Incisive market commentary from David Morrison

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Collapse 2017 <span class='blogcount'>(348)</span>2017 (348)
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Market awaits Trump, and Fed reaction
28 Feb 2017
Markets on hold ahead of Trump speech to Congress - AM Briefing
28 Feb 2017
Fibonacci Retracement - an introduction - Trading Guides
27 Feb 2017
Investors shrug off concerns ahead of Trump speech - AM Briefing
27 Feb 2017
Equities drifting lower ahead of weekend - AM Briefing
24 Feb 2017
Dollar sells off after FOMC minutes - Video Update
23 Feb 2017
FOMC minutes send dollar lower - AM Briefing
23 Feb 2017
Crude oil pushes up against resistance - Video Update
22 Feb 2017
FOMC minutes in focus - AM Briefing
22 Feb 2017
Gold pulls back from resistance - PM Bulletin
21 Feb 2017
US traders return after market holiday - AM Briefing
21 Feb 2017
Identifying market tops, or the trend is your friend - until it isn’t
20 Feb 2017
Kraft Heinz pulls Unilever bid - AM Briefing
20 Feb 2017
Major indices drifting lower as weekend approaches - AM Briefing
17 Feb 2017
US Indices hit fresh record highs
16 Feb 2017
Trump tax promise continues to drive risk appetite - AM Bulletin
16 Feb 2017
Yellen testifies in Washington
15 Feb 2017
Yellen testimony helps lift sentiment - AM Bulletin
15 Feb 2017
Silver hovers around resistance at $18
14 Feb 2017
Focus turns to Yellen’s testimony in Washington
14 Feb 2017
An introduction to the Relative Strength Index - Trading Guides
13 Feb 2017
Equity rally continues - AM Briefing
13 Feb 2017
Trump tax talk boosts risk appetite - AM Briefing
10 Feb 2017
US dollar drivers - Video Update
09 Feb 2017
Recovery in crude lifts equities AM Briefing
09 Feb 2017
Crude volatility picking up - Video Update
08 Feb 2017
Crude lower as inventories soar - AM Briefing
08 Feb 2017
Politics set to drive FX - PM Bulletin
07 Feb 2017
Major indices drift in featureless trade - AM Briefing
07 Feb 2017
MACD - an overview -Trading Guide
06 Feb 2017
European equities drift in quiet trade - AM Briefing
06 Feb 2017
Non-Farm Payrolls in focus - AM Briefing
03 Feb 2017
Non-Farm Payroll look-ahead - Video Update
02 Feb 2017
BoE meeting in focus - AM Briefing
02 Feb 2017
FOMC meeting tonight - Video Update
01 Feb 2017
Markets steady ahead of Fed meeting - AM Briefing
01 Feb 2017
Expand January <span class='blogcount'>(39)</span>January (39)
Expand 2016 <span class='blogcount'>(483)</span>2016 (483)


Early moves

HSBC weighs on markets

US back after Presidents’ Day break

There’s a softer tone across European bourses and US stock index futures this morning, thanks mainly to a poor set of earnings from HSBC. The banking giant reported a fall in pre-tax profits of 62% when compared with the same time last year. This was due to a number of one-off charges. Nevertheless, the profit slump was considerably worse than expected and the shares were down around 5% in early trade. But the negative market sentiment was offset to some extent by better-than-expected profits from hotels group Intercontinental and mining giant BHP Billiton and Anglo American.

This is a big day for updates on Services and Manufacturing PMIs. So far Germany has reported improvements in both data sets when compared to last month and consensus expectations. However, the French numbers were mixed with decent Services but disappointing Manufacturing data. The euro has fallen sharply in early trade while the dollar has strengthened, with the latter weighing on precious metals. Last week gold and silver looked as if they were both about to break out above resistance at $1,240 and $18 respectively. However, the two precious metals are out of favour this morning and will continue to struggle should the dollar strengthen further from here.

Before the US open we have earnings reports from Home Depot, Macy’s, Medtronic and Wal-Mart.

