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20 Dec 2016
Investors ponder US inflation outlook - AM Briefing
16 Dec 2016
Markets react to FOMC “dot plot” - PM Bulletin
15 Dec 2016
Dollar soars on hawkish “Dot Plot” - AM Briefing
15 Dec 2016
FOMC rate decision in focus - Video Update
14 Dec 2016
Countdown to FOMC rate decision - AM Briefing
14 Dec 2016
US Federal Reserve look-ahead - PM Bulletin
13 Dec 2016
Federal Reserve begins two-day meeting - AM Briefing
13 Dec 2016
Bollinger Bands explained - Trading Guide
12 Dec 2016
Crude gaps higher and lifts equities - AM Briefing
12 Dec 2016
Trump surge morphs into Christmas rally - AM Briefing
09 Dec 2016
ECB tapers bond buying programme - PM Bulletin
08 Dec 2016
All eyes on ECB - AM Briefing
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Look-ahead to tomorrow’s ECB meeting - Video Update
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European stock indices surge higher in early trade - AM Briefing
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What is the MACD indicator? - Trading Guide
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Quiet start for European trading - AM Briefing
06 Dec 2016
Technical Indicators - Moving Averages - Trading Guide
05 Dec 2016
Italian PM Renzi resigns after losing referendum vote - AM Briefing
05 Dec 2016
US Non-Farm Payroll update - PM Bulletin
02 Dec 2016
Non-Farm Payrolls in focus - AM Briefing
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Non-Farm Payroll look-ahead - PM Bulletin
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Crude holds gains after OPEC move - AM Briefing
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Early moves

Global stock indices edge higher

Chinese data helps to steady Asian Pacific markets

There’s a firmer tone across European equities and US stock index futures this morning. This follows on from yesterday’s session which brought mixed results for the major indices. Overnight brought the release of better-than-expected economic data from China. Industrial Production and Retail Sales both surprised to the upside and this helped to steady Asian Pacific markets after yesterday’s sell-off on the Shanghai Composite.

Investors will spend the next two sessions positioning themselves ahead of the US Federal Reserve’s key monetary policy decision tomorrow evening. A 25 basis-point rate hike has been priced in. However, there’s much speculation concerning the FOMC’s quarterly summary of economic projections. This includes the infamous “Dot Plot” where all members of the Committee (whether voting or not) forecast their expectations for rate moves for the coming year and beyond. Last year the FOMC’s consensus forecast was for 100 basis points-worth of monetary tightening over 2016. This prediction was widely seen as contributing to the sharp sell-off in risk assets as the year began. This time round, the consensus expectation appears to be hardening around a possible 50 basis points of tightening. So anything more than this could upset investors.

Investors will also be keeping an eye on UK inflation data due out this morning. Year-on-year CPI is forecast to come in at 1.1% - still some way below the Bank’s 2% target, despite the sell-off in sterling since the summer.

Stock Index Update

Federal Reserve begins two-day meeting

Italian banks bounce

It was a mixed session for global equities yesterday. Investors tried to keep the European majors elevated in response to yet another record closing session for Wall Street on Friday night. However, Chinese equities ended yesterday morning sharply lower as regulators clamped down on stock acquisitions by the country’s insurers. That took some initial heat out of the market. Then, once again, we saw certain US sectors outperform others. The Dow Jones Industrials and S&P500 quickly traded up to fresh all-time intra-day highs as investors bought up oil giants and services companies as crude soared. However, the NASDAQ struggled as investors cut their exposure to tech stocks, notably Facebook and Amazon.

Meanwhile, the yield on the 10-year Treasury note rose above 2.5% for the first time since October 2014. The move came ahead of the two-day Federal Reserve meeting which begins this afternoon.  The consensus expectation is that the Fed will hike rates by 25 basis points. However, it’s unclear just how hawkish the central bank may prove to be when it releases its quarterly Summary of Economic Projections which will include the FOMC members’ forecasts for future monetary tightening. Then later on Wednesday Fed Chair Janet Yellen will hold a press conference.

The Italian Treasury has said it is prepared to step in to recapitalize Banca Monte dei Paschi as a last resort. But the troubled bank is still making a final push to raise €5 billion to avoid a bailout. Meanwhile, Unicredit announced that it is selling its asset manager Pioneer to France's Amundi for over €3.5 billion as Italy's largest lender seeks to boost capital levels.

Commodities Update

Crude pulls back from best levels

Gold continues to struggle

Crude oil flew higher as soon as the markets opened late on Sunday. This followed the news that the deal between OPEC/non-OPEC producers to cut output had been officially finalised. Buying pressure built in thin overnight volume which saw prices gap higher as buy stops and resistance were taken out. Crude pulled back from its best levels later in yesterday’s session, but still managed to hold on to some of its early gains.

Crude soared as 11 non-OPEC producers agreed to cut output by 558,000 barrels per day (bpd). This was less than 600,000 barrel cut requested by OPEC, so it looked as if non-OPEC countries (which include Russia and Mexico, but not the US) would disappoint overall. However, this is the first cut in production since 2001, and Saudi Arabia also then promised additional cuts. Saudi's Oil Minister Al-Falih said, "I can tell you with absolute certainty that effective 1st January we're going to cut and cut substantially to be below the level that we have committed to on 30th November." So, assuming all parties comply and stick to their promises oil supply and demand should be back in balance sooner than previously expected.

But this is just one side of the equation. If president-elect Trump really does manage to cut taxes, tear up regulations and boost infrastructure spending then demand should pick up too. If so, then oil producers have just agreed to tighten production just at the wrong time. That’s what has helped prices to spike higher. But if prices head up towards $55-60 per barrel, then we can expect US shale oil drillers to boost production fairly quickly.

Gold and silver began yesterday’s trade on the back foot yet again. This was despite weakness in the US dollar which generally helps to support precious metals and other dollar-denominated commodities. Gold hit its lowest level since the 5th February this year and once again broke below $1,160. If it fails to find any traction here then there’s a fair chance gold to fall further from here. Chart-wise, there some very mild support around $1,130 which is the 76.4% Fibonacci Retracement of the December 2015 to July 2016 rally. But below here there’s very little until gold hits the lows of December last year - around $1,060. Meanwhile, silver is managing to hold up a bit better with a base forming around $16/16.20. No doubt Donald Trump’s proposed infrastructure spending plans are helping to support silver thanks to its industrial properties. Both gold and silver picked up as the session wore on and as the dollar remained under pressure.

Forex Update

US dollar slips

Investors prepare for Fed rate decision

The US dollar fell yesterday in a move that saw the Dollar Index break below 101.00 and the EURUSD push above 1.0600. Traders are looking ahead to the two-day meeting of the US Federal Reserve’s FOMC. The Committee will release its statement on Wednesday evening when it is widely expected to raise its fed funds rate by 25 basis points. If it does, then this will be the central bank’s first interest rate move since this time last year. But while a modest rate hike is priced in to financial markets there is still plenty of uncertainty ahead of the meeting. First off, the FOMC will also release its quarterly summary of economic projections. This includes the infamous “Dot Plot” where all members of the Committee (whether voting or not) forecast their expectations for rate moves for the coming year and beyond. Last year the FOMC’s consensus forecast was for 100 basis points-worth of monetary tightening over 2016. This prediction was widely seen as contributing to the sharp sell-off in risk assets as the year began.

Upcoming events

Today’s significant economic events and data releases include UK inflation data, German ZEW economic sentiment, Euro zone economic sentiment and employment change. From the US we have import prices.

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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