Incisive market commentary from David Morrison

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GDP data in focus - AM Briefing
28 Apr 2017
ECB round-up and US GDP look-ahead - Video Update
27 Apr 2017
ECB meeting in focus - AM Briefing
27 Apr 2017
ECB's Rate Meeting, a look ahead - Video Update
26 Apr 2017
High hopes for Trump tax cuts - AM Briefing
26 Apr 2017
Global stock indices storm higher - PM Bulletin
25 Apr 2017
Indices mixed after firmer open - AM Briefing
25 Apr 2017
How to use Stop Losses in FX - Trading Guide
24 Apr 2017
French vote sees risk assets soar - AM Briefing
24 Apr 2017
Mixed European open despite Wall Street rally
21 Apr 2017
French Election in focus - Video Update
20 Apr 2017
French election and oil keep investors cautious - AM Briefing
20 Apr 2017
Equities off highs but still show resilience - Video Update
19 Apr 2017
Equities continue to drift lower - AM Bulletin
19 Apr 2017
Sterling soars on early UK election, but France the biggest concern
18 Apr 2017
Europe shrugs off US rally - AM Bulletin
18 Apr 2017
Trump's mouth sends dollar skidding lower - Video Update
13 Apr 2017
Dollar slumps on Trump comments - AM Bulletin
13 Apr 2017
Uncertain outlook ahead of holiday weekend - Video Update
12 Apr 2017
Equities recover after yesterday’s wobble - AM Briefing
12 Apr 2017
USDJPY approaching support - PM Bulletin
11 Apr 2017
Equities drifting in holiday-shortened week - AM Briefing
11 Apr 2017
Look-ahead to Janet Yellen’s speech this evening - PM Bulletin
10 Apr 2017
All eyes on G7 and Yellen - AM Bulletin
10 Apr 2017
US missile attack sends investors into “risk-off” mode - AM Briefing
07 Apr 2017
FOMC minutes rattle investors - Video Update
06 Apr 2017
Stunning reversal greets Fed minutes - AM Briefing
06 Apr 2017
ADP number points to big payroll beat on Friday - Video Update
05 Apr 2017
FOMC minutes in focus - AM Briefing
05 Apr 2017
US indices flag as first quarter ends - PM Bulletin
04 Apr 2017
Disappointing start to the new quarter - AM Briefing
04 Apr 2017
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 Wednesday 05 April 2017

FOMC minutes in focus - AM Briefing



Early moves

Equities recover on Trump comments

FOMC minutes in focus

European indices were a touch firmer in early trade this morning, lifted by a modestly higher close on Wall Street last night. Yesterday investors took heart from comments from President Trump as he met business leaders in Washington. Mr Trump hinted that banking sector deregulation was on the way. He said his administration wanted to make it easier for banks to lend money and that they were preparing to get rid of large chunks of Dodd-Frank banking regulations.

Investors will be watching out for the release of minutes from last month’s Fed meeting later tonight. This was when the FOMC hiked rates by 25 basis points, as expected. However, this was described as a “dovish rate hike” as the FOMC forecast fewer rate hikes going through the rest of the year. Analysts will be hoping tonight’s minutes may offer up additional clues over the Fed’s thinking.

The recent recovery in oil prices is also helping to underpin equities. Last week both WTI and Brent flew higher following a sharp sell-off which began early in March. Oil prices appeared to bottom out following a slump on the back of a large US inventory build. The retreat was exacerbated by excessive long-side speculative positioning which has now unwound. The current rally looks to be mainly technical although it’s being helped along by recent US inventory drawdowns (we get another update this afternoon) and increased speculation that OPEC and some non-OPEC producers will extend their output cut agreement beyond the June end date.

Stock Index Update

Equities rally on Trump comments

ADP payroll data in focus

It was a mixed session across European and US equity markets yesterday with investors apparently cautious as the second quarter got underway. US stock index futures were sharply lower ahead of the official open. But, as on Monday, they picked up as the session progressed. Most of the gains followed on from comments made by Donald Trump as he met business leaders in Washington. Mr Trump hinted that deregulation was on the way for the banking sector. He said his administration wanted to make it easier for banks to lend money and that they were preparing to get rid of large chunks of Dodd-Frank banking regulations.

