Incisive market commentary from David Morrison

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Expand December <span class='blogcount'>(23)</span>December (23)
Collapse November <span class='blogcount'>(41)</span>November (41)
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
Expand October <span class='blogcount'>(37)</span>October (37)
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Early moves

US dollar holds gains

- Precious metals drift lower

There’s a slightly firmer tone across Europe this morning although the major indices have pulled back from their best levels. Last night the Dow closed out at a fresh record high while the S&P500 and NASDAQ100 made modest losses. Nevertheless, the dollar remains strong as investors factor in the prospect of higher inflation on the back of President-elect Trump’s promises of tax cuts and infrastructure spending. On top of this, minutes from the Fed’s FOMC meeting earlier this month did nothing to curb expectations of a rate hike in December. Dollar strength and the prospect of a pick-up in inflation continue to weigh on gold and silver.

Stock Index Update

- Major US indices diverge again

- Moves exacerbated in thin pre-holiday trade

Yesterday brought a mixed session for equities. The major European stock indices gave up early gains to finish lower on the day. In this they were following the S&P500 and NASDAQ indices. However, the Dow Jones Industrial Average rallied in early trade to carve out a fresh all-time intra-day high.

The probability of a December Fed rate hike (according to the CME’s FedWatch Tool) drifted down a touch to 93.5% from the 100% level on Tuesday. However, this still means that the market is convinced that the Fed will raise rates by 25 basis points next month. What is now of greater interest is looking ahead at expectations for next year. The market currently believes there’s a 17% chance of an additional rate hike in March which rises to 58% in June. If inflation really is set to take off then the Fed may have to hike rates faster than currently expected. However, it seems unlikely that president-elect Donald Trump will be able to push his tax cutting and infrastructure spending plans through Congress next year, so it could be that markets are getting ahead of themselves. Yet the dollar continues to rally. But at some stage this will weigh on the overseas sales of US multinationals as US goods become more expensive to foreign buyers. It’s also worth remembering that a stronger dollar means imported goods are cheaper for US consumers, and this in itself is deflationary.

Commodities Update

- Crude struggles ahead of OPEC and after US inventory data

- Gold and silver slump as dollar flies higher

Crude oil struggled for direction yesterday. Both WTI and Brent were lower in early trade as investors reacted to the latest US inventory data. After Tuesday’s close the American Petroleum Institute (API) reported drawdowns in crude, distillates and at the Cushing, Oklahoma hub. However, there was a big build in gasoline stocks which kept a lid on both WTI and Brent. Then yesterday afternoon the Department of Energy’s Energy Information Administration (EIA) came out with remarkably similar data. But this time crude spiked higher initially as investors appeared to pay more attention to the drawdown in crude than the gasoline build. They got an additional lift after Iraqi Prime Minister Haider al-Abadi said his country will "shoulder responsibility" for some of OPEC's planned production cuts. This was positive news coming ahead of next week’s OPEC meeting. Just yesterday Iraq’s Foreign Minister Ibrahim al-Jafari said his country should be allowed to continue raising output with no restrictions saying, “Iraq is in a special situation ...we are at war."

Gold and silver both slumped yesterday afternoon. The two precious metals fell sharply following the release of US Durable Goods Orders. Both the Core and headline numbers came in well above the consensus expectations. The dollar spiked higher on the news while both precious metals collapsed. The interesting thing is that the Durable Goods numbers are notoriously volatile and in normal circumstances a surprise number would generally only lead to temporary moves in most markets. However, it’s fair to say that with Donald Trump as president-elect, these aren’t normal times. The better-than-expected data is just one more aspect to add in to rising inflation expectations. As a result FX traders are buying dollars as they price in the prospect of further monetary tightening from the Fed. This is weighing on dollar-offset trades like precious metals.

Forex Update

- Dollar soars following Durable Goods release

- Sterling little-changed after UK Autumn Statement

The dollar surged yesterday following the release of a strong set of US economic numbers. Durable Goods soared 4.8% in October, well above the previous reading of -0.3% and the consensus expectation of a 1.2% increase. Core Durable Goods (excluding transportation items) also rose. This is a notoriously volatile data series. Nevertheless, it was enough to send the Dollar Index to its highest level since April 2013, although a pick-up in Consumer Sentiment also helped.

Yesterday evening, the US Federal Reserve released the minutes from its meeting earlier this month (and BT - Before Trump). Ahead of the release there was some concern that the minutes could prove to be dovish. This would have been a problem given that the market now considers a December rate hike an absolute certainty. However, the FOMC did nothing to upset the markets and the minutes suggest that we’ll get a rate hike at next month’s meeting. Some members were even agitating for a rate hike at the November meeting, although that seems little more than grandstanding as a rate hike just one week ahead of the election was never going to happen.

Upcoming events

US markets are closed for Thanksgiving. Today’s key economic data releases include the German Ifo Business Climate Survey, UK Mortgage Approvals and GfK German Consumer Climate.


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Posted by David Morrison

Category: AM Bulletin

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