Stock Index Update

US stock indices end modestly higher

Unilever falls after Kraft Heinz withdraws bid

The main US stock exchanges were closed yesterday for Presidents’ Day. However, stock index futures markets were open for some of the day and these ended the truncated session modestly higher. This continued the positive stock market tone which flagged a touch at the end of last week. Meanwhile, there were mixed outcomes for the European majors. The UK FTSE and French CAC ended effectively unchanged while the German DAX and Spanish IBEX closed modestly higher.

Shares in Unilever ended yesterday 6.5% lower after Kraft Heinz pulled its £115 billion bid made at the end of last week. Kraft Heinz said they had hoped to negotiate on a “friendly basis” so dropped takeover plans when Unilever management made it clear they had no interest in a deal. It appears that Kraft’s management got cold feet at the prospect of launching a hostile bid which was likely to be politically charged. It’s worth remembering that when Kraft bought Cadbury’s back in 2010 it made a number of promises which it subsequently reneged on. UK Prime Minister Theresa May is understood to be ready to take a more proactive stance when it comes to foreign takeovers of UK companies and this may have frightened off Kraft Heinz.

At the end of last week investors appeared to shrug off Fed Chair Janet Yellen’s hawkish testimony before policymakers in Washington. Dr Yellen said that every FOMC meeting should be considered “live” in terms of the possibility of tighter monetary policy.

Commodities Update

Crude knocks up against top of trading range

Gold and silver edge higher

Trading volumes were light yesterday with most US markets closed for Presidents’ Day. But crude oil continues to trade nearer the top end of a range that has been in place since early November. This saw WTI creep above $54 while Brent hovered below $57. Oil prices continue to get support from the output cuts approved by a significant number of producers during the last OPEC meeting at the end of November. Back then OPEC members together with 11 non-OPEC oil producers (including Russia but excluding the US) agreed to cut output by close to 1.8 million barrels per day (bpd). Reports suggest that there has been widespread compliance with Saudi Arabia even cutting production by more than agreed. But the problem is that the moves so far have done little to reduce global stockpiles. US production continues to rise and add to inventories which already stand at record highs. We get the latest update on US inventories from the American Petroleum Institute (API) after tonight’s close.

Gold made modest gains yesterday but was unable to break and hold above resistance around the $1,240 level. Once again, gold lacked the upside momentum to take it above this crucial level which it first tested this year just under a fortnight ago. There’s no doubt that investors feel that inflation could now pick up if President Trump follows through on his campaign promises of tax cuts, infrastructure spending and regulatory roll-back. But the flip-side to this is the prospect of higher interest rates from the US Federal Reserve. Last week Fed Chair Janet Yellen tried to persuade investors that the Fed stood ready to hike three times this year with the first move coming as early as next month. However, it would appear that market participants don’t really believe her. The dollar rallied a touch after her testimony in Washington last week, but soon gave back its gains.

Forex Update

Japanese yen falls on profit-taking

Sterling recovers after last week’s sell-off

It was a relatively quiet FX session yesterday with most US trading desks closed for Presidents’ Day. The dollar and euro were little-changed against each other although both made decent gains against the Japanese yen. The move in the yen looked like a touch of corrective profit-taking after the Japanese currency rallied sharply last week. This was consistent with a loss of risk appetite which followed Fed Chair Janet Yellen’s testimony in Washington and came ahead of the long holiday weekend. When risk appetite declines, investors book profits from risky trades and buy back the yen they borrowed to invest in these high risk, high yielding assets. Overall, investors were not really convinced by Dr Yellen’s attempt to appear hawkish at the testimony in Washington last week.

Sterling was also firmer yesterday and the move seemed largely technical. Cable looks to be stuck in a tight trading range for now with support around 1.2400 and mild resistance near 1.2550. At the end of last week sterling fell following the release of disappointing Retail Sales number. January Retail Sales fell 0.3% on expectations of a 1.0% increase. This represented the third consecutive decline in UK retail sales and December’s grim reading of -1.9% was revised down to -2.1%.

Upcoming events

Today’s significant economic data releases and events include Flash Manufacturing and Services PMIs from France, Germany, the Euro zone and US. From the UK we have Public Sector Net Borrowing and Inflation Report Hearings. Later in the day there are speeches from FOMC-voting members Neal Kashkari and Patrick Harker.


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Posted by David Morrison

Category: AM Bulletin

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