Incisive market commentary from David Morrison

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Central banks and US payrolls in focus - Weekly Bulletin
31 Oct 2016
Revised Trading Hours - UK British Summer Time (BST) ends, 30th October 2016
28 Oct 2016
US GDP in focus - AM Bulletin
28 Oct 2016
US stock indices still range-bound
27 Oct 2016
Equities drift on mixed earnings
27 Oct 2016
Earnings season, oil and the US dollar - Video Update
26 Oct 2016
Apple disappoints - AM Bulletin
26 Oct 2016
Silver range-bound - PM Bulletin
25 Oct 2016
Equities up on deals and earnings - AM Bulletin
25 Oct 2016
Spread betting charges – overnight financing - Trading Guide
24 Oct 2016
USD rally continues - Weekly Bulletin
24 Oct 2016
Deutsche Bank trades at pre-DOJ fine levels : AM Bulletin
21 Oct 2016
ECB Decision in less than 400 words - PM Bulletin
20 Oct 2016
Oil’s move to a 15-month high supports global markets - AM Bulletin
20 Oct 2016
Intel buck earnings trend as the Fed takes centre stage again - PM Bulletin
19 Oct 2016
WTI eyes resistance around June highs - PM Bulletin
18 Oct 2016
US/UK inflation data in focus - AM Bulletin
18 Oct 2016
How to know what to spread bet on : Trading Guides
17 Oct 2016
Dollar up on December rate hike speculation - Weekly Bulletin
16 Oct 2016
Oil sparks recovery on Wall Street - AM Bulletin
14 Oct 2016
FOMC minutes - hawkish or dovish? - PM Bulletin
13 Oct 2016
Weak Chinese trade number hits miners - AM Bulletin
13 Oct 2016
US indices range-bound ahead of election - Video Update
12 Oct 2016
FOMC minutes in focus - AM Bulletin
12 Oct 2016
Sterling at fresh multi-year lows : PM Bulletin
11 Oct 2016
Brent crude hits 12-month high - AM Buleltin
11 Oct 2016
How Spread Betting Works : Trading Guides
10 Oct 2016
Another disappointing US payroll report - Weekly Bulletin
09 Oct 2016
Sterling “flash crash” and US Non-Farm Payrolls - AM Bulletin
07 Oct 2016
Non-Farm Payroll look-ahead - PM Bulletin
06 Oct 2016
AM Bulletin: Equities up on data releases and oil
06 Oct 2016
Video Update: OPEC’s production cut promise poses some questions
05 Oct 2016
AM Bulletin: Precious metals slump on USD rally
05 Oct 2016
PM Bulletin: Sterling lurches lower
04 Oct 2016
AM Bulletin: Firmer start for global equities
04 Oct 2016
Trading Guide: How to use Stop Losses in spread betting
03 Oct 2016
Weekly Bulletin: Important week for data releases
03 Oct 2016
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Indices Update

There’s a firmer tone across European equity markets this morning, while US stock index futures have made back all of last night’s losses. Once again, the oil price is responsible for most of the movement in equity markets. Crude has rallied in early trade this morning and is once again pushing up towards the highs hit back in early June. However, it does feel as if WTI and Brent will have to break above $51.60 and $52.80 respectively for the rally in equities to continue.

Today we get inflation updates from both the UK and US. This morning we get the latest UK CPI reading which is expected to show year-on-year headline inflation growth (including food and energy) of +0.9% - well above the prior month’s reading of +0.6%. Inflation caused by the sell-off in sterling since the UK referendum should now be showing up in the data. US CPI (including food and energy) is expected to come in at +0.3% month-on-month. This would represent a small increase on the prior reading of +0.2%.

At the end of last week Fed Chair Janet Yellen spoke at the Federal Reserve Bank of Boston’s Annual Research Conference. Here she mused on the prospect of the of the US central bank running a “high pressure economy” to counter the damage from the financial crisis. This was interpreted as the Fed looking to overshoot its 2% inflation target. This in turn would suggest lower rates for longer and would certainly take a December rate hike off the agenda.

