Incisive market commentary from David Morrison

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Collapse 2017 <span class='blogcount'>(348)</span>2017 (348)
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EURUSD breaks above resistance - PM Bulletin
31 Jan 2017
Equities recover after Monday’s sell-off - AM Briefing
31 Jan 2017
Trending markets and Andrews’ Pitchfork -Trading Guide
30 Jan 2017
Investors rattled by Trump’s curbs - AM Briefing
30 Jan 2017
Dow holds above 20,000 as dollar firms - AM Briefing
27 Jan 2017
Dow breaks above 20,000 - Video Update
26 Jan 2017
Dow at 20,000 boosts risk appetite - AM Briefing
26 Jan 2017
Dow finally breaks 20,000 - PM Bulletin
25 Jan 2017
Wall Street leads stocks higher - AM Briefing
25 Jan 2017
Consolidation continues - Video Update
24 Jan 2017
Dollar recovery helps lift sentiment - AM Briefing
24 Jan 2017
Money management and stop-losses -Trading Guide
23 Jan 2017
Stocks fall on US protectionism fears - AM Briefing
23 Jan 2017
Trump inauguration in focus - AM Briefing
20 Jan 2017
A look-ahead to Trump’s inauguration - Video Update
19 Jan 2017
ECB President Draghi’s press conference in focus - AM Briefing
19 Jan 2017
Dollar steadies after sell-off - Video Update
18 Jan 2017
Equities drift in featureless trade - AM Briefing
18 Jan 2017
Dollar pull-back lifts precious metals- PM Bulletin
17 Jan 2017
Dollar slumps in early trade - AM Briefing
17 Jan 2017
Charting analysis for beginners - Trading Guide
16 Jan 2017
Sterling slumps on “Hard Brexit” concerns - AM Briefing
16 Jan 2017
Earnings in focus - AM Briefing
13 Jan 2017
Fourth quarter earnings in focus - Video Update
12 Jan 2017
Market Info Update: Martin Luther King Day Monday 16th January 2017
12 Jan 2017
Dollar lower as Trump skips stimulus talk - AM Briefing
12 Jan 2017
Trump news conference - Video Update
11 Jan 2017
Trump press conference in focus - AM Briefing
11 Jan 2017
Has gold turned a corner? - PM Bulletin
10 Jan 2017
Another mixed start for Europe - AM Briefing
10 Jan 2017
Trading Psychology - Trading Guides
09 Jan 2017
Sterling slips on "Hard Brexit" fears - AM Briefing
09 Jan 2017
Non-Farm Payrolls in focus - AM Briefing
06 Jan 2017
Non-Farm Payroll look-ahead - Video Update
05 Jan 2017
FOMC minutes viewed as hawkish - AM Briefing
05 Jan 2017
Look-ahead to release of FOMC minutes - Video Update
04 Jan 2017
FOMC minutes in focus - AM Briefing
04 Jan 2017
Strong start to 2017 - PM Bulletin
03 Jan 2017
Equities push higher in first session of 2017 - AM Briefing
03 Jan 2017
Expand 2016 <span class='blogcount'>(483)</span>2016 (483)


Early moves

- Sterling falls after comments from PM Theresa May

- Inflation expectations rise on US data

Sterling has fallen in early trade as investors react to comments from UK Prime Minister Theresa May made over the weekend. Mrs May said there was not her intention to keep “bits of EU membership.” This suggests that the government’s plan will include an exit from the single market, described by some as a “Hard Brexit.”

It was another mixed start for European stock indices, although most of the majors were trading in positive territory soon after the open. The FTSE100 led the way, helped by sterling’s weakness. Meanwhile, the US dollar consolidated after Friday’s rally which followed the release of US employment data. This showed a sharp pick-up in average earnings which has boosted inflation expectations.

There’s little of importance on the economic calendar either today or tomorrow. However, there could be a pick-up in volatility on Wednesday when Donald Trump is set to hold his first press conference since last summer. It’s not clear what president-elect Trump will cover in the conference and there’s also a possibility that it won’t happen. Mr Trump arranged and then postponed a news conference soon after his election victory. But if it goes ahead it will take place just one day after President Obama delivers his farewell address.

