Incisive market commentary from David Morrison

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Collapse 2017 <span class='blogcount'>(348)</span>2017 (348)
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Tory Poll Lead Narrows Sharply - Video Update
31 May 2017
S&P 500 and NASDAQ break winning streak
31 May 2017
Sterling swings on polls - PM Bulletin
30 May 2017
Equities drift after long holiday weekend - AM Briefing
30 May 2017
Crude oil slumps on OPEC disappointment - AM Briefing
26 May 2017
OPEC disappoints while FOMC minutes provide cheer - Video Update
25 May 2017
OPEC expected to agree 9-month extension - AM Briefing
25 May 2017
Look-ahead to OPEC - Video Update
24 May 2017
Markets quiet ahead of FOMC minutes and OPEC - AM Briefing
24 May 2017
Crude oil update - OPEC meeting in focus - PM Bulletin
23 May 2017
Markets shrug off atrocity in Manchester - AM Briefing
23 May 2017
Equities mixed, but supported by oil
22 May 2017
Nerves steady after firmer close on Wall Street - AM Briefing
19 May 2017
Political fall-out continues to weigh on markets - Video Update
18 May 2017
Slide in European indices accelerates - AM Bulletin
18 May 2017
Trump’s woes hit markets - Video Update
17 May 2017
Trump’s woes lead to market wobble - AM Briefing
17 May 2017
EURUSD hits six-month high - PM Bulletin
16 May 2017
Crude oil extends rally - AM Briefing
16 May 2017
US inflation data and retail sales in focus - AM Briefing
12 May 2017
Crude oil recovers after “flash crash”- Video Update
11 May 2017
Crude oil soars while equities drift - AM Briefing
11 May 2017
Are investors too complacent? - Video Update
10 May 2017
Investors rattled after Trump fires FBI head - AM bulletin
10 May 2017
Crude oil’s “flash crash” leads to OPEC desperation - PM Bulletin
09 May 2017
Equities rally as oil steadies - AM Briefing
09 May 2017
Forex: Top Ten Tips for beginners - Trading Guides
08 May 2017
Markets little moved after Macron win - AM Briefing
08 May 2017
Payrolls in focus - AM Briefing
05 May 2017
NFP look-ahead - Video Update
04 May 2017
FOMC hints at rate hike in June - AM Briefing
04 May 2017
FOMC look-ahead - Video Update
03 May 2017
Apple disappoints on sales numbers - AM Briefing
03 May 2017
CFD Trading Tips - Trading Guides
02 May 2017
European traders return after May Day - AM Briefing
02 May 2017
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Early moves

European stock indices recover after flat open

German GDP picks up

It was an inauspicious start for European stock indices this morning. All the majors were little-changed on the open as traders felt unable to take a lead from Wall Street’s close yesterday. US markets ended a touch lower as investors dumped retail stocks following a weak set of earnings from Macy’s. There were also modest losses for leader stocks Microsoft, Amazon and Facebook, although Apple and Alphabet eked out small gains.

Yet the European majors were soon trading in positive territory. German first quarter GDP rose 0.6% from the fourth quarter of 2016 and this indicates a pick-up in the rate of economic growth from +0.4% in the previous quarter.

Yet elsewhere there were signs of a slight turndown in risk appetite. Crude oil has steadied; precious metals continue to consolidate with a slight upside bias and the Japanese yen has picked up suggesting that investors are tempering their recent bullishness. Having said that, there’s no obvious sign that a significant correction is underway and stock market volatility (as measured by the VIX) remains at multi-year lows. Traders are now looking ahead to a couple of key US data releases. Later today we’ll get updates on Retail Sales and CPI. Any weakness in the former together with indications that inflationary pressures remain contained should lead to a pull-back in the US dollar, as investors dial back expectations of future Fed tightening.

