Incisive market commentary from David Morrison

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EURUSD breaks above resistance - PM Bulletin
31 Jan 2017
Equities recover after Monday’s sell-off - AM Briefing
31 Jan 2017
Trending markets and Andrews’ Pitchfork -Trading Guide
30 Jan 2017
Investors rattled by Trump’s curbs - AM Briefing
30 Jan 2017
Dow holds above 20,000 as dollar firms - AM Briefing
27 Jan 2017
Dow breaks above 20,000 - Video Update
26 Jan 2017
Dow at 20,000 boosts risk appetite - AM Briefing
26 Jan 2017
Dow finally breaks 20,000 - PM Bulletin
25 Jan 2017
Wall Street leads stocks higher - AM Briefing
25 Jan 2017
Consolidation continues - Video Update
24 Jan 2017
Dollar recovery helps lift sentiment - AM Briefing
24 Jan 2017
Money management and stop-losses -Trading Guide
23 Jan 2017
Stocks fall on US protectionism fears - AM Briefing
23 Jan 2017
Trump inauguration in focus - AM Briefing
20 Jan 2017
A look-ahead to Trump’s inauguration - Video Update
19 Jan 2017
ECB President Draghi’s press conference in focus - AM Briefing
19 Jan 2017
Dollar steadies after sell-off - Video Update
18 Jan 2017
Equities drift in featureless trade - AM Briefing
18 Jan 2017
Dollar pull-back lifts precious metals- PM Bulletin
17 Jan 2017
Dollar slumps in early trade - AM Briefing
17 Jan 2017
Charting analysis for beginners - Trading Guide
16 Jan 2017
Sterling slumps on “Hard Brexit” concerns - AM Briefing
16 Jan 2017
Earnings in focus - AM Briefing
13 Jan 2017
Fourth quarter earnings in focus - Video Update
12 Jan 2017
Market Info Update: Martin Luther King Day Monday 16th January 2017
12 Jan 2017
Dollar lower as Trump skips stimulus talk - AM Briefing
12 Jan 2017
Trump news conference - Video Update
11 Jan 2017
Trump press conference in focus - AM Briefing
11 Jan 2017
Has gold turned a corner? - PM Bulletin
10 Jan 2017
Another mixed start for Europe - AM Briefing
10 Jan 2017
Trading Psychology - Trading Guides
09 Jan 2017
Sterling slips on "Hard Brexit" fears - AM Briefing
09 Jan 2017
Non-Farm Payrolls in focus - AM Briefing
06 Jan 2017
Non-Farm Payroll look-ahead - Video Update
05 Jan 2017
FOMC minutes viewed as hawkish - AM Briefing
05 Jan 2017
Look-ahead to release of FOMC minutes - Video Update
04 Jan 2017
FOMC minutes in focus - AM Briefing
04 Jan 2017
Strong start to 2017 - PM Bulletin
03 Jan 2017
Equities push higher in first session of 2017 - AM Briefing
03 Jan 2017
Expand 2016 <span class='blogcount'>(483)</span>2016 (483)
 Wednesday 04 January 2017

FOMC minutes in focus - AM Briefing



Early moves

- European equities mixed

- Crude oil steadies after yesterday’s sell-off

European stock indices were mixed in early trade this morning having pulled back from their best levels on the open. Nevertheless, the downside seems limited for now as crude oil has steadied following yesterday’s wild high-to-low swing of over 5%. Brent was within $2 of hitting $60 per barrel with WTI just a couple of bucks behind. But the area around here could act as resistance going forward. It is considered a key psychological level as far as traders are concerned as many US shale oil producers can make good profits with oil at this price.

The minutes of last month’s Federal Reserve FOMC meeting are released later this evening. Analysts will be looking out for comments which relate directly to members’ predictions over the amount of monetary tightening we can expect this year. There was some surprise that the majority of FOMC members anticipate 75 basis points-worth of tightening this year against the 50 basis points expected. It will be interesting to see if the FOMC have anything to say about president-elect Trump’s proposed fiscal stimulus.

