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Collapse 2017 <span class='blogcount'>(348)</span>2017 (348)
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Bounce in oil helps to steady equities - AM Briefing
30 Mar 2017
US stock indices consolidate - Video Update
29 Mar 2017
Risk appetite returns - AM Briefing
29 Mar 2017
S&P500 - Topping out, or consolidating? PM Bulletin
28 Mar 2017
Risk appetite returns after the Trump wobble - AM Briefing
28 Mar 2017
Beware hidden relationships between seemingly unrelated markets - Trading Guides
27 Mar 2017
Risk assets slump in wake of Trump’s healthcare debacle - AM Briefing
27 Mar 2017
Congress vote puts markets on hold - AM Briefing
24 Mar 2017
Markets on hold ahead of crucial vote - Video Update
23 Mar 2017
Tranquil markets await big data - AM Briefing
23 Mar 2017
Investors rattled after equity sell-off - Video Update
22 Mar 2017
US Markets Snap 109-Day Streak - AM Briefing
22 Mar 2017
Crude oil update - PM Bulletin
21 Mar 2017
European markets stable on the open - AM Briefing
21 Mar 2017
Dollar slips after G20 communique - AM Briefing
20 Mar 2017
FOMC post-mortem - Video Update
16 Mar 2017
Rate hike sends stocks higher - AM Briefing
16 Mar 2017
FOMC rate decision and Dutch election in focus - Video Update
15 Mar 2017
Oil rally gives markets lift - AM Briefing
15 Mar 2017
Crude trades at lowest levels since production cut agreement - PM Bulletin
14 Mar 2017
Politicians take centre stage again - AM Briefing
14 Mar 2017
Trading Psychology: Risk Management - Trading Guides
13 Mar 2017
Article 50 deadline approaches - AM Briefing
13 Mar 2017
European stocks push higher after Draghi’s hawkish stance - AM Bulletin
10 Mar 2017
Non-Farm Payroll look-ahead - PM Bulletin
09 Mar 2017
Fed rate hike seems certain - AM Briefing
09 Mar 2017
Market expects Fed to hike rates next week - Video Update
08 Mar 2017
Another twist in the French election - AM Briefing
08 Mar 2017
Odds slashed on Fed rate hike - PM Bulletin
07 Mar 2017
Investors lacking direction this morning - AM Briefing
07 Mar 2017
Fibonacci Retracement - extensions - Trading Guides
06 Mar 2017
Equities slip in early Monday trade - AM Briefing
06 Mar 2017
Modest profit-taking sees US indices post rare loss - AM Briefing
03 Mar 2017
Crude struggles to break above resistance - Video Update
02 Mar 2017
UK baffled by the origins of their favourite brands - PM Bulletin
02 Mar 2017
Fresh record highs for major indices - AM Briefing
02 Mar 2017
All eyes turn to the Fed - Video Update
01 Mar 2017
Markets react positively to Trump speech - AM Briefing
01 Mar 2017
Expand February <span class='blogcount'>(36)</span>February (36)
Expand January <span class='blogcount'>(39)</span>January (39)
Expand 2016 <span class='blogcount'>(483)</span>2016 (483)


Early movers

Global equities slump in wake of Trump failure

US dollar in sharp retreat

There’s been a sharp mark-down in risk assets this morning with significant early losses for the main European stock indices. US stock index futures are also down, along with the US dollar, while the yield on the US 10-year treasury has fallen to 2.35% - a four week low. The moves are all tied to the Trump administration’s failure to drive through the repeal and replacement of Obamacare late on Friday. Initially, equity markets rallied on the news that the vote was being pulled. This was on the assumption that the road was now clear for Trump to concentrate on pushing through his ambitious programme of tax reform through the House. However, that knee-jerk positivity has unwound to a great extent as investors examine the facts in the cold light of day.

The main takeaway from last week’s shenanigans is that Trump has failed at the first hurdle when it comes to dealing with Congress. It is now widely suggested that the administration made a serious error by insisting that the repeal of Obamacare came before other policy moves. Not only that, but reality is beginning to set in when the outlook for significant tax reform is considered dispassionately. While the timetable is now less cluttered, there are concerns that the failure to repeal Obamacare means there’s less money available for tax giveaways. In addition, Trump’s opponents, on both sides of Congress, will be more willing to take a stand against the President following last week’s debacle.

Stock Index Update

Solid finish for the week

Investors initially unfazed by vote delay

Friday brought another mixed start for US and European stock indices with a slightly softer bias overall. However, there was a general pick-up in prices once the US session got underway which helped underpin all the majors. This was despite the postponement of the vote in the US House of Representatives on repealing and replacing Obamacare. The outcome of the vote was viewed as a crucial test of the Trump administration’s ability to push through legislation not just on healthcare, but also on tax reform, infrastructure spending and regulatory roll-back.

