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21 Jul 2016
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21 Jul 2016
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20 Jul 2016
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19 Jul 2016
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18 Jul 2016
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18 Jul 2016
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15 Jul 2016
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15 Jul 2016
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14 Jul 2016
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14 Jul 2016
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13 Jul 2016
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13 Jul 2016
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12 Jul 2016
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12 Jul 2016
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11 Jul 2016
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11 Jul 2016
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08 Jul 2016
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07 Jul 2016
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AM Bulletin: Concerns continue as Sterling touches $1.27
06 Jul 2016
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05 Jul 2016
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04 Jul 2016
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Thar she blows!

Just a few weeks ago equity markets slumped following the shock Brexit news. Investors had completely miscalculated the odds on the UK voting to leave the EU. In the days that followed global stock indices slumped. European equities were hit hardest but the sell-off also led to the S&P500 breaking below 2,000 – something it hadn’t done since the beginning of this year in the aftermath of the China-inspired meltdown. But the break of 2,000 was short-lived and earlier today the S&P took out its all-time intra-day high of 2,136 made back on 19th May 2015.

The recovery began as investors decided that Brexit wasn’t the end of the world. This is despite all the uncertainty that surrounds the UK’s withdrawal from the European Union and concerns that it could mark the beginning of the end for the grand project of a united Europe. Yet all this simply makes US stocks more attractive for investors. Money has to go somewhere and exports count for a much smaller proportion of US corporate revenues and earnings than across much of Europe and Asian Pacific countries. On top of this, the feeling is that central banks now have the perfect excuse/cover to unleash further monetary stimulus.

Friday’s knock-out Non-Farm Payrolls was the catalyst for this last push higher. The June number came in at 287,000 - far better than the 107,000 expected and helping to offset May’s dismal release. However, it’s still debatable whether the Non-Farm Payrolls are really that compelling. The three-month moving average for 2016 comes in at 147,000 – well below last year’s 229,000. However, as far as investors are concerned we now have the near-perfect situation where US data points to economic improvement yet there’s very little chance that the Federal Reserve will want to raise rates in the near future given “global uncertainties.” It certainly doesn’t look likely this month, and September should be off the cards coming just ahead of November’s US Presidential Election. December looks like the earliest data for a hike although the Fed Funds futures market suggests nothing until the end of 2018.

 Over the weekend Japan’s Prime Minister Shinzo Abe’s coalition party had a landslide victory in upper house elections. This has been taken as validation for “Abenomics” – the monetary, fiscal and reform package championed by Shinzo Abe. Mr Abe was quick to hint that a 10 trillion yen ($100 billion) stimulus package is on its way.

Tonight Alcoa unofficially kicks off the second quarter earnings season. It will take a few weeks before we get a proper feel of how US corporations are faring but we could be in for yet another disappointing quarter. This may prove to be the catalyst for a downside correction. However investors may once again shrug off bad news and continue to push money into US equities.

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

Category: PM Bulletin

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