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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

Fed expected to hike by 25 basis points

US crude oil inventories rise again

There’s a firmer tone across European equities this morning as investors respond to yesterday’s recovery on Wall Street. Last night the Dow and S&P500 both closed out at fresh record highs as investors shrugged off the recent slump in technology stocks. That’s not to say that the tech sector is out of danger and it could be that investors use this bounce to trim positions further. However, generally risk appetite remains elevated and there’s still no sign that investors have lost confidence in US equities overall.

The Fed is expected to raise rates by 25 basis points later this evening. However, there is some uncertainty regarding the FOMC’s accompanying statement, it’s economic projections and Janet Yellen’s press conference. The main questions concern the recent downturn in US inflation together with an ambiguous growth outlook. It could be that the Fed insists that these factors are transitory and maintains a hawkish outlook. This would mean signalling another rate hike together with balance sheet reduction this year. But if the Fed expresses any concerns over recent weak data, downplays the continued improvement in the headline employment numbers and suggests that it may pause in its rate hikes, this would represent a significant shift in outlook and put further downside pressure on the US dollar.

Last night the American Petroleum Institute (API) released its latest US inventory update. This showed large and unexpected builds in crude and gasoline stockpiles and this has kept a lid on prices so far this morning.  Last week’s jump in crude stockpiles led to a sharp sell-off which was exacerbated by confirmation of the build by the Energy Information Administration (EIA).

Stock Index Update

NASDAQ  recovers

Dow and S&P500 close at record highs

The US tech sector recovered in early trade yesterday and this helped to support the broader market. Last night the Dow and S&P500 both closed out at fresh record highs as investors shrugged off Friday’s slump in technology stocks. That’s not to say that the tech sector is out of danger and it could be that investors use this bounce to trim positions further. However, generally risk appetite remains elevated and there’s still no sign that investors have lost confidence in US equities.

The European majors ended higher yesterday with most stock indices posting gains of around 0.4- 0.5%. As in the US it was the technology-based sectors which led the move. The only exception was the UK’s FTSE100 which closed modestly lower thanks to a bounce in sterling. The FTSE100 has a heavy weighting towards multinational corporations. These are companies that make a significant proportion of their sales and profits overseas. These are boosted when sterling falls as products manufactured in the UK or priced in pounds are more attractive to foreign investors. Obviously, this also works in reverse as sterling strength makes UK products more expensive to overseas buyers. Consequently, there tends to be a broad-brushed knee-jerk reaction to significant moves in sterling which leads to traders react first and ask deeper questions later.

Commodities Update

US Crude stockpiles rise again

Precious metals slide again

Last night the American Petroleum Institute (API) released its latest US inventory update. This showed large and unexpected builds in crude and gasoline stockpiles and this has kept a lid on prices so far this morning. 

Crude rallied in early trade yesterday, but turned lower as the trading session progressed. Oil fell following the release of a report which showed that OPEC production rose in May. There was an increase of 336,000 barrels per day across the month with most of the gains coming from Libya and Nigeria - two countries exempt from the production cut agreement reached back in November. The news comes at a bad time for those oil producers desperate to push the price back up towards $60 per barrel. Last month OPEC and non-OPEC producers agreed to a nine month extension to their output reduction agreement. However, prices have fallen ever since as they were unable to agree to cut more than 1.8 million barrels per day.

Meanwhile, the US has become a significant exporter of crude oil since it lifted its 40-year ban on exports in 2015. This ban was a response to the oil shock of the early seventies when OPEC raised oil prices in response to the US backing Israel in the Yom Kippur war. US exports are expected to average 1 million barrels per day over 2017. This effectively offsets OPEC’s contribution to the 1.8 million barrel per day output cut agreed last November.

Gold drifted lower yesterday as investors continued to trim their exposure ahead of today’s rate decision from the US Federal Reserve. According to the fed funds futures market there’s close to 100% probability that the Fed will hike rates by 25 basis points later this evening. Typically precious metals struggle when there’s a pick-up in US interest rates, particularly in a low-inflation environment like the one we’re currently experiencing. However, this isn’t the only reason for gold’s retreat. The metal is currently in a downtrend which needs to run its course before it has a chance to rally. If it fails to find support around $1,260 then it could pull back to $1,240 or below. Silver had another dreadful day yesterday. It fell sharply for its fifth consecutive trading session and has now lost close to 6% in less than a week.  

Forex Update

UK inflation picks up again

BoE expected to keep rates unchanged tomorrow

Yesterday saw yet another session where sterling was the main mover in FX. But this time we saw a bounce in the British pound after three days of losses following the surprise result in the UK General Election. Sterling got a boost yesterday morning when the UK’s headline CPI (including food and energy) for May came in at +2.9% annualised - a four-year high. This was well above the consensus forecast of +2.7% which would have been unchanged from April. This pick-up in UK inflation is somewhat unwelcome, for consumers as well as the Bank of England (BoE). Inflation is now overshooting wage growth which means a decline in our overall standard of living. Meanwhile, CPI is now well above the Bank’s 2% inflation target. Yet the Bank won’t want to start tightening monetary policy to counter inflation when the UK faces such an uncertain economic outlook. Not only have recent data releases turned lower, but no one has any clear idea over the UK’s approach to Brexit. The BoE meets this Thursday and is expected to keep rates unchanged. This is not a major meeting as there will be no updated inflation report and Governor Carney will not be holding a press conference.

Upcoming events

Today’s significant events and economic data releases include UK Claimant Count Change, Unemployment Rate and average Earnings. From the Euro zone we have Industrial Production and Employment Change. From the US we have CPI, Retail Sales, Business Inventories and Crude Oil Inventories. Later this evening we have the US Federal Reserve rate decision and statement, FOMC Summary of Economic Projections and press conference.

Disclaimer:

Spread Co is an execution only service provider. The material on this page is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by Spread Co Ltd or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

 

Posted by David Morrison

Tagged: AM briefing

Category: AM Bulletin


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