Incisive market commentary from David Morrison

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Expand 2017 <span class='blogcount'>(348)</span>2017 (348)
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Expand December <span class='blogcount'>(23)</span>December (23)
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OPEC agrees to production cut - Video Update
30 Nov 2016
OPEC meeting in focus - AM Briefing
30 Nov 2016
A look-ahead to tomorrow’s OPEC meeting - PM Bulletin
29 Nov 2016
Mixed start for equities; crude lower - AM Briefing
29 Nov 2016
An introduction to technical analysis - Trading Guide
28 Nov 2016
Softer tone across risk assets - AM Briefing
28 Nov 2016
Crude, dollar and equities slip in holiday-shortened session
25 Nov 2016
ECB warns of uncertain outlook - Video Update
24 Nov 2016
Slow start as US closed for Thanksgiving - AM Briefing
24 Nov 2016
Gold slumps below key support
23 Nov 2016
Probability of Dec Fed hike hits 100% - AM Briefing
23 Nov 2016
Sterling slips ahead of Autumn Statement - PM Bulletin
22 Nov 2016
US stock indices hit fresh record highs - AM Bulletin
22 Nov 2016
How to read candlestick charts - Trading Guides
21 Nov 2016
US dollar pulls back from highs - AM Bulletin
21 Nov 2016
Dollar continues to surge - AM Bulletin
18 Nov 2016
Crude rebounds despite inventory rise - PM Bulletin
17 Nov 2016
Equity rally slows - AM Bulletin
17 Nov 2016
US dollar continues to rally - Video Update
16 Nov 2016
Dollar holds recent gains - AM Bulletin
16 Nov 2016
Dollar Index tests resistance - PM Bulletin
15 Nov 2016
Dollar soars as bonds slide - AM Bulletin
15 Nov 2016
What is Swing Trading?
14 Nov 2016
Markets adjust to Trump presidency - Weekly Bulletin
14 Nov 2016
Trump win sees investors rethink their portfolios - AM Bulletin
11 Nov 2016
Equities up, but bonds are down - PM Bulletin
10 Nov 2016
Market responds to Trump win - AM Bulletin
10 Nov 2016
US Election fall-out - Video Update
09 Nov 2016
Markets react to Trump win - AM Bulletin
09 Nov 2016
US Election – possible outcomes and market reaction - Video Update
08 Nov 2016
US election result is all that matters now - AM Bulletin
08 Nov 2016
What is day trading? - Trading Guides
07 Nov 2016
Election uncertainty spooks investors - Weekly Bulletin
07 Nov 2016
Market info update: US Election Market Changes
04 Nov 2016
US Non-Farm Payrolls in focus - AM Bulletin
04 Nov 2016
Non-Farm Payroll look-ahead - PM Bulletin
03 Nov 2016
Equities mixed ahead of BoE Inflation Report - AM Bulletin
03 Nov 2016
Central bank meetings and election polls - Video Update
02 Nov 2016
FOMC rate decision ahead - AM Bulletin
02 Nov 2016
Bounce-back in precious metals - PM Bulletin
01 Nov 2016
RBA and BOJ leave rates unchanged - AM Bulletin
01 Nov 2016
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Indices Update

Overnight the Reserve Bank of Australia (RBA) and Bank of Japan (BOJ) both kept monetary policy unchanged as expected. The RBA kept its key Cash Rate at 1.5% while the BOJ kept its short-term policy rate at -0.1% with a target of 0% for the 10-year yield. The BOJ will take considerable comfort from knowing that the yen has weakened significantly since the 20th September meeting. The USDJPY is up around 5% since the last meeting having one again bounced off the 100 level.

We also saw the release of Manufacturing and Non-Manufacturing PMIs from China. Both the headline and Caixin Manufacturing PMI and headline Non-Manufacturing PMI were up from the previous month and better-than-expected. The news has helped to keep a bid under European equities in early trade.

There is just one week to go before US voters go to the polls to elect their 45th President. On Friday evening equity markets suddenly plunged after FBI Director James Comey announced the re-opening of a probe into emails related to Hillary Clinton’s private server. The dollar also sold off while bonds rallied. The market reaction perhaps gave the clearest indication of how investors would react in the event that Trump won the presidency.

There can be little doubt that a Clinton win would be least disrupting for financial markets as this would essentially be a continuation of the status quo. Another market fear (which looked possible up until last week) was of a Clinton win together with the Democrats winning majorities in both the Senate and House of Representatives. Investors worry that this would see some of the wilder Democratic policies (including, for instance, sharp tax hikes, a financial transaction tax and increased welfare spending) pass through the Senate and House of Representatives. A clean-sweep looks increasingly unlikely now.

On Friday we got the first look at US third quarter GDP. This came in at +2.9% which was comfortably above the +2.5% expected. The news was taken positively by the markets at first. However, analysts noted that 0.9% of this number came directly from a surge in soybean exports - mostly to China - something that is unlikely to be repeated in coming quarters. It’s also important to consider that the +2.9% number is calculated on a sequential basis. This means that the number is the percentage change between the second and third quarters. Year-on-year GDP growth for the third quarter was just +1.5%. Year-on-year GDP growth is down from 3.3% in March 2015 to 1.5% today - somewhat disappointing, and something which the Fed will take into account when considering monetary policy.

