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Collapse 2017 <span class='blogcount'>(348)</span>2017 (348)
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Tory Poll Lead Narrows Sharply - Video Update
31 May 2017
S&P 500 and NASDAQ break winning streak
31 May 2017
Sterling swings on polls - PM Bulletin
30 May 2017
Equities drift after long holiday weekend - AM Briefing
30 May 2017
Crude oil slumps on OPEC disappointment - AM Briefing
26 May 2017
OPEC disappoints while FOMC minutes provide cheer - Video Update
25 May 2017
OPEC expected to agree 9-month extension - AM Briefing
25 May 2017
Look-ahead to OPEC - Video Update
24 May 2017
Markets quiet ahead of FOMC minutes and OPEC - AM Briefing
24 May 2017
Crude oil update - OPEC meeting in focus - PM Bulletin
23 May 2017
Markets shrug off atrocity in Manchester - AM Briefing
23 May 2017
Equities mixed, but supported by oil
22 May 2017
Nerves steady after firmer close on Wall Street - AM Briefing
19 May 2017
Political fall-out continues to weigh on markets - Video Update
18 May 2017
Slide in European indices accelerates - AM Bulletin
18 May 2017
Trump’s woes hit markets - Video Update
17 May 2017
Trump’s woes lead to market wobble - AM Briefing
17 May 2017
EURUSD hits six-month high - PM Bulletin
16 May 2017
Crude oil extends rally - AM Briefing
16 May 2017
US inflation data and retail sales in focus - AM Briefing
12 May 2017
Crude oil recovers after “flash crash”- Video Update
11 May 2017
Crude oil soars while equities drift - AM Briefing
11 May 2017
Are investors too complacent? - Video Update
10 May 2017
Investors rattled after Trump fires FBI head - AM bulletin
10 May 2017
Crude oil’s “flash crash” leads to OPEC desperation - PM Bulletin
09 May 2017
Equities rally as oil steadies - AM Briefing
09 May 2017
Forex: Top Ten Tips for beginners - Trading Guides
08 May 2017
Markets little moved after Macron win - AM Briefing
08 May 2017
Payrolls in focus - AM Briefing
05 May 2017
NFP look-ahead - Video Update
04 May 2017
FOMC hints at rate hike in June - AM Briefing
04 May 2017
FOMC look-ahead - Video Update
03 May 2017
Apple disappoints on sales numbers - AM Briefing
03 May 2017
CFD Trading Tips - Trading Guides
02 May 2017
European traders return after May Day - AM Briefing
02 May 2017
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Early moves

Fed plays down recent data weakness

Stays on course for June rate hike

Last night the US Federal Reserve concluded its two-day monetary policy meeting and left rates unchanged, as expected. The accompanying statement played down recent weakness in economic data, particularly last Friday’s disappointing first quarter GDP number. The Fed emphasised that it saw this weakness as transitory and it remains on track to raise rates by 50 basis points over the course of the rest of the year. This keeps June in focus, and there was a jump in the overall probability of a 25 basis point hike next month FedWatch tool to over 90% from 68%. There was no mention from the FOMC of reducing its $4.5 trillion balance sheet, but this is more likely to show up in the minutes in a few weeks’ time.

The dollar strengthened on the release. However, the biggest move came in gold which fell sharply. Gold was already under pressure having broken below support around $1,250 earlier in yesterday’s session. But the slide has continued this morning and there’s now little evidence of technical support between current levels and $1,220.

European stock indices are firmer this morning with the banking sector leading the way forward. The fact that the Fed indicated that it remains on course to tighten monetary policy further as early as next month has boosted risk appetite. The Fed’s statement is viewed as being general in line with expectations, while confirming overall hawkishness. This suggests the Fed is confident in the US economy and any rise in short-term rates should help banks increase their margins. For now there are no signs of the yield curve flattening which would suggest the market doesn’t share the Fed’s confidence.

