also got a lift from some fresh news on the production cuts agreed back in November by OPEC and a number of non-OPEC producers. Russian energy minister Alexander Novak said that Russian companies could cut production more quickly than required under last year’s agreement.

Last week the latest data on US inventories showed bigger-than-expected builds in crude oil, gasoline and other distillates. If we get another increase in stockpiles this week then we could see crude back off from current levels.

Gold and silver were both trading in negative territory early on Friday. Mostly this was due to a pick-up in the dollar, although investors were also concerned that gold has struggled to break and hold above resistance around the $1,220 on Thursday.  The Dollar Index briefly spiked back above 100 ahead of the US Non-Farm Payroll release. It then rallied further as the robo-traders reacted to the much-better-than-expected headline increase in payrolls. However, the dollar subsequently slumped as traders looked past the headlines and noticed the fall in average earnings. This helped to lift precious metals and take them back into positive territory. By the close of business gold had just managed to creep above resistance at $1,220.

Forex Update

USD falls on weaker-than-expected wage growth

Cable pulls back from 7-week high

The dollar fell sharply after Friday’s Non-Farm Payroll release. The Dollar Index was trading above 100 prior to the release and jumped by around 20 ticks on the headline number. This showed an increase of 227,000 jobs in January, well above the 180,000 expected. However, there was disappointing news on wage growth. Average Hourly Earnings rose 0.1% in January which was below both the +0.3% expected and December’s number which was revised down to +0.2% from +0.4%. The Unemployment Rate also ticked up to 4.8% from 4.7%. This saw the dollar sell off as overall investors saw the data as strengthening the Fed’s argument for holding off from raising the fed funds rate further at next month’s meeting.

Earlier in the week the Bank of England kept its interest rate and asset purchase facility unchanged at 0.25% and £435 billion respectively. It also raised its 2017 growth forecast to 2% (from 1.4% in November) and forecast inflation as measured by CPI to come in around 2.7% this year, then hit 2.8% in the second quarter of 2018 before pulling back towards the Bank’s 2% target. Ahead of the meeting the GBPUSD topped 1.2700 for the first time since mid-December. However, it pulled back sharply as traders scrutinised the Bank’s inflation report and ended the week hovering around 1.2500.

Upcoming events

Today’s significant economic data releases and events include German Factory Orders, Euro zone Retail PMI, and Sentix Investor Confidence. From the US we have Mortgage Delinquencies and the Labor Market Conditions Index.  

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.

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 Bulletin

Category: AM Bulletin


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