Incisive market commentary from David Morrison

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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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Early moves

- Central bank speakers feature in holiday-shortened week

- ECB President Draghi testifies before European Parliament

It has been a mixed start for European equities and US stock index futures. There was a firmer tone initially but most major indices turned lower soon after the open. The US dollar has pulled back a touch and that has helped to lift precious metals. Meanwhile, oil is firmer on talk that Iran may be exempted from production cuts at next week’s OPEC meeting, assuming Tehran agrees to an output freeze instead.  Later today ECB President Draghi will testify before the European parliament.

Stock Index Update

- Dow Jones consolidates near record highs

- NASDAQ and S&P500 recover from sector rotation sell-off

The Dow marked time last week following the stunning rally which greeted Donald Trump’s election victory. This could be consolidation ahead of another push higher, or a sign that the rally has run its course.

Trump’s surprise win led to a dramatic sector rotation. Investors dumped growth stocks such as Apple, Facebook, Amazon, Netflix and Alphabet (Google) along with utilities and telecoms (which have bond-like properties in that they throw off a regular yield-like dividend). Instead, there was a move into financials, energy, materials and construction. This came as investors considered President-elect Trump’s election promises for tax cuts and infrastructure spending which could (if enacted) prove highly inflationary. Bond yields and the US dollar soared. However, it’s worth remembering that rising bond yields and a strong dollar are not particularly positive for US equity markets.

But last week investors bought back tech (growth) stocks and this helped to lift both the NASDAQ and S&P500. There’s a general feeling that equities should benefit in an inflationary environment. However, this presupposes that the US economy reverses its downturn in growth in the face of the predicted Fed rate hike next month.

Commodities Update

- Crude oil consolidates after sharp rebound

- Precious metals vulnerable to rising dollar

Both WTI and Brent bounced sharply last week after hitting three-month lows on Monday. The main part of the rally came on Tuesday when crude shot up around 6% for its best one day performance since April. On Friday a number of OPEC-member energy ministers along with Russian Energy Minister Alexander Novak met in Doha. This was an attempt to forge agreement over production cuts ahead of OPEC’s key biannual meeting in Vienna at the end of this month. There was no concrete news from Friday’s meeting. However, comments from Mr Novak suggested that the talks were constructive but without any solid agreement.

The problem remains that Iran, Iraq, Nigeria and Libya are still arguing that they should be exempt from any production cut. Unfortunately, that would mean Saudi Arabia would have to bear the burden of any reduction in output (possibly by as much as 7% of its daily production) which it cannot afford to do. WTI has built some support around $45.70 which roughly marks the 50% retracement of the August-October rally.

Gold and silver appeared to be consolidating in the early part of last week. However, both fell sharply after the dollar soared to fresh thirteen and a half year highs. The dollar headed higher soon after Donald Trump was confirmed as President-elect. Investors expect inflation to push higher on the back of his tax cutting and infrastructure spending plans. The dollar got an additional boost on Thursday following Federal Reserve Chair Janet Yellen’s testimony before the Joint Economic Committee in Washington DC. Dr Yellen appeared to raise the likelihood of a December rate hike when she warned of the dangers of waiting too long to hike rates. The Fed could be forced to tighten monetary policy faster than they would like if the markets decide the central bank is behind the curve in terms of curbing inflation.

Forex Update

- Dollar Index hits fresh multi-year highs

- Euro breaks below 1.0600

At the end of last week the Dollar Index shot above 101.00 while the EURUSD traded below 1.0600 for the first time since December last year. The latest move has a feel of dollar shorts capitulating. However, that’s not to suggest the greenback can’t rally further.

On Thursday Federal Reserve Chair Janet Yellen testified about the economic outlook before the Joint Economic Committee in Washington DC. Dr Yellen told the committee that a rate hike could be "appropriate relatively soon." She also considered the dangers of waiting too long to raise rates, as “(the Fed) could end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of the Committee's longer-run policy goals" on inflation and jobs. Dr Yellen also expressed concern that keeping the federal funds rate at its current level for too long could “encourage excessive risk-taking and ultimately undermine financial stability."

At the end of last week the probability of a Fed rate hike at the meeting on 13th and 14th December stood at 90%. But some analysts worry that the US central bank is set to tighten monetary policy despite there being a downward trend in GDP growth.

Upcoming events

Today’s key economic data releases include Canadian Wholesale Sales and the Chinese Conference Board Leading Index. European Central Bank (ECB) President Mario Draghi will testify about the ECB's Annual Report before the European Parliament in Strasbourg.


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Posted by David Morrison

Category: AM Bulletin

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