Incisive market commentary from David Morrison

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Using the RSI in FX - Trading Guide
31 Jul 2017
HSBC share buy-back helps lift indices - AM Briefing
31 Jul 2017
Amazon triggers tech tumble - AM Briefing
28 Jul 2017
Fed reinforces dovish credentials - Video Update
27 Jul 2017
Facebook results boost NASDAQ - AM Briefing
27 Jul 2017
Crude breaks above resistance - PM Bulletin
26 Jul 2017
Equities rally on positive earnings - AM Briefing
26 Jul 2017
Look-ahead to tomorrow’s rate decision from the Fed
25 Jul 2017
Alphabet/Google falls 3% in after-hours trade
25 Jul 2017
Equities start the week on back-foot - AM Briefing
24 Jul 2017
Euro surges on “hawkish” comments from Draghi - AM Briefing
21 Jul 2017
Equities firmer ahead of ECB meeting - AM Briefing
20 Jul 2017
Europe firmer after late US rally - AM Briefing
19 Jul 2017
US Fed turns dovish - PM Bulletin
18 Jul 2017
Dollar slumps on US healthcare gridlock - AM Briefing
18 Jul 2017
Wall Street leads equity rally - AM Briefing
17 Jul 2017
US bank earnings in focus - AM Briefing
14 Jul 2017
Yellen flip-flops to reassure investors - AM Briefing
13 Jul 2017
Oil rallies, but volatility high - Video Update
12 Jul 2017
Yellen to testify in Washington - AM Briefing
12 Jul 2017
A look-ahead to Janet Yellen’s testimony - PM Bulletin
11 Jul 2017
Second quarter earnings in focus - AM Briefing
11 Jul 2017
Jobs data boost sentiment ahead of earnings - AM Briefing
10 Jul 2017
Investors nervous; Non-Farm Payrolls in focus - AM Briefing
07 Jul 2017
Non-Farm Payroll look-ahead - Video Update
06 Jul 2017
Investors shrug off FOMC minutes - AM Briefing
06 Jul 2017
Investors shrug off FOMC minutes - AM Briefing
06 Jul 2017
Look-ahead to FOMC minutes - Video Update
05 Jul 2017
Markets quiet and waiting for fresh guidance from US - AM Briefing
05 Jul 2017
Crude continues to push higher - PM Bulletin
04 Jul 2017
Dow closes at fresh record high - AM Briefing
04 Jul 2017
Positive start to second half of 2017 - AM Briefing
03 Jul 2017
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Early moves

Lacklustre start to European trade

Fed’s FOMC fails to clarify timing of balance sheet reduction

Once again, we’ve seen a lacklustre and directionless start to European trade this morning. The major stock indices are mixed although there’s a slight upside bias. However US stock index futures are a touch weaker. Crude prices have bounced back thanks to last night’s US inventory update from the American Petroleum Institute. This showed extremely large drawdowns in crude and gasoline stockpiles. Traders are now looking for confirmation of the data from the US Energy Information Administration later this afternoon.

Meanwhile, there’s been very little movement across the major FX pairs so far this morning. Last night the dollar swung about wildly following the release of the FOMC minutes from last month’s meeting. However, it subsequently gave back early gains. The minutes did little to clarify the FOMC’s thinking over when to start balance sheet reduction, although all seemed to agree to continued gradual interest rate rises. But it was notable that some members worried about subdued market volatility increasing the risks to stability. Also, there was this mention that, in the assessment of a few participants: “equity prices were high when judged against standard valuation measures."

Stock Index Update

Fed divided on timing of balance sheet reduction

Some members worried about equity valuations

US stock indices ended mixed yesterday with the Dow posting a small loss and the S&P500 and NASDAQ both ending the session with modest gains. The S&P and NASDAQ both hit their best levels straight after the release of minutes from the Fed’s last meeting, but both pulled back soon after. The minutes did little to clarify the FOMC’s thinking over when to start balance sheet reduction, although all seemed to agree to continued gradual interest rate rises. But it was notable that some members worried about subdued market volatility increasing the risks to stability. Also, there was this mention that, in the assessment of a few participants: “equity prices were high when judged against standard valuation measures."

