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

·         Tech bounce-back supports global indices

·         Theresa May wins backing of Tory MPs

European equity markets were firmer in early trade with the push higher being led by a bounce-back in the NASDAQ. The tech-heavy US index has staged a recovery this morning after falling sharply again yesterday. The sell-off came as investors and traders rotated out of the fashionable stock market darlings that have led the rally since November and moved back into underperforming sectors such as energy and banking. There has been a growing feeling that stocks such as Facebook, Apple, Amazon, alphabet and Microsoft have risen too high too fast. At the end of last week investment bank Goldman Sachs added to the mood when it warned that recent upside momentum had left these stocks overvalued and vulnerable to a pull-back. That turned out to be a self-fulfilling prophecy. The question is whether investors will now be comfortable re-establishing positions in these market favourites.

Meanwhile, UK Prime Minister managed to win back the support of her MPs last night who seem prepared to back her to lead the party, for now. But how this leaves the UK as it approaches Brexit negotiations is still a big worry.

Stock Index Update

·         NASDAQ slips again

·         Banking and energy sectors back in favour

Yesterday investors were once more in “risk-off” mode. The tech-heavy NASDAQ index was sharply lower soon after the open and this helped to drag the wider market down with it. The major European indices were already weaker as they responded to the US sell-off at the end of last week. All closed sharply lower yesterday afternoon.

The nervousness follows on from the sharp moves seen at the end of last week. On Friday evening US tech stocks slumped in a move that saw the NASDAQ100 end the session 1.8% lower. The sell-off was led by just a few high profile corporations, primarily Facebook, Amazon, Apple, Alphabet (Google) and Microsoft. Friday saw profit-taking come in and drive these names lower. However, the fact that there was no corresponding sell-off across the wider market suggested that stock market investors aren’t ready to throw in the towel just yet. Rather, they were anxious to lighten up on those names that have seen the biggest gains over the past six months or so. At the same time, investors seem relaxed enough to increase their exposure to those stocks which have failed to join in the tech-led rally. The last couple of sessions have seen decent gains for the banking and energy sectors. 

Commodities Update

·         Crude builds on Friday’s gains

·         Gold and silver slump

Crude oil rallied yesterday, building on gains made on Friday. The move looked largely technical with buyers coming in to take advantage of recent weakness. Both WTI and Brent had lost around 13% over the past fortnight. The sell-off began on widespread disappointment that OPEC and non-OPEC producers were unable to agree to cut output by more than 1.8 million barrels per day. While they extended the timeline for cuts by an extra nine months, this was not considered enough to bring the oil market back into balance by the end of this year. Concerns about oversupply intensified last week following inventory updates from the American Petroleum Institute (API) and Energy Information Administration (EIA). Both showed bigger-than-expected builds in crude stockpiles with the EIA also reporting large increases in gasoline and distillate inventories as well. On top of this, US output continues to grow with some analysts predicting that production will hit 10 million barrels per day by year-end. US crude output has jumped more than 10 percent since mid-2016 and is currently estimated to be over 9.3 million barrels per day.

Gold and silver continue to struggle with both metals trading in negative territory for most of yesterday’s session. Less than a week ago gold hit its highest intra-day level since November last year, just before the US presidential election. Silver was also enjoying a good run having tacked on 11% in the four weeks to 6th June. But both metals have succumbed to a heavy bout of profit-taking since last Tuesday. This is due in part to a recovery in the US dollar which is itself recovering from its post-election lows, at least as far as the euro-heavy Dollar Index is concerned. But investors are also reducing their exposure to the two precious metals as they feel less need to hold safe haven plays and as they position themselves ahead of this week’s Federal Reserve rate meeting at which the FOMC is expected to raise rates by 25 basis points.

Forex Update

·         Sterling continues to decline

·         Investors worry about Brexit negotiations

Sterling continued to decline yesterday and fell back below $1.2700 against the US dollar. It also lost ground against the euro with the EURGBP pushing above 0.8800 to hit its highest level since November’s US presidential election. Investors remain concerned about last week’s general election in the UK where Theresa May lost her majority. The consensus opinion amongst political commentators is that the Prime Minister will be ousted before the year-end as she has lost the confidence and support of her party and will struggle to lead the UK through upcoming Brexit negotiations. However, sometimes it’s good to trade against the consensus. The Tories would be mad to agitate for a change in leadership now. Theresa May has only been in the job since last September and replacing her now would risk the opposition pushing for yet another General Election.

Aside from the pull-back in sterling and a modest “risk-off” bounce in the Japanese yen there was relatively little movement across the major currency pairs yesterday. The EURUSD continues to trade above 1.1200 and near multi-month highs. Nevertheless, the euro has been unable to recapture the losses which followed last week’s European Central Bank (ECB) meeting. The ECB statement had both dovish and hawkish elements which cancelled themselves out. On top of this the ECB revised its three-year growth outlook up a touch, which usually would have been euro-positive. However, the Governing Council also significantly downgraded its inflation forecasts leading to a pull-back in the single currency as the likelihood of tighter monetary policy this year receded.

Upcoming events

Today’s significant events and economic data releases include the UK’s CPI, RPI and HPI. We also have German and Euro zone ZEW Economic Sentiment surveys and US PPI.


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Posted by David Morrison

Category: AM Bulletin

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