Later today the ADP Payroll number for February is released. This can be a useful guide ahead of the official Non-Farm Payroll release on Friday. While the ADP number holds little relation to the actual Non-Farm data, it is very good at predicting the overall direction of travel. That is, a strong ADP foreshadows a strong Non-Farm release and a weak one likewise. Consequently, today’s announcement is worth keeping an eye on.

There’s some caution ahead of the start of a two-day summit between the US and China. President Trump and Chinese Premier Xi Jinping are set to meet and talk throughout Thursday and Friday. Just last week President Trump sent out a tweet about the meeting saying it wouldn’t be easy as "we can't have massive trade deficits … and job losses."

Commodities Update

US inventory drawdown lifts crude

Precious metals rally

Crude oil prices were softer in early trade yesterday. However, they recovered as the session progressed boosted to some extent by expectations that last night’s API data would show a bigger-than-expected drawdown in stockpiles. After last night’s close the American Petroleum Institute (API) released its latest update for US inventories. As expected, this showed a bigger-than-expected decline in stockpiles which has helped to lift crude prices this morning. Despite this, global inventories remain stubbornly high.

Last week both WTI and Brent flew higher following a sharp sell-off which began early in March. At the end of February both WTI and Brent looked as if they were set to push higher after they appeared to break above resistance around $54 and $57 respectively. However, an unexpectedly large build in US inventories triggered a plunge in prices. The sell-off was exacerbated by excessive speculative long-side positioning. The crude sell-off gathered momentum as these speculative longs were forced to cover their losing positions by selling. Then oil prices appeared to bottom out and find support as the market became more balanced. On top of this there was talk that OPEC and non-OPEC producers were set to extend their production cut agreement beyond June. So we appear to be having a bit of a technical bounce, although all eyes now turn to this afternoon’s inventory update from the US Energy Information Administration.

Gold and silver were sharply higher in early trade yesterday despite a pick-up in the US dollar. However, both precious metals pulled back from their best levels as the session progressed. Gold briefly poked its head above $1,260 - an area which has acted as both resistance and support over the last six months. However, yesterday gold was unable to capitalise on early gains as investor risk appetite improved as the session progressed. This was helped by comments from Donald Trump as he met business leaders in Washington. The president hinted that there could be some regulatory reform for the banking sector.

The current rally in precious metals seems to be down to investor concerns about the economic outlook. There are worries that the Trump administration may not be able to push through its promised tax cuts, infrastructure spending plans and regulatory reform. This follows Trump’s failure to repeal and replace Obamacare the other week. In addition, while the US Federal Reserve seems to be preparing the markets for tighter monetary policy going forward, there are concerns that the central bank is raising rates just as the US economy appears to be slowing. On top of this, investors appear to be seeking out safe havens ahead of this week’s US-China summit.

Forex Update

Dollar makes modest gains

Sterling slips

The dollar was a touch firmer in early trade on Tuesday, adding to sharp gains made at the end of last week. But trade was relatively light as investors hold fire ahead of today’s ADP payroll report and the release of minutes from the Federal Reserve meeting from the middle of last month. It feels as if investors have relegated political considerations a touch and are once again concentrating on US economic data releases and the outlook for future monetary tightening from the US Federal Reserve. This follows the Trump administration’s failure to repeal and replace Obamacare last month, although hopes are still high that tax reform is still on the agenda.

The most recent comments from Fed officials have become increasingly hawkish. Last Friday FOMC vice chair William Dudley even posited that the Fed could look to reduce its $4.5 trillion balance sheet later this year - earlier than previously thought.

Yesterday saw sterling lose ground against the majors. Cable had rallied strongly during the latter half of March as the UK government prepared to invoke Article 50 and so finally start the process of withdrawing from the European Union. But the GBPUSD failed to break and hold above 1.2600, and it is now trading around the confluence of the 20, 50 and 100-exponential moving averages.

Upcoming events

Today’s significant economic data releases and events include Spanish, Italian, French, German, Euro zone and UK Services PMIs. From the US we have the ADP Non-Farm Payroll update, the ISM non-Manufacturing PMI, Crude Oil Inventories and minutes from last month’s FOMC meeting.


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Posted by David Morrison

Category: AM Bulletin

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