Incisive market commentary from David Morrison

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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
Expand January <span class='blogcount'>(39)</span>January (39)
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 Wednesday 22 February 2017

FOMC minutes in focus - AM Briefing



Early moves

Another record close on Wall Street

FOMC minutes in focus

European stock indices were firmer first thing following on from solid gains on Wall Street last night. The Dow, NASDAQ and S&P500 all closed out at fresh record highs as positive market sentiment kept the upside momentum going. Investors appeared to be making up for lost time following Monday’s US holiday and rushed in on the buy-side following some upbeat earnings reports. Underpinning the current rally is the expectation that Donald Trump will deliver on his promises to cut taxes, boost infrastructure spending and roll back regulations. There is a strong belief that this administration is set to be the most business-friendly in a generation. While there’s plenty of scope for disappointment, particularly as Trump’s deadline for a big tax announcement is realistically just a week away now, investors are terrified of missing out on the current stock market move. For now the momentum is with the buy-side and short-sellers continue to get trampled by the bulls.

The minutes from last month’s Federal Reserve FOMC meeting are released this evening. Investors will be looking out for any clues over the likely timing of future rate hikes from the US Federal Reserve. Last week Fed Chair Janet Yellen delivered testimony to policymakers in Washington. This was interpreted as being more hawkish than anticipated as Dr Yellen went out of her way to suggest that next month’s meeting was “live” when it came to the prospect of a rate hike.

Stock Index Update

US stock indices hit fresh record highs

FTSE100 ends lower, dragged down by banks

Onwards and upwards - the Dow, NASDAQ and S&P500 all powered to fresh record highs last night as positive market sentiment kept the upside momentum going. Investors appeared to be making up for lost time following Monday’s US holiday and rushed in on the buy-side following some upbeat earnings reports.

European stock indices stormed higher yesterday and posted solid gains. European equities were lifted by survey data from IHS Markit which showed that Euro zone business activity picked up in February to hit its highest level since April 2011. The overall flash composite index of services and manufacturing spiked to 56.0, up from 54.4 in January. Only the FTSE100 failed to close in positive territory. The UK index was held back by the banking sector which fell after HSBC released a dire set of earnings. The banking giant reported a fall in pre-tax profits of 62% when compared with the same time last year. This was due to a number of one-off charges. Nevertheless, the profit slump was considerably worse than expected and the shares were down around 5% in early trade. The negative market sentiment was offset to some extent by better-than-expected profits from hotels group Intercontinental and mining giant BHP Billiton and Anglo American. Energy stocks were also given a boost by a rally in crude which took both WTI and Brent through resistance which has been in place since early December. However, this wasn’t enough to propel the main UK index into positive territory.

Ahead of the US open, Wal-Mart reported fourth quarter earnings. The retail giant managed to beat most consensus estimates while recording the largest US-based same-store sales increase since July 2012. Comparable sales were up 1.8% compared with an expected rise of 1.3%. There was more good news from DIY retailer Home Depot which hiked its dividend after reporting better-than-expected revenues and earnings. The news helped to propel the major US indices to fresh record highs in early trade.

Commodities Update

Brent and WTI surge above resistance

Gold and silver recover after early sell-off

Early yesterday Brent and WTI surged higher and broke above their respective resistance levels around $57 and $54. The initial move came after the OPEC Secretary General Mohammad Barkindo confirmed that there was over 90% OPEC compliance on the promised supply cuts in January. He also said that he expects to see a further drop in OECD inventory levels in 2017.

Meanwhile data showed that money managers are holding record net long positions on both Brent and WTI crude, indicating that the consensus is betting that crude prices will go higher from here. Typically, contrarian traders take this as a warning that the market risk is asymmetric. If market participants are positioned to take advantage of rising prices it means that it would only take a modest downside move on bad news to trigger a dramatic sell-off as investors rush to cover losing positions. However, these long-side positions have been building while prices have been going sideways. This is a relatively healthy situation which suggests there could be more upside to come, until that is there’s no one left willing to buy.

Of course, there’s still the danger of some negative news being the catalyst for a sharp market reversal. It’s worth remembering that the American Petroleum Institute (API) releases its latest inventory update after tonight’s close.

Gold and silver were both sharply lower in early trade yesterday with silver down over 1% at one stage. The trigger for the sell-off was a sharp rally in the US dollar coupled with the failure of either gold or silver to break and hold above significant resistance around $1,240/50 and $18 respectively. The dollar got a boost following comments from FOMC-voting member Loretta Mester late on Monday. Ms Mester indicated that she would be comfortable with a rate hike as long as the US economy continued to improve. This increased speculation that the Fed may be getting ready to hike rates as early as next month’s meeting. However, the dollar gave back most of its gains yesterday afternoon after Neel Kashkari (another FOMC-voting member) said that he saw some slack in the US labour market, suggesting that next month may be too early for the Fed to raise rates again.

Forex Update

US dollar reacts to comments from FOMC members

Erases gains after early rally

The US dollar was sharply higher in early trade yesterday, posting strong gains against all the majors. The move came on the back of increased speculation that the Fed may tighten monetary policy again as early as next month. This came on top of raised concerns over the political outlook for the Euro zone given forthcoming elections in Holland and France. On Monday FOMC voting member Loretta Mester indicated that she would be comfortable with a rate hike given the ongoing improvement in the US economy. However, the dollar gave back some of its gains following a Q&A session on Tuesday from another FOMC-voting member, Neel Kashkari. Mr Kashkari was less hawkish in his outlook saying he felt that there was room for further improvement in the US labour market, suggesting he was in no hurry to raise rates. He also said that he hadn’t factored any changes to fiscal policy into his forecasts as it remained unclear what the Trump administration would be able to push through Congress.

Upcoming events

Today’s significant economic data releases and events include the German Ifo Business Climate survey and Euro zone CPI. From the UK we have the GDP second estimate, Preliminary Business Investment and Index of Services. From the US we have Existing Home Sales and FOMC Meeting minutes.


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Posted by David Morrison

Category: AM Bulletin

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