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PM Bulletin: BOJ and the yen
31 May 2016
AM Bulletin: Quiet start following holiday weekend
31 May 2016
PM Bulletin: Meanwhile in China
27 May 2016
AM Bulletin: Yellen in focus ahead of holiday weekend
27 May 2016
PM Bulletin: FTSE breaks above 6,200 again
26 May 2016
Holiday Schedule: Memorial Day 30th May 2016
26 May 2016
AM Bulletin: Brent crude tops $50
26 May 2016
PM Bulletin : Crude Chart
25 May 2016
AM Bulletin: “Risk-on” trade continues
25 May 2016
PM Bulletin: Another poll boost for sterling
24 May 2016
AM Bulletin: Equities slip as rate hike worries persist
24 May 2016
PM Bulletin: Changing expectations
23 May 2016
Weekly Bulletin: I’ll see your hike and raise you two
23 May 2016
PM Bulletin : Significant events ahead of June FOMC
20 May 2016
AM Bulletin: Preparing for a summer rate hike
20 May 2016
PM Bulletin : Gold struggles as dollar strengthens
19 May 2016
AM Bulletin: FOMC more hawkish than anticipated
19 May 2016
PM Bulletin : FOMC minutes and the S&P
18 May 2016
AM Bulletin: FOMC minutes in focus
18 May 2016
PM Bulletin: Cable rallies on latest poll
17 May 2016
AM Bulletin: US equities lead bounce-back
17 May 2016
Weekly Bulletin : Waiting on Central Banks
13 May 2016
PM Bulletin : Apple
13 May 2016
Holiday Schedule Whit Monday Market Holiday
13 May 2016
AM Bulletin : US Retail Sales in focus
13 May 2016
PM Bulletin : Silver and Gold
12 May 2016
AM Bulletin: Investors wary after Wall Street sell-off
12 May 2016
PM Bulletin: Two headaches for Elon Musk
11 May 2016
AM Bulletin: Stock indices pull back after rally
11 May 2016
PM Bulletin: Yen pulls back on jawboning
10 May 2016
AM Bulletin: Markets steady on commodity bounce
10 May 2016
PM Bulletin: Precious metals give back recent gains
09 May 2016
Weekly Bulletin: Poor Non-Farm Payroll causes concern
09 May 2016
May: Non Farm Payrolls Out Today
06 May 2016
PM Bulletin: A dismal Non-Farm Payroll number
06 May 2016
AM Bulletin: Non-Farm Payrolls in focus
06 May 2016
PM Bulletin: Non-Farm Payroll look-ahead
05 May 2016
AM Bulletin: Crude bounce lifts equities
05 May 2016
PM Bulletin: Apple update
04 May 2016
AM Bulletin: Equities under pressure
04 May 2016
PM Bulletin: Aussie dollar slumps
03 May 2016
AM Bulletin: RBA cuts by 25 basis points
03 May 2016
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Indices Update
 
There’s a weaker tone across European equities and US stock indices this morning. This follows on from yesterday’s see-saw trading which ultimately left Europe lower and Wall Street little-changed. This week’s market behaviour points to investor uncertainty as the first quarter earnings season winds down. We also have to wait a month before we have key central bank meetings from the US Federal Reserve and the Bank of Japan. In the meantime, investors grab hold of every data release in an effort to gauge global economic health. The latest numbers from the US on GDP, manufacturing and jobs haven’t been good. Today we get the latest update on Retail Sales. This will give us an insight into the willingness and ability of the US consumer to go out and spend, and so is a good measure of overall economic activity. 
 
It was a shaky start for equity markets yesterday morning following Wednesday’s sharp sell-off on Wall Street. Stocks took a tumble midweek following the release of some disappointing earnings reports. Disney missed on both revenues and earnings while department store chain Macy’s shocked investors when it slashed its outlook and warned of weakness in consumer spending. The news sent a number of large US retail stocks lower and raised yet another warning flag about the strength of the US recovery. 
 
But the major indices managed to rally ahead of the US open. Investors decided that it was probably safe to “buy the dip” taking comfort from a firmer oil price. It was notable that Wednesday’s sell-off in stocks happened despite crude ripping higher.  Equities and oil have enjoyed a strong positive correlation since the beginning of the year. Another factor which underpinned the rebound in equities was the Japanese yen which fell sharply early in yesterday’s European session. 
  
The latest update on US weekly jobless claims showed another shocking increase coming in at 294,000 compared with the 261,000 expected. This was a really poor number and there’s concern that the US employment situation could be taking a turn for the worse. This is the second consecutive week that jobless claims have come in above expectations, and the third week of successive gains in the jobless number. Last week’s release foreshadowed dismal Non-Farm Payrolls. The data supports the view that the US Federal Reserve will hold off from hiking rates at next month’s meeting. However, we still have another round of important data releases to digest before then including updates on manufacturing, services durable goods and, of course, payrolls again.
  
