Incisive market commentary from David Morrison

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Collapse 2017 <span class='blogcount'>(348)</span>2017 (348)
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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)
Expand 2016 <span class='blogcount'>(483)</span>2016 (483)


Early moves

US crude inventories show unexpected build

Dollar falls after FOMC minutes release

There’s a slight upside bias to European stock indices this morning but overall trade has been uneventful so far. Crude oil is firmer and this follows the release of the latest US inventory update from the American Petroleum Institute (API). This showed an unexpected drawdown in stockpiles of 884,000 barrels on expectations of a 3.3 million barrel build. This goes against the recent trend in inventories although traders will be looking out for confirmation of the build when the US Department of Energy releases its own update later today.

Last night the US Federal Reserve published the minutes of its last meeting held earlier this month. FOMC members discussed the “substantial uncertainty” that the new presidential administration has brought. They also noted raised confidence within the business community. As far as the economic outlook is concerned, it appears that many FOMC members would be happy to tighten monetary policy “fairly soon” as long as the labour market and inflation outlook continue to move on present lines. This appeared to leave open the prospect of a March rate hike. Despite this, the dollar fell. No doubt traders are focusing on the Fed’s concerns over the lack of clarity over what President Trump may be able to supply in terms of fiscal stimulus. It’s also worth mentioning that we’ve had a stack of comments from Fed members since that last meeting. Just last week Fed Chair Janet Yellen testified in Washington and made it clear that every FOMC meeting should be considered “live” when it came to the prospect of a rate hike. Then we had speeches from a number of FOMC-voting members. These included Loretta Mester and Patrick Harker who both indicated that they would be in favour of a rate hike next month should the financial conditions warrant it. John Williams said that the US economy was effectively “at full strength.” However, their colleague Neel Kashkari seemed less hawkish saying that he still saw some slack in the US labour market, suggesting that next month may be too early for the Fed to raise rates again.

Stock Index Update

European indices drift in featureless trade

UK GDP revised upwards

Yesterday European stock indices pulled back from their best levels after a positive start. Investors seemed content to pare back their exposure to equities as US stock index futures lost ground after hitting record highs on Tuesday night. Equities got an early boost following the release of the German Ifo Business Climate survey. This is a highly respected indicator which samples around 7,000 diverse businesses designed to gauge current and future business conditions. The index came in at 111.0 and was comfortably above the 109.6 expected.

Wednesday also brought the release of the second estimate for the UK’s fourth quarter GDP. This rose 0.7% for the quarter, which was above both the consensus expectation and the prior reading of +0.6%. The news helped to lift the FTSE100 which had been lagging the European majors.

Lloyds Banking Group was one of the bright spots in the FTSE100 yesterday. The stock was up over 4% by lunchtime after the bank reported its highest annual profit in more than ten years, thanks in part to a reduction in payment protection insurance provisions. Pre-tax profits were up by 158% to £4.24 billion - the bank’s best result since before the financial crisis.

Commodities Update

Brent and WTI pull back from resistance

Gold and silver drift ahead of FOMC minutes

Yesterday both Brent and WTI pulled back from resistance around $57 and $54 respectively. The sell-off came after both contracts breached these levels but failed to attract follow-through buying.  Earlier in the week OPEC Secretary General Mohammad Barkindo confirmed that OPEC compliance on promised supply cuts ran at 90% in January. He also said that he expects to see a further drop in OECD inventory levels in 2017. Despite this, it appears that OPEC and non-OPEC producers are considering extending their agreement to cut output beyond June to year-end. There’s also some talk of increasing the output cut by more than the 1.8 million barrels per day currently agreed.

Meanwhile US output continues to rise. At the end of last week oil services company Baker Hughes reported that the US rig count stood at 751, up 10 for the week ending 17th Feb and up 237 from the same time last year. At the same time, US and global crude inventories continue to register record highs while US gasoline inventories are at their highest levels since 1990 when EIA first started tracking this data.

Gold and silver continue to hover below significant resistance which comes in around $1,240/50 for gold and $18 for silver. Both metals are struggling to break and hold above these levels and much of the blame for this indecision must be laid at the feet of the US dollar. The greenback pulled back from the highs made at the beginning of the year and that sell-off helped to support both precious metals. However, the dollar has been trending higher for most of February and this has dampened interest in gold and silver. Investors are waiting for President Trump to make his highly anticipated announcement on tax policy. But in the meantime, investors have been looking to the US Federal Reserve for clues over the timing of the next interest rate move.

Forex Update

US dollar slips ahead of minutes

Falls further as FOMC less hawkish than expected

The US dollar was generally firmer in early trade yesterday, most notably against the euro and British pound. However, it gave back its gains towards the European close and ahead of the release of the FOMC’s minutes from its meeting earlier in the month.  Trading activity slowed noticeably as the release deadline drew near. These were considered to be slightly more dovish than expected, although there was nothing in them to suggest that a rate hike couldn’t come as early as March. The dollar sold off after the minutes were released which was somewhat surprising as the minutes have already been supplanted by speeches from a number of Federal Reserve members. Last week Fed Chair Janet Yellen made it clear that every FOMC meeting should be considered “live” when it came to the prospect of a rate hike. Then this week we had speeches from FOMC-voting members including Loretta Mester and Patrick Harker. They both indicated that they would be in favour of a rate hike next month should the financial conditions warrant it. Meanwhile their colleague John Williams said that the US economy was effectively “at full strength.” The only dovish opinion came from Neel Kashkari who said he still saw some slack in the US labour market which suggested that next month may be too early for the Fed to raise rates again.

Earlier in the day the UK’s fourth quarter GDP number was revised up to +0.7% which was better than the +0.6% quarter-on-quarter reading expected.  Meanwhile, German business confidence as measured by the Ifo Business Climate survey unexpectedly improved in February. The index rose from 109.9 to 111 which was better than the 109.6 expected.

Upcoming events

Today’s significant economic data releases and events include German Final GDP, German Consumer Climate survey, Italian Retail Sales and the UK’s CBI Realised Sales. From the US we have Weekly jobless Claims and Crude Oil Inventories.  


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Posted by David Morrison

Category: AM Bulletin

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