As things stood on Thursday it seemed that Trump could only afford to lose the votes of 22 House Republicans. But it appeared that as many as 30 representatives from the GOP were threatening to defy their president. If Trump lost the vote to replace Obama’s Affordable Care Act with his own American Health Care Act it would be an early and unwelcome defeat for the new president and would undoubtedly delay any chances of fresh fiscal stimulus coming through this year. Given that the stock market rally since the November election has been based on Trump’s campaign promises, any possibility that these may not get through Congress raised the risk of a sharp market sell-off. Investors have been banking on fiscal stimulus to offset monetary tightening from the Fed, particularly as there are fears that US growth appears to be less robust than it was even a few weeks ago. However, Trump appeared to face down his opponents when he pushed for the vote to take place on Friday. More importantly, he also said that if the House failed to vote through his American Health Care Act then he would move on to other issues, leaving the controversial Affordable Care Act in place. As a consequence, by Friday afternoon investors attached less importance to the outcome of the vote than they had the day previously.

Commodities Update

WTI stuck below $48

Gold and silver rally for second successive week

Oil prices steadied somewhat at the end of last week, although the front-month WTI contract continued to trade below the key $48 level. Both WTI and Brent have struggled to make gains after their dramatic plunge nearly three weeks ago. This was triggered by the release of US inventory data which showed a much bigger-than-expected growth in stockpiles. Since then the data has been mixed. A fortnight ago the data showed a decline in inventories. This helped to put a floor under prices and contributed to a modest bounce. However, last week brought the release of data showing a further build in US inventories. The news crushed speculation that OPEC and non-OPEC producers were preparing to extend their output cut agreement beyond June. However, there are doubts that all parties are happy to go along with this. In addition, there’s now a suggestion that not all parties to the November agreement have been as compliant as previously considered. It looks as if Saudi Arabia is bearing the brunt of the output cuts. Even then these are not as deep as previously thought, although Saudi remains within its target.

Gold and silver were both sharply higher in early trade on Monday. This followed a reassessment over the weekend of the ramifications of the Trump administration’s inability to drive through the repeal and replacement of Obamacare. Investors were initially sanguine about Trump’s political failure as it meant that tax reform would now be the main item on the agenda. However, there are now concerns that Trump has given his many opponents the inspiration to confront the president in the future.

The two precious metals put in solid performances last week, rising sharply for the second successive week. Both metals soared following the release of the FOMC’s rate statement and Summary of Economic Projections back on 15th March. The rally coincided with a sharp sell-off in the US dollar as investors reassessed their projections for further monetary tightening from the Fed over the rest of the year. The Fed hiked rates by 25 basis points, as expected. However, the FOMC’s quarterly Summary of Economic Projections was less hawkish than expected. FOMC members continue to forecast rate hikes of 75 basis points through 2017, unchanged from December’s projection. Analysts had anticipated the Fed suggesting that 100 basis points of tightening could now be appropriate.

Forex Update

Dollar continues to come under pressure

Sterling shoots higher on inflation jump

The key issue in FX last week was the ongoing weakness in the US dollar. The greenback has been falling ever since the beginning of the year when it hit a fourteen-year high against the euro. The sell-off gained some extra momentum following the US Federal Reserve’s March meeting when the central bank hiked its key interest rate by 25 basis points. This is now referred to as a “dovish rate hike” as the FOMC’s accompanying Summary of Economic Projections surprised investors by being less hawkish than expected. This has led to a pull-back in US bond yields which has in turn weighed on sentiment towards the dollar. The greenback came under further selling pressure ahead of last week’s key vote on the repeal and replacement of “Obamacare” or the Affordable Care Act. At the end of last week traders were keeping a close eye on a couple of key levels - namely the Dollar Index around 99.00 and the USDJPY around 111.00. A significant break of both of these levels presages further falls in the dollar.

Meanwhile, sterling rallied sharply last week. The GBPUSD bounced off 1.2100 and looks as if it’s in the process of forming quite a neat reverse head-and-shoulders pattern. If so, then technically at least it could be set to make further gains. Sterling is benefiting from a sharp pick-up in UK inflation and Retail Sales, while MPC member Kate Barker also voted for an immediate rate hike at the Bank of England meeting on 16th March.

Upcoming events

Today’s significant economic data releases and events include the German Ifo Business climate survey and Euro zone M3 Money Supply. We will also get a speech from President of the Federal Reserve Bank of Chicago and FOMC-voting member Charles Evans.


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Posted by David Morrison

Category: AM Bulletin

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