Stock Index Update

Banking stocks up after Fed statement

ADP Payrolls steady

We saw a mixed session for European stock indices yesterday. There were some modest gains for Germany, Italy and Spain and small losses for the UK and France. Overall, investors seemed unwilling to take on additional long-side exposure with the major US indices all in negative territory. It was also a mixed session in the US. The S&P and NASDAQ both finished lower on the day while the Dow managed to eke out a modest gain. This came as banking stocks got a lift after the Fed signalled another rate hike next month.

Yesterday afternoon the latest ADP data showed the US added 177,000 private sector jobs in April, pretty much as expected. Last month the ADP number beat expectations by around 80,000. This led many analysts to upgrade their forecasts for the Bureau of Labor (sic) Statistics’ Non-Farm Payrolls. But these missed even the unrevised predictions by over 70,000 raising concerns about the outlook for this Friday’s number. The conviction is that last month was a seasonal aberration, so the hope is we get a strong bounce-back in the data in two days’ time. The current forecast is for a gain of around 200,000 after the 98,000 recorded in March.

Commodities Update

Inventory data fails to halt oil’s slide

Gold breaks $1,250 support

Crude oil prices are closing back in on the lows seen in March. This corresponds to $47.00 in WTI and around $50.00 in Brent. Yesterday brought the latest update on US inventories for the week ending 28th April. This showed a smaller-than-expected decline in decline in crude inventories which further weighed on prices.

On Tuesday Saudi Crown Prince Mohammed bin Salman made comments about the Kingdom’s economy. These were upbeat in tone leading analysts to conclude that Saudi Arabia may have little reason to want to extend the production cut agreement beyond June. This gave investors another excuse to cut their exposure to oil. Even news from the American Petroleum Institute (API) of a bigger-than-expected inventory draw in crude, gasoline and distillates did little to upset the downside momentum.

Gold dropped below the $1,250 support level yesterday following the latest update on the US services sector. The ISM Non-Manufacturing PMI rose to 57.5 in April, up from 55.2 previously and above the 56.1 expected. The stronger data went against a recent string of disappointing releases and helped to bolster the dollar.

This has been a truly awful few weeks for precious metals investors, although traders who caught the right side of this sell-off are probably feeling pretty chuffed. Both gold and silver seem completely out of favour with investors despite the fact that the dollar continues to hover down at levels last seen soon after Donald Trump’s surprise victory in the presidential election back in November. It appears that investors no longer see the appeal of gold and silver as risk appetite has returned. This comes as geopolitical tensions have reduced and as the moderate “establishment” candidate Emmanuel Macron looks set to clinch the French presidency this weekend.

Forex Update

Dollar rallies after Fed meeting

USDJPY up on increased risk appetite

The US dollar perked up in early trade yesterday. It got an additional lift following the release of the Fed statement last night. The US central bank kept rates unchanged as expected. However, it was relatively upbeat in its statement, suggesting that it’s on course to raise rates again next month.

Despite yesterday’s rally, the dollar continues to trade around lows last seen in early November. This was just after Trump’s surprise victory in the US presidential election, when the greenback soared on hopes of fiscal stimulus and Fed rate hikes. Sterling came under pressure as traders fretted about the latest gossip and game-playing centred around the upcoming Brexit negotiations. These focused on talk that the UK now faces an upfront “divorce” settlement of €100 billion before further negotiations can even begin. This comes hot on the heels of a report that European Commission President Junker said UK Prime Minister Theresa May was “deluding herself” and living “in another galaxy.”

Meanwhile, the Japanese yen lost more ground yesterday. As risk appetite remains elevated, investors continue to sell (borrow) the low-yielding currency and invest the proceeds in higher-yielding and riskier assets such as equities.

Upcoming events

Today’s significant economic data releases and events include Spanish, Italian, French, German, Euro zone and UK Services PMI. Also from the UK we have Net Lending, M4 Money Supply and Mortgage Approvals and then Euro zone Retail Sales. From the US we have Challenger Job Cuts, Weekly Jobless Claims, the Trade Balance and Factory Orders.


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Posted by David Morrison

Category: AM Bulletin

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