Stock Index Update

 - Equity markets mixed

- Crude oil triggers late pull-back

European stock indices were sharply higher in early trade yesterday. Investors began the New Year in bullish mood and sentiment was boosted by the releases of strong Chinese manufacturing numbers. However, all the major indices pulled back from their best levels as the day wore on. By the European close, the major indices (including US) were mixed with small gains for the FTSE100 and CAC40 and a modest loss for the DAX30.

The pull-back in the major indices was directly related to the sharp turnaround in crude oil. This had a high-to-low swing of over 5% during the early part of the afternoon. It was difficult to pinpoint a reason for the pull-back. Some analysts blamed dollar strength. But this hardly seems likely as the greenback and oil have been rallying in tandem for the last month or so. Instead, the sell-off was probably nothing more than a bout of profit-taking.

Commodities Update

- WTI and Brent hit 18-month highs

- Gold drifts as dollar rises

Crude oil flew higher in early trade yesterday with both Brent and WTI up over 2% at one stage. This sharp rally followed on from a solid period of trading over Christmas and New Year which saw WTI and Brent break back above resistance around $52 and $54 respectively, and these levels should now act as support. Crude prices pulled back later in the session on a heavy bout of profit-taking. The next upside target is $60 for both contracts, although technically this is a more significant area of resistance for WTI than for Brent.

Investors have pushed the oil price up to an 18-month high following the agreement from OPEC and non-OPEC producers to cut output. At the end of November most of the world’s major oil producers came together and agreed to cut production by around 1.8 million barrels with the deal coming into force on 1st January. However, it’s worth noting that producers dramatically increased production ahead of the meeting so there’s a big question mark over just how effective these cuts will prove to be in helping to rebalance supply and demand. In addition, not only are there questions over whether producers will comply with the fresh quotas, but we also expect US shale oil drillers to ramp up production to capitalise on higher prices. Oil analysts believe that this alone could cap the oil price around $60.

There was some unusual trade going on in precious metals yesterday. Both gold and silver lost ground in early trade thanks mainly to the ongoing strength in the US dollar. The Dollar Index hit a fresh 14-year high earlier in the day while the EURUSD spent most of the European session trading below 1.0400. But it was somewhat surprising that gold and silver’s losses were modest when compared to the dollar’s strength. Then both precious metals shot higher soon after the US dollar pulled back from its highs on profit-taking. Gold rose around 1% while silver was up over 3% at one stage. The strength of these moves suggested that there was some pent-up buying interest ready to break through just as soon as the froth came off the dollar. The question now is whether or not this upside momentum can be maintained.

Forex Update

- Dollar Index hits fresh 14-year high

- EURUSD briefly breaks below 1.0300

The US dollar hit fresh multi-year highs yesterday early in the European session. The Dollar Index flew above 103.00 to hit its highest level in fourteen years. Meanwhile the EURUSD sliced below 1.0400 to record its lowest intra-day low since January 2003. The dollar succumbed to profit-taking and pulled back from its best levels as yesterday’s session progressed. But despite this it still managed to post gains against all the majors.

Many analysts expect the dollar to make further gains in 2017.However, some warn that investors are getting overly confident about the rise in the greenback and that a downside correction can’t be ruled out. Supporting the case for a stronger dollar is the prospect of aggressive monetary tightening from the US Federal Reserve. This could happen if inflation expectations suddenly spike higher. At the Fed’s meeting last month Janet Yellen was asked if she was concerned about the risk of the economy overheating should Trump manage to push through tax cuts and stimulus spending. She said there was no obvious need for such stimulus as the US employment situation has improved recently. Dr Yellen’s reply suggests that Trump’s campaign promises (assuming they get through Congress) could raise inflation expectations - especially at the Fed. If investors come to feel that the central bank is prepared to raise rates more aggressively than expected, then this would be positive for the dollar but a big headwind for equities, especially as all of Trump’s policy proposals will add to US national debt. This hasn’t been viewed as an issue thanks to record low interest rates. But if these now start to rise, we could have a problem.

Upcoming events

Today’s significant economic data releases and events include Services PMIs from Spain, Italy, France, Germany, the Euro zone and Euro zone CPI. From the UK we have Construction PMI, Net Lending to Individuals, M4 Money Supply and Mortgage Approvals. From the US we have minutes from the Fed’s last FOMC meeting and Total Vehicle Sales.

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

Category: AM Bulletin

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