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

It was an odd day for the major stock indices yesterday. If you had just kept an eye on the Dow Jones, you would have concluded that equities had yet another storming session as they responded to Donald Trump becoming president-elect. Yet while the Dow put on over 200 points to close up over 1%, the broader S&P500 ended little-changed while the tech-heavy NASDAQ finished the day 1.6% lower. It was a similar story in Europe where there were mixed fortunes for the major indices with an overall downside bias.

Early in yesterday’s US session the Dow and S&P500 continued Wednesday’s rally to hit fresh all-time record intra-day highs. Yet the NASDAQ fell sharply with stock market favourites Facebook, Amazon, Alphabet, Netflix and Apple all ending the sharply lower. There’s a significant rotation going on with financial stocks, energy, materials and industrials in favour. But anything that could be hurt by a pick-up in inflation is being dumped. Not only that, but investors are also mindful of how many Silicon Valley tech outfits have benefitted from favourable government treatment and having their products manufactured abroad. If Trump follows through on his tariff threat, Apple’s fat profit-margins look set to evaporate. Meanwhile, all the old dirty, dinosaur corporations are back in favour as Trump sounds like no great fan of green energy. On top of this, investors are betting that markets will get a boost from promised fiscal stimulus and tax cuts.

The FTSE 100 ended the day 83.9 points lower at 6,828

The German DAX lost 15.9 points or 0.2% to end the day at 10,630.1

The US30 closed 218.2 points higher to finish at 18,807.9 The S&P 500 ended up 0.2% at 2,167.5 while the Nasdaq 100 fell 1.6 % to close at 4,747


Antofagasta (ANTO) topped the FTSE100 leader-board yesterday. The London-listed Chilean copper miner soared over 20% at one stage as investors looked for money-making opportunities in the wake of Donald Trump’s election victory. One of Mr Trump’s major election pledges was to boost infrastructure spending. The investment thesis is that this should lead to an increased demand for copper - a vital component in electrical wiring and other building materials. High grade copper is up around 10% since Wednesday morning alone. The stock pulled back from its best levels to end the day 11.5% higher at 715 pence.

Commodities Update

Crude oil is one of the few major markets to have a muted response to Trump’s election victory. Granted, there was (as with other so-called “risk assets”) an initial sell-off on the surprise result. However, the move wasn’t anywhere as pronounced as say the moves in stock index futures, equities or the US dollar. Instead, the decline saw WTI test support and then recover sharply. It seems fair to say that traders continue to be far more exercised by the OPEC meeting at the end of this month than the prospect of a Trump presidency. Back at the end of September OPEC members committed to outright production cuts designed to boost the oil price. But there was precious little detail to go along with the promise. Vital considerations such as which countries would shoulder the burden of cuts and how compliance would be assured were issues to be addressed ahead of the 30th November OPEC meeting.

Back in September OPEC said the aim was to reduce output by 240,000 to 740,000 barrels per day (bpd) to take production down to between 32.5 and 33.0 million bpd. OPEC production was then estimated to be 33.24 million bpd. However, according to figures released yesterday by the International Energy Agency (IEA) OPEC’s output in October averaged 33.83 million bpd (a fresh record), driven by production recoveries by Iraq, Libya and Nigeria. This implies that the cartel will have to cut by at least 830,000 bpd to hit the higher end of its output target. Given that Iraq, Libya, Nigeria and Iran are all insisting that they should be exempt from any agreement to cut production, one wonders which OPEC members will be prepared to shoulder the reduction and the accompanying loss of income? Not only that, but if the effort to limit output to boost the oil price is going to be effective, it will need some kind of agreement from non-OPEC producers as well.  As the IEA also pointed out, global supply rose by 800,000 barrels per day in October to 97.8M bpd, led by record OPEC production but also an increase in output from non-OPEC members including Russia, Brazil, Canada and Kazakhstan. Meanwhile, the IEA predicts that demand growth would ease to 1.2 million bpd in 2016 after peaking at 1.8 million bpd in 2015.

Precious metals had a mixed session yesterday in what is proving to be a particularly frustrating time for investors. Early on Wednesday morning gold and silver shot higher as it became clear that Donald Trump was on course to clinch the presidency. Investors piled into both metals as the dollar fell. Dollar-denominated commodities tend to rise as the greenback declines, but investors also rushed to buy up gold and silver as part of a safe-haven move. At one stage gold topped $1,330 per ounce while silver briefly nosed above $19. However, both pulled back sharply on the European open as the dollar rallied and equities bounced off their lows. Nevertheless, gold and silver ended Wednesday’s session a touch higher and managed to build on these gains early yesterday morning. But both slipped back as the day wore on. Partly this was due to the continuation of the dollar rally, but the sharp “risk-on” rally in equities also didn’t help.

Yesterday it was noticeable that the US 10-year bond yield spiked higher. At the same time, there were some notable losses for individual stocks - particularly of those businesses which will struggle in an environment of rising inflation and interest rates. Precious metals can do well in an inflationary environment. However, the reason that many people have bought gold over the past year is on the expectation of a continuation of a low-interest rate deflationary world. As a consequence, many are reassessing the reasons for holding gold (silver not so much due to its industrial applications) as they anticipate inflation and higher interest rates.

Forex Update

On Wednesday morning the US dollar plunged after it became apparent that Donald Trump was on course to win the presidency. The greenback subsequently bounced following president-elect Trump’s acceptance speech which was considered both gracious and unifying. The Dollar Index tested support around 96.00 during election night but briefly broke above 99.00 in yesterday’s trade. Of course, the dollar’s recovery meant pull-backs for “safe-haven” currencies such as the Japanese yen and Swiss franc. This will come as a big relief for officials at the Bank of Japan and Swiss National bank.

The turnaround in the dollar came as investors reassessed the outlook for inflation in light of a Trump administration. Investors seem convinced that huge tax cuts are coming (both corporate and personal) along with a massive raft of infrastructure spending. The feeling is that higher interest rates are on their way. The Fed has been giving out strong signals that they are preparing to raise rates at their meeting next month having been particularly hawkish since their September meeting. If they fail to hike in December they really will lose their last wisp of credibility and this is what the bond market is telling us. Yesterday the yield on the 10-year Treasury hit 2.10% - its highest level since the beginning of this year. The yield has spiked higher ever since Trump’s victory became apparent. This could be a problem. After all, investors have been piling into bonds at an increasing rate ever since the financial crisis of 2008/9. The last few years have seen yields globally drop to historically low levels. This has led a number of analysts to warn that the bond bull market which has now run for thirty five years may be coming to an end. Even if it isn’t, if yields continue to push much higher from here (meaning bond prices decline), there will be a large number of investors sitting on significant losses.

Upcoming events

The US is partially closed for Veterans’ Day. Despite this from the US we have Inflation Expectations and Consumer Sentiment. We also have a speech from the Fed Vice-Chair Stanley Fischer. He is due to speak about US monetary policy and the global economy at the 20th Annual Conference of the Central Bank of Chile in Santiago. 


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Posted by David Morrison

Category: AM Bulletin

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