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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Central banks and US payrolls in focus - Weekly Bulletin
31 Oct 2016
Revised Trading Hours - UK British Summer Time (BST) ends, 30th October 2016
28 Oct 2016
US GDP in focus - AM Bulletin
28 Oct 2016
US stock indices still range-bound
27 Oct 2016
Equities drift on mixed earnings
27 Oct 2016
Earnings season, oil and the US dollar - Video Update
26 Oct 2016
Apple disappoints - AM Bulletin
26 Oct 2016
Silver range-bound - PM Bulletin
25 Oct 2016
Equities up on deals and earnings - AM Bulletin
25 Oct 2016
Spread betting charges – overnight financing - Trading Guide
24 Oct 2016
USD rally continues - Weekly Bulletin
24 Oct 2016
Deutsche Bank trades at pre-DOJ fine levels : AM Bulletin
21 Oct 2016
ECB Decision in less than 400 words - PM Bulletin
20 Oct 2016
Oil’s move to a 15-month high supports global markets - AM Bulletin
20 Oct 2016
Intel buck earnings trend as the Fed takes centre stage again - PM Bulletin
19 Oct 2016
WTI eyes resistance around June highs - PM Bulletin
18 Oct 2016
US/UK inflation data in focus - AM Bulletin
18 Oct 2016
How to know what to spread bet on : Trading Guides
17 Oct 2016
Dollar up on December rate hike speculation - Weekly Bulletin
16 Oct 2016
Oil sparks recovery on Wall Street - AM Bulletin
14 Oct 2016
FOMC minutes - hawkish or dovish? - PM Bulletin
13 Oct 2016
Weak Chinese trade number hits miners - AM Bulletin
13 Oct 2016
US indices range-bound ahead of election - Video Update
12 Oct 2016
FOMC minutes in focus - AM Bulletin
12 Oct 2016
Sterling at fresh multi-year lows : PM Bulletin
11 Oct 2016
Brent crude hits 12-month high - AM Buleltin
11 Oct 2016
How Spread Betting Works : Trading Guides
10 Oct 2016
Another disappointing US payroll report - Weekly Bulletin
09 Oct 2016
Sterling “flash crash” and US Non-Farm Payrolls - AM Bulletin
07 Oct 2016
Non-Farm Payroll look-ahead - PM Bulletin
06 Oct 2016
AM Bulletin: Equities up on data releases and oil
06 Oct 2016
Video Update: OPEC’s production cut promise poses some questions
05 Oct 2016
AM Bulletin: Precious metals slump on USD rally
05 Oct 2016
PM Bulletin: Sterling lurches lower
04 Oct 2016
AM Bulletin: Firmer start for global equities
04 Oct 2016
Trading Guide: How to use Stop Losses in spread betting
03 Oct 2016
Weekly Bulletin: Important week for data releases
03 Oct 2016
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Indices Update

In last night’s Asian Pacific session there was a “flash crash” in sterling which saw cable lose perhaps as much as 10% of its value in minutes. The British pound was trading around 1.2600 at midnight but then all bids disappeared. FX is not exchange-traded so it is difficult to establish a precise low. But some brokers report the GBPUSD falling to levels approaching 1.1200. Sterling then bounced back as quickly as it fell although cable began to settle in around 1.2400 – about 2 cents below its trading level prior to the crash.

It’s still unclear what triggered the move. Part of the issue is the lack of liquidity in Asian Pacific FX at certain times. But whether this was a “fat finger” erroneous order, a large “algo” trade, an unfortunate options play or something else will probably never be known.

Equity markets went into retreat yesterday as investors booked profits and reduced their exposure ahead of today’s US Non-Farm Payrolls. The data release could influence the Fed’s thinking on the timing of future monetary tightening.  The consensus expectation is for an increase of 170,000 - up from August’s 151,000. A poor number would be anything below 150,000 (putting aside any significant revisions to prior releases). This would dampen expectations of a rate hike in 2016 and should result in a sell-off in the US dollar and a sharp bounce in precious metals. A good number would be anything above 180,000. This should lead to a stronger dollar and keep a lid on gold and silver. How the stock market reacts is anyone’s guess. But considering recent moves, US equities look likely to rally on a strong number – initially at least.

It is worth noting that yesterday’s ADP Non-Farm Employment Change came in below both the consensus expectation and the 175,000 recorded in August.  The ADP is generally a poor predictor for Non-Farms yet a big discrepancy from the expected number should be taken seriously. The privately-collated ADP data tends to be considerably less volatile than the government’s NFP survey. So Wednesday’s big miss could foreshadow weakness in tomorrow’s data.

We’ll also get an update on Average Hourly Earnings and the Unemployment Rate. It is the former number that is most important and a reading of +0.1% or below (month-on-month) will be market-negative as it will weigh on inflation. Later in the day we have speeches from FOMC-voting members Stanley Fischer, Loretta Mester, Esther George and Lael Brainard.

