Incisive market commentary from David Morrison

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Investors on edge after Wall Street sell-off
30 Jun 2017
Central bankers keep traders guessing - Video Update
29 Jun 2017
Markets mixed ahead of weekend - AM Briefing
23 Jun 2017
Investors concerned over oil sell-off - AM Briefing
22 Jun 2017
Crude oil hits seven-month low - Video Update
21 Jun 2017
Sell-off in crude weighs on equities - AM Briefing
21 Jun 2017
Crude falls back to November lows - PM Bulletin
20 Jun 2017
Fresh records for US indices - AM Briefing
20 Jun 2017
Equity rally resumes - AM Briefing
19 Jun 2017
Markets steady ahead of weekend - AM Briefing
16 Jun 2017
FOMC surprises with “hawkish rate hike” - Video Update
15 Jun 2017
Fed unveils “hawkish rate hike” - AM Briefing
15 Jun 2017
FOMC rate decision in focus - Video Update
14 Jun 2017
Investors expect another Fed rate hike - AM Briefing
14 Jun 2017
FOMC look-ahead - PM Bulletin
13 Jun 2017
NASDAQ futures recover in early trade - AM Briefing
13 Jun 2017
Equities slide after US tech sell-off - AM Briefing
12 Jun 2017
May-hem! Tories chuck away majority - AM Briefing
09 Jun 2017
Brief notes on gold - PM Bulletin
08 Jun 2017
Markets calm as investors take “Risky Thursday” in their stride
08 Jun 2017
Markets becalmed ahead of “Risky Thursday” - AM Briefing
07 Jun 2017
Sterling, events on Thursday and the UK election
06 Jun 2017
Safe havens in demand - AM Briefing
06 Jun 2017
Trading Guides - How CFD trading works
05 Jun 2017
Sterling steady after terror attack - AM Briefing
05 Jun 2017
Non-Farm Payrolls in focus - AM briefing
02 Jun 2017
Non-Farm Payroll look-ahead - Video Update
01 Jun 2017
Crude bounces after US inventory data - AM Briefing
01 Jun 2017
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Early moves

Fresh records for Dow and S&P

Positive sentiment remains elevated

European stock indices were modestly higher on the open this morning, helped along by fresh record closes for the Dow and S&P500 last night.

Yesterday’s stock market rally came despite further monetary tightening from the Federal Reserve last week. The US central bank raised rates by 25 basis points as expected. However, it also anticipates another rate rise before the end of this year together with commencing the process of balance sheet reduction.

Yet investors seem happy enough to taking on additional stock market exposure. Partly this is because there’s still plenty of monetary stimulus coming from the European Central Bank and Bank of Japan. In addition, the Fed’s actions suggest that the central bank has confidence in the US economic outlook.

But some commentators have expressed concern that the Fed is tightening monetary policy despite evidence that the economy is slowing. On top of this they point out that the stock market’s rally over the last eight years has been driven by central bank largesse. That suggests that equities should lose some upside momentum as it starts to be withdrawn.

Yet the Fed is planning to reduce its balance sheet at a glacial pace of just $10 billion per month to start with. This will rise to $50 billion per month later on. But even at the highest level, it would take 20 months to reduce the Fed’s balance sheet by $1 trillion dollars. Consequently, we’re looking at a process that, as currently designed, could take the Fed four years to reduce its balance sheet down below $2.5 trillion (bear in mind, it stood at $800 billion before the financial crisis). And that’s assuming no pauses for rate cuts or data disappointments.

Stock Index Update

Fresh record closes for US and Germany

Amazon breaks above $1,000

Global equities flew higher yesterday.  The rally was broad-based and as far as US indices were concerned led to the Dow and S&P500 hitting fresh all-time record highs. Meanwhile the NASDAQ continues to make back losses from earlier in the month. In Europe, the German DAX also posted a fresh record high helped along by Deutsche Bank which closed 2.5% higher. 

Amazon hit a fresh all-time high above $1,000 per share, although it pulled back from its best levels later in the session. The move followed Friday’s news that the online retail giant had made a $13.7 billion cash bid for Whole Foods. Typically, the company doing the buying sees its share price decline while the bid target sees its stock price rise. On Friday Whole Foods did indeed soar, closing the session up more than 29%. However, Amazon has also made gains.

Commodities Update

Crude gives back early gains

Gold and silver continue to slide

Crude oil was steadier for the first half of yesterday’s trading session. This came as some relief to investors who have now seen oil prices decline for four successive weeks now. However, it sold off soon after the European close. Both WTI and Brent are down around 13% since the OPEC meeting in Vienna at the end of May. This was when OPEC and a number of non-OPEC producers agreed to extend their 1.8 million barrels per day (bpd) output cuts by nine months. But it turned out that oil traders were hoping for considerably more, either in terms of a longer extension or with a commitment to make the cuts deeper. Crude oil is once again approaching the lows seen back in early November, before OPEC and non-OPEC producers agreed to cut output between January and June this year. Meanwhile, oil services company Baker Hughes reported yet another increase in the US rig count. This ties in to increased US production which is forecast to be over 9.3 million bpd this year rising to 10 million bpd next year.

Precious metals fell sharply again yesterday. The sell-off saw gold dip back below $1,250 for the first time in a month. The question now is whether gold can find some support around this area or if it is destined to fall further. Meanwhile silver was closing in on $16.50 - a level that roughly marks the 76.4% Fibonacci Retracement of the May-June rally. Neither metal got much help from the US dollar as it continued to recover from a sharp sell-off in the middle of last week. This followed the release of disappointing US inflation and Retail Sales data. The news saw the Dollar Index hit its lowest level since the US presidential election in November. However, the Fed’s rate hike and hawkish outlook saw the dollar bounce back and this in turn kept the downside pressure on gold and silver.

Forex Update

Dollar finds support

FOMC’s Dudley maintains hawkish tone

The dollar edged higher yesterday in a move which saw the Dollar Index push briefly back above 97.00 and the EURUSD fall below 1.1200. The greenback got some support from comments made by New York Fed President William Dudley. Mr Dudley is one of the most important and influential members of the US Federal Reserve, along with Fed Chair Janet Yellen and her Vice-Chair Stanley Fischer (who speaks later this afternoon). Yesterday Mr Dudley said that he expected wage growth would soon pick up and that this would help to lift inflation back towards the Fed’s preferred 2% target. Last week’s CPI reading was a disappointment as it came in below expectations and continues a downward trend in the data which began in February. Yet despite this, last week the Fed raised rates by 25 basis points for the second time this year and provided some details over how it plans to start reducing its balance sheet later this year.

Upcoming events

Today’s significant events and economic data releases include German PPI, Euro zone Current Account, Canadian Wholesale Sales and US Current Account. We also have speeches from Swiss National Bank Chairman Thomas Jordan, Bank of England Governor Mark Carney and Federal Reserve Vice-Chair Stanley Fischer.


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Posted by David Morrison

Category: AM Bulletin

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