The FTSE 100 index closed down 58.3 points or 1% at 6,104.2
  
The German DAX fell 113.2 points or 1.1% to finish at 9,862.1
  
The US30 closed up 9.4 points to finish at 17,720.5 The S&P 500 ended effectively unchanged at 2064.1 while the Nasdaq 100 finished 0.4% lower at 4,342.8
 
 
Equities 
 
Shares in Monsanto (MON) flew higher in pre-market trade yesterday. This followed reports that German chemicals giant Bayer AG (BAYN) was considering making a bid for the US agrochemical company. If it went ahead the deal would create the world’s largest supplier of seeds and agricultural chemicals. Bayer has a market capitalisation just under $100 billion so is 2.5 times the size of Monsanto with a market cap of around $40 billion. There are a couple of large consolidations planned in this sector. Last year Dow Chemical and DuPont announced a merger while China National is set to acquire Swiss company Syngenta. Monsanto was up as much as 20% ahead of the US open. 
  
  
Commodities Update
 
Crude built on Wednesday’s gains in early trade yesterday following the release of the latest oil market report from the International Energy Agency (IEA). By mid-afternoon WTI and Brent were both trading around six month highs. WTI briefly broke above $47 while Brent topped $48 per barrel. Previously I had highlighted $46 and $48 as significant resistance for WTI and Brent respectively. But crude suddenly reversed course and dropped into negative territory. By the close of trade both contracts were effectively unchanged. 
  
On Thursday the IEA said that there was growing evidence of a global rebalancing of supply and demand in the oil market. Supply was starting to look more measured while demand was resilient suggesting that the current oil glut could start to shrink later this year. The IEA calculates that global oil supplies totalled 96.2 million barrels per day (bpd) in April while global demand is running at around 95.9 million bpd. Earlier this year supply was outstripping demand by over 2 million bpd. The agency noted that “… higher OPEC output more than offset deepening non-OPEC declines.” But overall global output growth was considerably lower than at the same time last year. Nevertheless, it’s worth remembering that US shale oil producers will be anxious to raise output now that oil is trading around six-month highs and approaching $50 per barrel. 
  
Oil soared on Wednesday following the release of the latest US inventory data from the Energy Information Administration (EIA). This showed a fall of 3.4 million barrels for the previous week compared with an expected build of 100,000 barrels. This completely overshadowed the news that production from the Canadian oil sands was set to resume within days now that the wildfires which had raged around Fort McMurray, the capital of Canada’s oil sand fields, are under control. 
  
Gold and silver spent most of yesterday trading in negative territory. Both popped higher ahead of the US open, but the gains were short-lived. Both metals plunged ahead of the European close with silver down over 2% at one stage. There was no obvious reason for the move other than a spike higher in the US dollar. However, often that’s all it takes. The other thing of note was yet another sharp sell-off in base metals such as copper, lead, nickel and iron ore. This looked like a repeat of Monday’s sell-off. However, this time round it wasn’t triggered by Chinese liquidation, but by a general return to the overall commodity downtrend driven by dollar weakness. 
      
There’s no doubt silver has had a good run over the past five months. Ten days ago it topped $18 per ounce having begun this year trading below $14. In mid-December it made its lowest close ($13.65) since the summer of 2009 for a low to high gain of around 32%. Silver has benefited from all the fresh interest that we’ve seen in gold which was up 24% over the same period. The two precious metals generally move in the same direction over time, although silver tends to be far more volatile than gold and so not for traders of a nervous disposition.
  
  
Forex Update
 
Yesterday’s big event was the Bank of England’s (BOE) rate decision, inflation report and subsequent press conference. As expected, the BOE kept rates on hold at 0.5%. It also lowered its near-term growth outlook. But there was far more interest in what the Bank had to say about what would happen should the UK vote for Brexit on June 23. The BOE said that sterling could fall "sharply" and unemployment would probably rise. In the subsequent press conference BOE governor Mark Carney warned that a Brexit "could possibly lead to recession." But seeing as we’re now over seven years along from the last recession, we’ll be getting one soon enough whether we leave or stay. Anyway, there was nothing in here for traders to get to grips with and sterling moved little on the news.
  
The Japanese yen fell sharply yesterday morning but recovered as the session progressed. The yen lost ground after Bank of Japan (BOJ) Governor Haruhiko Kuroda told a German newspaper that the BOJ could go as low as the ECB on rates, and that this would weaken the currency. Mr Kuroda’s comments follow a string of statements from Japanese policymakers all designed to warn traders that intervention to weaken the yen was a distinct possibility. Nevertheless, the USDJPY struggled to hold above 109.00. Earlier this week Koichi Hamada, special advisor to Japan’s Prime Minister Shinzo Abe, said that Japan retained the right to intervene in currency markets. He said intervention would be warranted should the USDJPY fall to 100.00. However, he doesn’t believe the yen has much further to rise and sees it trading between 105.00 and 110.00.
  
The US dollar rallied yesterday afternoon. The Dollar Index crept back above 94.00 while, the EURUSD slipped below 1.1400
 
  
Upcoming events
 
Today’s significant economic events include UK Construction Output and speeches from Bank of England MPC members Andy Haldane and Martin Weale. We also have Euro zone Flash GDP while from the US we have Retail Sales, PPI, Consumer Sentiment, Inflation Expectations, Mortgage Delinquencies and Business Inventories. 


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Spread Co is an execution only service provider. The material on this page is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by Spread Co Ltd or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

 

Posted by David Morrison

Tagged: AM Bulletin

Category: AM Bulletin


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