Deutsche Bank (DBK) was also in the news yesterday. A story was doing the rounds that the German Government have contacted the US Department of Justice to help negotiate over the proposed $14 billion fine. Shares in Deutsche rallied in early trade to hit their highest level since mid-September. But they subsequently pulled back and ended the session unchanged.

The FTSE 100 ended the day 33.3 points lower at 6,999.96

The German DAX fell 16.98 points or 0.2% to end the day at 10,568.8

The US30 closed 12.5 points lower to finish at 18,268.5 The S&P 500 ended up 0.05 % at 2,160.8 while the Nasdaq 100 fell 0.08% to close at 4,873.9


Shares in EasyJet (EZJ) fell sharply on the open yesterday. This followed guidance from the budget airline which pointed to a significant decline in profits this year. EasyJet now expects profits before tax to come in around £490/495 million down from £686 million for 2015 - a drop of 28%. Analysts were expecting some kind of downgrade, but not to this extent. EasyJet blamed Brexit, exchange rate movements, worker strikes and terrorism for the decline. However, its fuel bill is expected to come in around £75/80 million for the last six months when compared to the same time last year. Meanwhile capacity was up 6.1% in the quarter ending 30th September. EasyJet ended the day 6.9% lower at 933.5 pence while budget rival Ryanair ended 1.18% down at €11.74

Commodities Update

Crude has rallied sharply since last Wednesday. This was when OPEC announced its commitment to a production cut. Details won’t be known until after the next OPEC meeting at the end of November. However, it looks as if the promise of a reduction in supply may be enough for Brent and WTI to retest their August highs of $51.50 and $52.80 respectively. Crude oil was unchanged in early trade yesterday but began to rally in the European session. Traders responded favourably to comments from Algerian Energy Minister Noureddine Boutarfa when he said that OPEC was now united after the meeting in Algeria and could cut 1% more output than agreed. He said that OPEC’s initial target is to raise prices to $50-$55 in 2017.

Crude continues to get additional support from the drawdown in US inventories. Last week US stockpiles fell below 500 million barrels for the first time since January. However, some analysts believe that the rally is beginning to run out of steam. Goldman Sachs has suggested that WTI will struggle to push beyond $55 a barrel. Certainly, recent evidence suggests that US shale oil producers will look to ramp up production with prices north of $50.

The melt-down in precious metals continues. Before yesterday’s sell-off gold had already fallen below its 200-day moving average which came in around $1,280. The next significant area of support comes in around $1,240. Silver’s 200-day moving average came in around $18 per ounce. It doesn’t look as if there’s much holding it up between current levels and $17 per ounce.

Just over a fortnight ago precious metals flew higher after the US Federal Reserve’s September meeting. This was when the central bank opted to keep its headline interest rate unchanged. However, gold and silver have sold off sharply over the last two weeks to trade at levels last seen just ahead of the UK referendum on EU membership. The decline in gold and silver began as investors booked profits after the rally in the aftermath of the Fed’s September meeting. But the sell-off picked up in intensity as stronger US data and hawkish comments from Fed members cut the odds on a rate hike ahead of the year-end. Then this week’s rumours that the ECB was considering tapering its bond purchase programme ahead of the official March 2017 end date did further damage. This brought about the possibility of tighter monetary policy coming simultaneously from the US Federal Reserve and the ECB – a prospect which undermined the argument for holding non-yielding precious metals. However, a story doing the rounds is that the price collapse has also come about through the forced liquidation of leveraged precious metals holdings by a London hedge fund.

Forex Update

(See above for sterling “flash crash”)

There was plenty of movement in the FX majors yesterday with the dollar pushing higher and sterling coming under further downside pressure. The greenback rose across the board but its ongoing rally against the Japanese yen represents its longest run of gains against the currency in over two years. The Swiss franc was another “safe haven” currency to make significant losses and this seemed to be tied in to the sell-off in precious metals.

The dollar is making gains as investors recalibrate the odds on a Fed rate hike in 2016. Some better-than-expected data releases along with hawkish comments from Fed members have boosted the probability of the US central bank tightening monetary policy ahead of the year-end. A rate rise will be even more likely once the US Presidential Election in early November is over. Now investors are waiting on the latest Non-Farm Payroll data. A strong number this afternoon (say anything over 180,000) would point to a strengthening US economy and should lead to further gains for the dollar. However, we can expect the greenback to lose ground if payrolls disappoint. The expectation is for an increase of 171,000 and a bad number would be anything around 150,000.

Yesterday sterling continued to head lower and it hit a fresh 31-year low against the dollar. The sell-off in the British pound comes on fears of a “hard Brexit.” This would involve the UK prioritising taking back control of its European immigration policy over membership of the single market.

Upcoming events

Today’s most significant economic release is US Non-Farm Payrolls at 13:30 BST. Along with this we also get Average Hourly Earnings and the Unemployment Rate. Later in the day we have speeches from FOMC-voting members Stanley Fischer, Loretta Mester, Esther George and Lael Brainard. Before all this we have UK Manufacturing and Industrial Production. Finally, the IMF begins three days of meetings.


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Posted by David Morrison

Category: AM Bulletin

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