Incisive market commentary from David Morrison

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Collapse 2017 <span class='blogcount'>(348)</span>2017 (348)
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Tory Poll Lead Narrows Sharply - Video Update
31 May 2017
S&P 500 and NASDAQ break winning streak
31 May 2017
Sterling swings on polls - PM Bulletin
30 May 2017
Equities drift after long holiday weekend - AM Briefing
30 May 2017
Crude oil slumps on OPEC disappointment - AM Briefing
26 May 2017
OPEC disappoints while FOMC minutes provide cheer - Video Update
25 May 2017
OPEC expected to agree 9-month extension - AM Briefing
25 May 2017
Look-ahead to OPEC - Video Update
24 May 2017
Markets quiet ahead of FOMC minutes and OPEC - AM Briefing
24 May 2017
Crude oil update - OPEC meeting in focus - PM Bulletin
23 May 2017
Markets shrug off atrocity in Manchester - AM Briefing
23 May 2017
Equities mixed, but supported by oil
22 May 2017
Nerves steady after firmer close on Wall Street - AM Briefing
19 May 2017
Political fall-out continues to weigh on markets - Video Update
18 May 2017
Slide in European indices accelerates - AM Bulletin
18 May 2017
Trump’s woes hit markets - Video Update
17 May 2017
Trump’s woes lead to market wobble - AM Briefing
17 May 2017
EURUSD hits six-month high - PM Bulletin
16 May 2017
Crude oil extends rally - AM Briefing
16 May 2017
US inflation data and retail sales in focus - AM Briefing
12 May 2017
Crude oil recovers after “flash crash”- Video Update
11 May 2017
Crude oil soars while equities drift - AM Briefing
11 May 2017
Are investors too complacent? - Video Update
10 May 2017
Investors rattled after Trump fires FBI head - AM bulletin
10 May 2017
Crude oil’s “flash crash” leads to OPEC desperation - PM Bulletin
09 May 2017
Equities rally as oil steadies - AM Briefing
09 May 2017
Forex: Top Ten Tips for beginners - Trading Guides
08 May 2017
Markets little moved after Macron win - AM Briefing
08 May 2017
Payrolls in focus - AM Briefing
05 May 2017
NFP look-ahead - Video Update
04 May 2017
FOMC hints at rate hike in June - AM Briefing
04 May 2017
FOMC look-ahead - Video Update
03 May 2017
Apple disappoints on sales numbers - AM Briefing
03 May 2017
CFD Trading Tips - Trading Guides
02 May 2017
European traders return after May Day - AM Briefing
02 May 2017
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Early moves

Mixed start for European indices

Crude oil continues to make gains

It’s been a bit of a mixed start so far this morning with some choppiness across European stock indices. Overnight, ratings agency Moody’s downgraded China to A1 from Aa3 and changed its outlook to “stable” from “negative.” There was little reaction across Asian Pacific stock indices - most ended the session modestly higher apart from the Hang Seng which was a touch weaker on the close.

There’s also been very little movement in FX this morning. It feels as if traders are marking time ahead of a speech from European Central Bank President Mario Draghi early this afternoon. Later this evening we have the release of minutes from the US Federal Reserve’s FOMC meeting held earlier this month.

Crude oil continues to push higher ahead of tomorrow’s key OPEC meeting. The current view is that OPEC and a number of significant non-OPEC producers will agree to extend their output cut agreement beyond June to March next year. Later this afternoon we have the latest US inventory update from the Energy Information Administration.

Stock Index Update

European data lifts indices

Pressure on ECB to tighten

European indices ended higher yesterday while the UK’s FTSE100 was effectively unchanged. This was despite the news agenda being dominated by the appalling act of violence carried out in Manchester late on Monday. It has become a familiar pattern that markets barely register bombings and other terrorist outrages just as long as they turn out to be isolated incidents. Instead, investors reacted to a clutch of economic data releases from across the Euro zone. These included better-than-expected Manufacturing PMIs from Germany and the Euro zone, and a strong Services PMI from France. In addition, the German Ifo Business Climate survey came in at 114.6 - its strongest level on record, and well above the 113.1 reading expected. Overall, the data puts more pressure on the European Central Bank (ECB) to start tightening monetary policy. But while Germany is anxious to see the central bank start to wind down its bond purchase programme and start raising rates, ECB President Mario Draghi isn’t keen to act yet.

Commodities Update

Oil steadies ahead of OPEC meeting

Precious metals dip

Crude was a touch weaker first thing yesterday although it recovered somewhat later in the session. The pull-back followed news of President Trump’s proposal to sell -off half of the US’s strategic petroleum reserve. If it passes through Congress, the reduction would take place between 2018 and 2027 to raise around $16.5 billion. The move comes ahead of this week’s key OPEC meeting.  OPEC, together with a number of significant non-OPEC producers, is expected to announce an extension to timetabled output cuts. Recent statements by officials from Saudi Arabia and Russia have suggested that next month’s expiry of the 1.8 million barrels per day production cut agreed at the last OPEC meeting could be extended by nine months to the end of March 2018. That would mean all affected parties agreeing to cuts lasting 15 months, rather than the original six. Yet US shale producers continue to boost production which means that the OPEC/non-OPEC countries involved in the output cut agreement will struggle to push oil prices much higher from current levels.

Gold struggled to make much headway yesterday although it managed to spend most of the European session above $1,260. Silver fared somewhat better and managed to add to gains made over the last fortnight. It managed to hold above $17 throughout the session - a level it broke above yesterday for the first time since the beginning of this month. However, overall there was little to drive prices one way or another. The dollar was mixed and investors appeared to be reducing their short positions in the greenback.

But both metals sold off soon after the European close. There was a modest recovery in last night’s US session but the pull-back continued through this morning’s Asian Pacific session. There was no obvious reason for the price reversal which has seen gold dip below $1,250 and silver break back under $17.

Forex Update

Euro zone data surprises to upside

Dollar creeps higher

There was relatively little movement in FX yesterday. The euro was a touch firmer in early trade following the release of Manufacturing and Services PMIs from across the Euro zone. Data from Germany and France was mixed, but overall it was strong enough to suggest the ECB will have to tighten monetary policy soon as Europe's recovery remains on track. This was reinforced after the German Ifo business confidence came in at the highest level on record.

Later on, the dollar made modest gains against the euro and sterling but slipped against the yen, Swiss franc and Canadian dollar. Overall, the Dollar Index managed to inch higher, finding some buying interest following a steady sell-off since 11th May. On Monday the Dollar Index traded down to its lowest point so far this year. It’s worth bearing in mind that the dollar hit a fourteen-year high against the euro at the beginning of this year. The greenback shot higher following Trump’s election victory in early November. Trump’s pro-business attitude and campaign promises were viewed as inflationary and so likely to lead to the Fed raising rates more aggressively than previously forecast. But since then, doubts have been raised over Trump’s ability to push tax cuts, infrastructure spending and regulatory reform through Congress.

Upcoming events

Today’s significant events and economic data releases include the GfK German Consumer Climate survey and a rate decision from the Bank of Canada. From the US we have Existing Home Sales, Crude Oil Inventories and minutes from the FOMC meeting from earlier this month. Federal Reserve Bank of Dallas President and FOMC-voting member Robert Kaplan will speak later tonight.


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Posted by David Morrison

Category: AM Bulletin

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