Incisive market commentary from David Morrison

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

European equities slip

Precious metals rally

European indices got off to a mixed start this morning with a few pushing into positive territory. However, all the majors are now in the red as crude oil still struggles to find a foothold as it hits nine-month lows. There’s some evidence that investors this side of the Atlantic are getting nervous as we’re seeing a pick-up in precious metals. The Japanese yen is also firmer this morning which is another indicator of reduced investor risk appetite. Otherwise there’s little movement in FX.

Last night the Dow and S&P500 posted modest losses. Both indices were weighed down by the sell-off in crude which saw the energy sector lose 1.6% on the day. But the NASDAQ posted healthy gains as investors rotated back into biotechnology stocks. This suggests that there’s still an appetite for equities despite Fed tightening amid concern over the economic outlook.

Bank of England MPC member Kristin Forbes speaks this evening at the London Business School. This could be of interest given that she has voted for an immediate rise in the Bank Rate in the last three meetings. Last week she was unexpectedly joined by Ian McCafferty and Michael Saunders who also voted for an immediate 25 basis point rate hike. Yet on Tuesday BoE Governor Mark Carney made it clear that he feels the conditions aren’t right for tighter monetary policy in the UK, citing mixed signals on consumer spending and business investment along with anaemic wage growth which are all contributing to subdued domestic inflationary pressures.

Stock Index Update

Oil slump weighs on global indices

Crude now at 10-month lows

Last night US stock indices had a lacklustre session with both the Dow and the S&P500 posting modest losses. Both indices were weighed down by the sell-off in crude which saw the energy sector lose 1.6% on the day. However, the NASDAQ managed to post a healthy gain as investors rotated back into biotechnology stocks. This constant rejigging that we’ve seen over the last few weeks suggests that investors are not yet ready to cut their overall exposure to equities, despite Fed tightening even though there’s growing concern over the economic outlook.

Yesterday brought a mixed session for European stock indices. Most of the majors posted modest losses although the Italian MIB managed to buck the trend closing over 1% higher.

Once again, investors kept a wary eye on the oil price which continued to hover around 7-month lows before a late plunge saw it back to levels last seen in August. Traders continue to question the determination of the world’s oil producers to prop up prices. Last month’s OPEC meeting was considered a failure as OPEC and a number of non-OPEC producers were unable to agree to an increase in their 1.8 million barrel per day output cut. Oil prices have fallen ever since. There was a small bounce yesterday morning after Iran hinted that deeper cuts could be forthcoming. But the rally was short-lived, suggesting that traders need to see actions not words.

Investors are also considering the ramifications of Saudi Arabia’s King Salman to replace his nephew Mohammed bin Nayef as Crown Prince with his son Mohammed bin Salman. The latter is known for his good relationship with the US and has previously named arch-rival Iran as a threat. Any further fall-out between these two major OPEC members could put the current output cut deal in jeopardy.

Commodities Update

Oil falls despite inventory drawdown

Gold sell-off slows

Yesterday afternoon, oil prices rallied modestly following the latest US inventory update from the Energy Information Administration (EIA). This showed a 2.5 million barrel drawdown in crude stocks for the week ending 16th June which was above the 1.2 million barrel reduction anticipated.

But prices the slumped again as crude continued the decline which began straight after the last OPEC meeting at the end of May. Back then OPEC and a number of non-OPEC producers extended their output cut agreement by 9 months, but were unable to agree on deeper cuts to overall production. The consensus view is that the agreement isn’t enough to rebalance the market as inventories remain near record highs, production is rising in the US, Libya and Nigeria even as global demand growth shows signs of slowing.

Yesterday morning both WTI and Brent rallied modestly after Iran suggested that OPEC and non-OPEC producers may increase the agreed output cut by more than 1.8 million barrels. But this would require an emergency meeting. And it seems unlikely that all parties would suddenly approve such a move having discounted it less than a month ago. So traders aren’t yet ready to cover shorts although it’s worth remembering that oil can be incredibly volatile. This means it wouldn’t take much in the way of oil-positive news for buyers to drive prices higher. Nevertheless, technically crude could have further to fall. In fact, if front-month WTI takes out its November low of $42.80, a move back to $40 can’t be ruled out.

Gold and silver continue to struggle although there is some evidence of a slowdown in the recent downside momentum. As we have seen on a number of occasions, yesterday the two metals were modestly higher in Asian Pacific trade and the early part of the European session. However, both pulled back from their best levels as the US open approached. There is still little investor interest in precious metals as risk appetite remains elevated. However, there are some signs that this dynamic could change quickly, particularly if crude oil continues its downside move. The sell-off in crude has seen US stock indices retreat from their best levels. If oil were to fall further then we may see investors once again diversify into safe havens such as gold and silver.

Forex Update

Sterling volatile on rate talk

Cable breaks below 1.2600 before rallying sharply

Yesterday the British pound was back in the spotlight. Sterling was weaker in early trade and this saw the GBPUSD break below 1.2600 to hit its lowest level since 18th April. This was just before UK Prime Minister Theresa May surprised everyone by calling a snap election. At that time all the polls suggested an unassailable lead for the Tories and predicted that Labour was on course for its worst defeat since the 1930s. Sterling surged higher following her announcement. As we now know, the outcome was very different. But now sterling is reacting to the ever-changing outlook for UK interest rates. Last week it flew higher after the Bank of England’s Monetary Policy Committee (MPC) meeting where three out of eight members voted to increase the headline Bank Rate. Then it plunged this Tuesday after Bank of England Governor Mark Carney said that now was not the right time to raise interest rates in the UK. Yesterday it bounced back off seven month lows after Andy Haldane, the Bank’s Chief Economist, said The Bank of England should withdraw its post-Brexit vote monetary stimulus before the end of this year. Mr Haldane also said that he had considered voting for higher rates at last week’s meeting, but judged the risks from a slowing economy amid slow wage growth were too great. He was also concerned by the “dust-cloud of uncertainty” thrown up by the unexpected General Election result.

Upcoming events

Today’s significant events and economic data releases include the European Central Bank’s Economic Bulletin, UK CBI Industrial Order Expectations and Canadian Retail Sales. From the US we have Weekly Jobless Claims and Leading Index. There are also speeches from Federal Reserve Governor Jerome Powell and the Bank of England MPC member Kristin Forbes.


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Posted by David Morrison

Category: AM Bulletin

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