The FTSE 100 index closed down 42 points, or 0.6%, at 6,954.2

The German DAX fell 31.2 points or 0.3% to end the day at 10,665

The US30 closed down 18.8 points to finish at 18,142.4. The S&P 500 ended 0.01% lower at 2,126.2 while the Nasdaq 100 ended down 0.1% at 4,801.3



Yesterday it was news of a big corporate merger which overshadowed the third quarter earnings season. General Electric (GE) announced that it was merging its oil and gas business with Baker Hughes (BHI) to create a conglomerate that could compete with giants such as Schlumberger (SLB), the market leader in oilfield services. The plan is that GE will own 62.5% of the new entity. Baker Hughes shareholders will own 37.5% and get a special one-time cash dividend of $17.50 per share after the deal closes, probably in mid-2017. The deal is expected to add 4 cents to GE's earnings per share by 2018 and 8 cents by 2020. Earlier this year regulators blocked the planned merger between Baker Hughes and Halliburton. GE ended the day 0.4% lower at $29.10 while Baker Hughes closed 6.3% lower at $55.40.

Commodities Update

Crude fell sharply yesterday. Investors reacted to news from Saturday that non-OPEC oil producers were being vague when it came to committing to join OPEC in limiting oil output levels to support prices. OPEC members themselves seem unable to agree on how to implement a deal to limit production. There have long been questions over exemptions being extended to Iran, Nigeria and Libya as all three countries have been unable to maximise production due to previous sanctions (in the case of Iran) and because of hostilities in Nigeria and Libya. But Iraq has also insisted that it should be exempt from any OPEC cuts due to its ongoing war with Islamic militants. Iraq had already voiced disquiet over talk of production cuts back in late September, when it began to question the method in which OPEC calculated the production figures which would be used to determine who would cut what. OPEC had previously suggested that there could be an exemption for Iran. Then at the end of September Saudi Energy Minister Khalid al-Falih said that Iran, Nigeria, and Libya would be allowed to produce “at maximum levels that make sense.” Discussions look set to continue right up until the OPEC meeting at the end of this month.

Meanwhile, oil is also swinging about on contradictory US inventory reports. After tonight’s close the American Petroleum Institute (API) will report. Last week the institute reported a build of 4.8 million barrels on expectations of a 1.7 million barrel increase. This led to a sharp sell-off. However, prices reversed the following day when data from the Energy Information Administration (EIA) showed a drawdown in crude stockpiles of 600,000 barrels for the week ending 21st October. The consensus expectation was for a build of around 700,000 barrels.

Gold and silver spiked higher at the end of last week. The rallies came as the dollar sold off after FBI Director James Comey announced the re-opening of a probe related to Hillary Clinton’s private email server. Yesterday the dollar bounced back. Generally, dollar-denominated commodities struggle to make headway when the dollar is rising as it becomes more expensive for non-dollar holders to convert their currencies to make a purchase. However, both precious metals managed to hang on to most of Friday’s gains and continue the consolidation that has taken place over the past couple of weeks. The dollar is getting support from the prospect of a Fed rate hike in December. Non-interest/dividend paying assets (such as gold and silver) tend to lose their attraction when yields are rising as investors seek out a “risk free” return on their funds.

Silver appears to be building support around $17.50 which happens to mark the 50% retracement of the rally from December 2015 to July 2016. Meanwhile, gold has managed to bounce off $1,250 which marks the 38.2% Fibonacci Retracement of its own rally between December 2015 and July 2016. 

Forex Update

Yesterday’s key feature in FX was the bounce-back in the US dollar. The greenback lost ground after the European close on Friday following news that the FBI was renewing its investigation of emails connected to Hillary Clinton and her use of a private server while Secretary of State. Mrs Clinton no doubt thought she was in the clear following a statement from FBI Director James Comey earlier this year. However, it appears that a fresh cache of emails have been uncovered and the ongoing controversy looks likely to damage Mrs Clinton’s White House bid. Investors view a Clinton win as less disruptive for the financial markets as it represents “business as usual.” The only caveat to this is if the Democrats were to have a clean sweep and wrest back control of Congress. Investors prefer the “checks and balances” (or gridlock) that results from the Presidency and Congress being held by opposing parties as this means that the more egregious policies of one party or the other get blocked.   

But investors bought back dollars yesterday as analysts downplayed the negative effects of the FBI investigation on the Clinton campaign. Clinton remains the favourite for the Presidency while the controversy makes a Democratic clean sweep less likely. If this is the case then everything remains in place for the US Federal Reserve to raise rates at its December meeting. The Fed is holding a two-day monetary policy meeting which ends tomorrow. Hardly anyone expects the FOMC to announce any policy changes. However, analysts will once again parse the accompanying statement closely for any further clues concerning a move before the year-end. Then on Friday all eyes will be on the latest US Non-Farm Payroll update.

Upcoming events

Today’s significant economic events include the release of Manufacturing PMIs from Switzerland, the UK, Canada and the US. Also from the US we have Construction Spending, IBD/TIPP Economic Optimism and Total Vehicle Sales. There are bank holidays in France and Italy.  


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Posted by David Morrison

Category: AM Bulletin

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