Stock Index Update

- Average wages stoke inflation concerns

- Dow falls short of 20,000 - again

Friday brought the release of the first Non-Farm Payroll number since last month when the US Federal Reserve raised its key fed funds rate for only the second time in 10 years. December payrolls came in at 156,000 - well below the 175,000 expected. But November’s number was revised up to 204,000 from 178,000 so all-in-all it was a wash. The Unemployment Rate crept up to 4.7% from 4.6% which is still close to the low levels last seen in 2007. Meanwhile Average Hourly Earnings rose 0.4% month-on-month, which was quite a jump from the 0.1% decline in November. It was the latter number which led to a jump in the dollar. Investors were mindful of comments from the minutes of the last FOMC meeting which were released on Wednesday. These showed that committee members were concerned about the likelihood of a pick-up in inflation expectations which may force the FOMC to raise its fed funds rate more quickly than currently anticipated.

Meanwhile, European and US stock indices spent most of Friday’s session little-changed. The majors are currently marking time, and have been since mid-December, albeit at elevated levels. Last week the UK FTSE100 and US NASDAQ (both the Composite and 100) managed to make fresh record highs. However, the Dow Jones Industrial Average continues to struggle to hit that elusive 20,000 level. There has been some speculation that markets will consolidate now until after Donald Trump’s inauguration on 20th January. However, the president-elect has said he will hold a press conference this Wednesday so we could see some volatility return then.

Commodities Update

- WTI and Brent remain range-bound

- Gold and silver slip as dollar rallies

Crude oil spent last week consolidating near multi-month highs. Earlier in the week both WTI and Brent hit their best levels since the summer of 2015. The latest push higher followed the OPEC meeting at the end of November which saw most of the world’s major oil producers agree to total production cuts of around 1.8 million barrels per day. The news saw WTI and Brent break above resistance around $52 and $54 respectively. These levels look set to act as primary support levels going forward. However, there’s some speculation that the upside may be capped for both contracts around $60. This is because US shale drillers are expected to increase production to take advantage of higher prices. The best US producers can make money at an oil price well below $60, while the worst, including those already bankrupt, will take advantage of the recent price spike to maximise output to pay back their creditors. Crude also came under pressure last week after US inventory data showed significant builds in gasoline and distillates.

Gold and silver both dipped on Friday after closing out at one-month highs the day before. Investors took profits on the two precious metals following the release of employment data which led to a rally in the US dollar. Although there was nothing of particular interest in the payroll numbers themselves, there was a sharp pick-up in Average Hourly Earnings. These rose 0.4% in December after a fall of 0.1% in the previous month. This translated into a year-on-year increase of 2.9% - a rate which hasn’t been seen since the financial crisis. The news led to a pick-up in bond yields and the dollar as investors saw it as raising inflation expectations. This implies that the Fed may end up tightening monetary policy at a faster rate than previously anticipated, and higher interest rates weigh on non-yielding assets such as gold and silver.

Forex Update

- Dollar rallies after payroll data

- Average earnings rise unexpectedly

The US dollar marked time in early trade on Friday ahead of the Non-Farm Payroll release. This followed two days of losses as investors took profits following a spike higher earlier in the week.  However, investors rushed to re-establish long positions following the release of monthly employment data. The headline payroll number for December was weaker than anticipated, although this was offset by an upside revision to the prior month’s report. But the big story was the sharp uptick in Average Hourly Earnings. Investors saw this as a sign that the current low unemployment rate (4.7%, up from 4.6% in November) is set to contribute to a build-up in wage demands. This would stoke inflation and so has led to speculation that the US Federal Reserve may have to tighten monetary policy at a faster rate than previously anticipated.

Early last week the dollar rallied to hit a 14-year high against the basket of currencies in the Dollar Index. This move also saw the EURUSD break below 1.0400 to hit a fresh 14-year low. This was a continuation of the move which followed Donald Trump’s surprise election victory at the beginning of November. This saw the Dollar Index bust above long-term resistance around 100.00 while the EURUSD fell below support around 1.0800. The dollar rallied as investors absorbed the growth and inflation implications of Trump’s campaign promises to cut taxes, slash regulation and boost defence and infrastructure spending. Then the dollar got an additional boost after the US Federal Reserve raised rates for only the second time in ten years.


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Posted by David Morrison

Category: AM Bulletin

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