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)


Early moves

Another mixed open for European equities

Precious metals fly higher in Asian Pacific trade

It has been another mixed start for European equities even though US stock indices ended higher on Wednesday. This was despite the release of minutes from last month’s FOMC meeting which were considered more hawkish in tone than many had anticipated. The minutes showed that the FOMC were mindful of the prospect of significant fiscal stimulus coming along even as US unemployment was back to pre-crisis levels. There were hints that the Fed is open to the prospect of "somewhat tighter monetary policy than currently anticipated." Nevertheless, the immediate market reaction was muted. The dollar rallied initially but then pulled back. However, it has picked up again in early trade this morning.

Precious metals were sharply higher overnight. Partly this is due to both metals being oversold - particularly gold. In addition, the rally so far this week could be linked to concerns of capital controls being implemented by the People’s Bank of China to halt the rapid depreciation of the yuan over the past twelve months. Either way, gold and silver are getting the benefit - for now. However, both remain vulnerable to a further pull-back should the dollar resume its rally.

Stock Index Update

European equities drift

Next (NXT) leads UK retail sector lower

It was another mixed session for European stock indices yesterday. All the majors were marked higher ahead of the open but spent the rest of the day drifting lower to post modest losses by the close. This was despite a decent performance on Wall Street which once again saw the Dow Jones Industrials come within striking distance of the (so far) elusive 20,000 level.

Next (NXT) issued a profit warning yesterday morning. The UK retail giant cut its 2017/18 profit forecast to £680-780 million, below the consensus expectation of £784 million. It also reported that pre-Christmas sales were down 0.4% when compared with the same period last year. The shares lost over 14% on the day and news weighed on the rest of the UK retail sector. Marks and Spencer ended down over 6% while ABF (the owner of Primark) ended close to 4% lower.

Commodities Update

WTI and Brent steadier

Gold and silver build on gains

Crude oil steadied yesterday following a wild high-to-low swing of over 5% during the previous session. Soon after the US open on Tuesday, Brent came within a couple of dollars of hitting $60 per barrel with WTI just a couple of bucks behind. It was difficult to pinpoint a reason for the pull-back. Some analysts blamed dollar strength as the Dollar Index hit a 14-year high in Tuesday’s afternoon session. But this hardly seems likely as the greenback and oil have been rallying in tandem for the last month or so. In fact, the sell-off in crude coincided precisely with a pull-back in the US dollar. So either they have now become positively correlated or something else was in play. The most likely explanation for the fall in oil and the dollar was nothing more than a bout of profit-taking following extended rallies.

Support for WTI and Brent comes in around $52 and $54 respectively. The area around $60 provides resistance. This 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. This suggests that US output should pick up and go a long way to counteracting OPEC and non-OPEC production cuts.

Gold and silver were able to build on recent gains yesterday, helped by a modest pull-back in the US dollar. Both metals have managed to claw back some ground over the holiday period after a vicious sell-off in the aftermath of Trump’s surprise election victory. Gold lost over 13% in the five weeks following the Trump win while silver fell around 15% over the same period. What has been surprising is that the two precious metals have steadied over the past fortnight despite the dollar rallying to a fourteen-year high as measured against the euro and Dollar Index. Partly this could be due to both metals being oversold - particularly gold. In addition, the rally so far this week could be linked to concerns of capital controls being implemented by the People’s Bank of China to halt the rapid depreciation of the yuan over the past twelve months. Either way, gold and silver are getting the benefit - for now. However, both remain vulnerable to a further pull-back should the dollar resume its rally.

Forex Update

Dollar Index pulls back from 14-year high

Gives back early gains following FOMC minutes

The US dollar fell yesterday in a move which saw the Dollar Index pull back from 14-year highs. On Tuesday there was a rush to re-establish long dollar positions which had been squared out ahead of the Christmas and New Year break. This was a continuation of the move which followed Trump’s surprise election victory. This saw the Dollar Index bust above long-term resistance around 100.00 while the EURUSD fell below support around 1.0800. The dollar rallied as investors absorbed the growth and inflation implications of Trump’s campaign promises to cut taxes, slash regulation and boost defence and infrastructure spending. Then the dollar got an additional boost after the US Federal Reserve raised rates for only the second time in ten years. While this was expected, a number of analysts were surprised that the FOMC forecast a further 75 basis points-worth of rate hikes in 2017. This was above the 50 basis points expected. Last night’s release of minutes from this Federal Reserve meeting suggested that the FOMC was prepared to tighten monetary policy at a faster rate than currently anticipated should planned fiscal stimulus boost inflationary expectations.

Sterling got a lift yesterday after the UK’s Construction PMI rose to 54.2. This was well above the 52.6 reading anticipated and the prior reading of 52.8. On Tuesday the UK Manufacturing PMI also came in well above expectations. This was yet another piece of data which has helped to call into question the Bank of England’s decision to cut rates and boost its Asset Purchase Facility in the wake of the Brexit vote. As unemployment continues to fall, it shouldn’t be long before the Bank’s MPC is forced to reverse its cut.

Upcoming events

Today’s significant economic data releases and events include the UK’s Services PMI and Euro zone Retail PMI. From the US we have the ADP Non-Farm Employment Change, Weekly Jobless Claims, ISM Non-Manufacturing PMI and Crude Oil Inventories.


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Posted by David Morrison

Category: AM Bulletin

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