European equities had a mixed open yesterday. Investors seemed reluctant to adjust their exposure or weightings as they lacked guidance from the US which was closed on Tuesday for the 4th July holiday. Ahead of the US open, futures on the NASDAQ100 fell sharply, breaking below support around 5,580. However, prices quickly recovered as traders piled back into tech stocks while trimming their exposure to the banking and energy sectors. But it ended up being something of a rollercoaster session for both the US and Europe. There was a lack of clear overall direction which no doubt had much to do with caution ahead of the release of the minutes from last month’s FOMC meeting. This resulted in a mixed close across Europe which saw most of the major indices give back modest gains to post minor losses, with a sharp sell-off in crude contributing to overall negative sentiment.

Commodities Update

Crude oil slumps on OPEC export numbers

Gold and silver still under pressure

Crude oil fell sharply first thing yesterday and continued to slide as the trading session progressed. The sell-off was triggered by the release of a report from OPEC which showed that crude exports from the cartel rose in June for the second successive month. This comes despite the OPEC/non-OPEC agreement to cut output by 1.8 million barrels per day. OPEC members are responsible for ensuring cuts of around 1.2 million barrels.

Last night the American Petroleum Institute (API) released its latest US inventory update. This showed very large drawdowns in both crude and gasoline stockpiles and oil rallied sharply on the news. We’ll get another update later this afternoon from the Energy Information Administration (EIA). Last week both the API and EIA showed significant crude inventory builds. This flew in the face of the consensus forecasts which pointed to large drawdowns in crude stockpiles. Despite this, crude continued to rally sharply as the data also recorded large drawdowns in gasoline and distillate inventories. Yesterday’s sell-off saw WTI fall back below the key $47 level. This marks the 50% retracement of the pull-back between May and June this year.

Gold and silver struggled to find buyers throughout the first half of yesterday’s session. In fact, there were a couple of times when both metals lurched lower and looked as if they were set for a downside breakout. Silver took out its lows from two months ago and slumped below $16. This means its next downside target is $15.60 - last December’s low. Gold broke below $1,220 but managed to retake this level a few hours after the US open. The recovery came as US equities reversed direction and gave back early gains. Investors were also mindful of the deterioration in the geopolitical outlook. North Korea successfully tested an intercontinental ballistic missile while the ongoing dispute between Qatar and a coalition of Arab countries led by Saudi Arabia continues to fester.

Forex Update

ECB plays down talk of monetary tightening

More hawkish rhetoric from Bank of England

The US dollar was firmer in early trade yesterday. Much of this was due to euro weakness after European Central Bank (ECB) Executive Board Member Benoit Coeure said that the ECB hadn’t yet discussed policy changes. His comments were designed to dampen down speculation over imminent ECB monetary tightening following Mario Draghi’s speech in Portugal, which was viewed as hawkish. The USDJPY pushed above 113.50 at one stage and hit its highest level since mid-May.  Earlier, the pair fell below 113.00 as investors bought the safe haven yen on the back of the bellicose comments from North Korea which followed their successful intercontinental ballistic missile test on Tuesday.

Meanwhile sterling was steadier following a sharp sell-off at the beginning of the week. Cable continues to run into resistance just above the 1.3000 level. However, the pound’s losses have been limited to some extent by continued hawkish rhetoric from members of the Bank of England’s Monetary Policy Committee (MPC). Last week the Bank’s Governor Mark Carney executed one of his famous reverse-ferrets when he said that the time was right to discuss tightening monetary policy. Just one week earlier he had dismissed the idea of raising rates due to an uncertain economic outlook. Yesterday MPC member Michael Saunders told The Guardian that UK households should prepare for tighter policy “at some point.”

Upcoming events

Today’s significant events and economic data releases include the European Central Bank’s Monetary Policy Meeting accounts and the Canadian Trade Balance. From the US we have Weekly Jobless Claims, Trade Balance, ISM Non-Manufacturing PMI and Crude Oil Inventories.


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Posted by David Morrison

Category: AM Bulletin

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