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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Early moves

Crude falls sharply on inventory data

Investors cautious ahead of French election

As if investors hadn’t got enough to worry about with elevated geopolitical tensions, the French Presidential Election and the first quarter earnings season all adding to general uncertainty yesterday saw crude oil prices plunge following the release of US inventory data.

The Energy Information Administration (EIA) released its latest update for the week ending 14th April. This showed a significant build in gasoline stockpiles, confounding expectations of a large drawdown. The news confirmed Tuesday’s report from the American Petroleum Institute (API). Oil traders were initially slow to react to the news. However, what began as a modest pull-back soon turned into a rout as speculative longs were forced to cover. The sell-off put additional downside pressure on US stock indices which were already struggling to make gains following disappointing earnings from IBM.

European stock indices are weaker again this morning, and all the indications suggest that investors are in no hurry to buy dips ahead of the first round of the French Presidential Election this Sunday. As far as the polls are concerned there’s nothing to put between the four main candidates. It also appears that up to a third of the electorate remain undecided. This means that Europe’s nightmare outcome of a run-off between Le Pen and Melenchon the two anti-establishment, anti-European candidates, remains a possibility.

Stock Index Update

FTSE closes in on support

Earnings mixed again

There was a general recovery in European stock indices yesterday although the FTSE100 was unable to join in the rally. The UK index lost ground for a second successive day and is approaching a key support level around 7,100.

As expected, the UK parliament voted in favour of holding an early general election. This means that Theresa May’s call for a snap general election on 8th June can go ahead. Current polling suggests that the governing Conservative Party could boost its current 17 seat majority to something around triple figures. This would significantly strengthen Mrs May’s position within her party suggesting that she will be able to slap down troublesome MPs as the UK negotiates its exit from the EU. This is perhaps the main reason (along with excessive speculative short positioning) for Tuesday’s dramatic rally in sterling. This in turn weighed on UK equity prices, particularly those of multinationals who do most of their business overseas.

Once again, there were some mixed reports on the earnings front. IBM posted its 20th consecutive quarter of year-on-year revenue declines and these also fell short of the consensus expectation. Earnings came in at $2.28 per share which was better than the $2.35 anticipated. Despite this the stock price was down over 5% pre-market and weighed heavily on the Dow Jones index.

But later on Morgan Stanley posted a solid set of first quarter numbers, beating analysts’ estimates for both revenues and earnings. The numbers helped to reassure investors following the surprise miss on both earnings and revenues from Goldman Sachs on Tuesday.

Commodities Update

Inventory build sparks crude sell-off

Precious metals slide again

Yesterday afternoon the Energy Information Administration (EIA) released its latest US inventory data for the week ending 14th April. This showed a significant build in gasoline stockpiles, confounding expectations of a large drawdown. The news confirmed Tuesday’s report from the American Petroleum Institute (API). However, both reports also showed smaller-than-expected drawdowns in crude stockpiles. Maybe because of this investors were slow to react to the gasoline build. However, a modest pull-back in WTI and Brent eventually turned into a rout as speculative longs were forced to cover adding to the downside momentum.

Oil was modestly firmer ahead of yesterday’s inventory update. WTI and Brent got a lift following comments from OPEC’s secretary-general. Mohammed Barkindo said that OPEC remained committed to measures designed to eroding the surplus in global inventories and getting them back to the five year average.

Gold and silver both lost ground yesterday in moves which appeared to be attributable to a general recovery in investor risk appetite, along with another large sell order in the futures market. The 10-year US Treasury yield bounced back after breaking below 2.20% earlier in the week when it hit its lowest level since November last year. Yesterday’s bounce-back in yields supported the US dollar and helped to give equities a lift. This in turn saw investors move out of safe haven precious metals. Gold fell back below $1,280 as a price-insensitive seller dumped contracts worth around $3 billion into the futures market, although it recovered a proportion of its losses later in the day. Meanwhile, silver broke below support around $18.40 and struggled to regain its footing.

Forex Update

Dollar steadies

Yen slips

Yesterday the US dollar recovered a touch, posting gains against all the majors. The Japanese yen was one of the biggest losers on the day suggesting that investors were going back into “risk on” mode. Investors typically sell (borrow) the low yielding yen when risk appetite is high and use the proceeds to purchase riskier assets. Yet despite yesterday’s dollar rally the USDJPY remains well below the significant 110.00 support level which suggests that investors remain nervous.

Yesterday the dollar was supported by a recovery in bond yields when the 10-year US Treasury bounce back over 2.20%. The greenback fell sharply on Tuesday after the yield on the 10-year US Treasury fell below 2.20% to hit its lowest level since November last year. Bond yields move inversely to price, and investors have been buying bonds (and pushing down yields) on a combination of a “safe haven” trade and on a belief that Trump administration will struggle to push through its programme of fiscal stimulus through Congress.

The euro hit a three week high yesterday which was somewhat surprising given all the uncertainties ahead of the French Presidential Election. The first round of voting takes place on Sunday and according to current polling the four main candidates are within 4 percentage points of each other. With a margin of error of 6% and an estimated third of French voters undecided, this suggests the contest is wide open. The concern is that the two anti-establishment (and anti-Europe) candidates Le Pen and Melenchon both win enough votes to go through to the deciding vote in May.

Upcoming events

Today’s significant economic data releases and events include Euro zone Consumer Confidence. From the US we have the Philly Fed Manufacturing Index, Weekly Jobless Claims and CB Leading Index. Later in the day Bank of England Governor Mark Carney and US Treasury Secretary Steven Mnuchin will both deliver speeches at the Institute of International Finance Policy Summit in Washington DC.


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Posted by David Morrison

Category: AM Bulletin

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