Stock Index Update

Wall Street ends lower

Retailers weigh after poor earnings

US indices fell sharply yesterday following some poor results from Macy’s and Snap. Department store group Macy’s reported first quarter earnings per share of $0.24 on sales of $5.34 billion, well below estimates of $0.34 and $5.47 billion. The news led to a general sell-off in the retail sector which weighed mostly on the Dow. After Wednesday’s close Snap released its first set of earnings since its IPO. Net losses widened to $2.2 billion for the quarter and the stock slumped by 25% after hours.

The first quarter earnings season is winding down meaning that equities need to find another tailwind to push higher. Yet there’s nothing obvious to suggest yesterday’s sell-off could develop into something more substantial. While some profit-taking is in order, overall market sentiment remains positive. However, some analysts are concerned that there’s been a lack of breadth in the current stock market rally. Much of the recent gains have been due to moves in leading “tech” stocks such as Apple, Alphabet (Google), Amazon, Microsoft and Facebook.

European stock indices all closed lower yesterday. Traders looked to book profits on fears that the current rally is looking a bit long in the tooth.

Commodities Update

Crude recovery continues

Gold and silver edge higher

The bounce-back in crude oil continued yesterday. This followed on from Wednesday’s confirmation from the US Energy Information Administration (EIA) of a particularly large drawdown in oil inventories for the week ending 5th May. Not only that, but the EIA’s report also showed a sharp reduction in gasoline stocks. Tuesday’s API update had showed a build in gasoline and this helped to put a cap on prices.

So with the latest data indicating significant stockpile reductions right across the energy complex, there was nothing to hold back buyers. Traders rushed in to cover shorts and establish fresh longs, taking WTI and Brent back above resistance at $47 and $50 respectively.

However, it wasn’t all plain-sailing for the bulls. OPEC released its monthly oil report for May yesterday. In it the cartel acknowledged the size of the US shale oil “threat” when it raised its estimates for non-OPEC supply growth for 2017 by 64% from the previous month. The world’s biggest independent oil trader VITOL agreed, saying US shale output growing much faster than previously forecast. But VITOL also pointed out that demand growth was running at 800,000 barrels per day so far this year - well below the OPEC forecast of 1.3 million barrels per day.

Gold and silver had a better time of things on Thursday. Both metals managed to post modest gains in early trade and built on these later in the session. This kept gold above support around the $1,220 level. Silver spent most of the morning session above $16.30, and while this isn’t an obvious support level, it boosted hopes that the worst of the sell-off may now be over. However, it’s far too early to hit the green light for either metal as both appear vulnerable to further selling. This could see gold retest $1,200 and silver break below $16 in short order. Despite rising geopolitical concerns and increasing worries over investor complacency, risk appetite remains high, as demonstrated by low readings of stock market volatility.

Forex Update

Sterling slips after BoE rate decision

Rates unchanged with one dissenter

Sterling slipped in early trade yesterday after some disappointing economic data. Manufacturing Production, Industrial Production and Construction Output all fell in April, coming in well below analysts’ expectations. This was all ahead of the Bank of England’s (BoE) rate decision and inflation report. The sell-off in sterling accelerated following the Bank’s statement and as Governor Carney fielded questions from the press. The Bank kept interest rates and its Asset Purchase Facilities unchanged, as expected. Kristin Forbes was the only dissenter, voting for a 25 basis point hike in rates, as she did in March. However, some analysts had expected her to be joined by one or two others. So overall, the vote was seen as less hawkish than anticipated. The BoE reduced its GDP projections for 2017, 2018 and 1019 by 0.1% each to 1.9%, 1.7% and 1.8% respectively. Otherwise, the Bank played down Brexit fears. Inflation is now expected to peak at 2.8% in the fourth quarter of this year (rather than its previous prediction of the second quarter in 2018). But then inflation is expected to decline more rapidly thereafter.

Upcoming events

Today’s significant events and economic data releases include the first day of G7 meetings of finance ministers and central bankers and Euro zone Industrial Production. From the US we have CPI, Retail Sales, Mortgage Delinquencies, Consumer Sentiment, Inflation Expectations, Business Inventories and speeches from FOMC-voting members Charles Evans and Patrick Harker. 


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Posted by David Morrison

Category: AM Bulletin

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