However, in an interview yesterday with FOMC-voting member Eric Rosengren disagreed with Dr Yellen and failed to endorse such a plan. He also reiterated his view that the Fed shouldn’t wait to raise interest rates. As far as the latter was concerned he said that inflation as measured by core PCE was, at +1.7%, “pretty close” to the Fed’s 2% target. He also warned that waiting any longer to tighten monetary policy risked overshooting a sustainable rate of unemployment which would lead to higher inflation, and the possibility of a damaging monetary policy response.

Last week the US Federal Reserve released the minutes of its Federal Open Market Committee (FOMC) meeting from September. This was when Esther George, Loretta Mester and Eric Rosengren dissented from the statement and voted for an immediate 25 basis point hike. Several FOMC members expressed concern that the Fed could lose credibility if it once again held off from tightening monetary policy given that the central bank’s targets for inflation and employment were met, or close to being met. Overall, the minutes sounded pretty hawkish and appear to keep alive the prospect of a December rate hike.

The FTSE 100 ended the day 66 points lower at 6,947.6

The German DAX fell 76.8 points or 0.7% to end the day at 10,503.6

The US30 closed 52 points lower at 18,086.4. The S&P 500 ended down 0.3 % at 2,126.5 while the Nasdaq 100 fell 0.3% to close at 4,796.2


Pearson (PSON) reported a 7% drop in revenues for the three months to the end of September. The education group (and previous owner of the Financial Times) blamed a temporary drop in demand for textbooks. The company chiefly operates in the US where an “inventory correction” had resulted in a 13% fall in sales in constant exchange rates. Pearson’s CEO said he was confident the drop in demand was temporary. However, investors fear this is further evidence of a shift towards online educational material or an environment where students rent textbooks rather than buy them. Pearson has issued four profit warnings in three years. The shares ended the day 8.4% lower at 762.5 pence.

Commodities Update

Crude continues to butt up against an area of resistance which is forming near the highs made earlier in June. This comes in around $51.60 for WTI and $52.80 for Brent. Last week’s US inventory numbers offered something of a mixed picture and this added to investor uncertainty. The latest data from the American Petroleum Industry (API) showed a 2.7 million barrel increase in crude stockpiles which was higher than the 2 million barrel build expected and the first increase in six weeks. The following day the International Energy Administration (EIA) confirmed a build in US stockpiles. Crude inventories rose 4.9 million barrels for the week ending 7th October on expectations of a 400,000 barrel build. But this figure was offset to a great extent by sharp decreases in gasoline and distillate inventories. API releases its latest update later this evening.

At the end of last week Baker Hughes (the oil services provider) reported that the US rig count had risen for the 16th consecutive week. This appears to confirm the expectation that US oil production is set to rise as shale oil drillers seek to cash in on the recent pick-up in prices. Crude rallied sharply after OPEC committed to an output cut following a side meeting during the International Energy Forum conference in Algeria last month. Details concerning which countries will bear the brunt of the cuts, which countries will be exempt (if any) and how OPEC will ensure compliance won’t be announced until its next meeting at the end of November.

Gold and silver continue to consolidate at lower levels following their dramatic sell-off a fortnight ago. The two metals were helped yesterday by a modest pull-back in the US dollar, although last week they showed resilience despite the Dollar Index hitting a succession of seven month highs.

Earlier in the month the two metals slumped as investors reassessed the likelihood of a Fed rate hike before the year-end. This followed the release of better-than-expected US Manufacturing and Non-Manufacturing PMIs. However, the magnitude of the sell-off took traders by surprise. It was exacerbated to a great extent by a cascade of sell-stops which were triggered as gold and silver broke below significant support levels. However, there was also some talk that a London-based fund had been forced to liquidate leveraged holdings in both metals. This made some sense as the bulk of the sell-off occurred as the US futures market opened. However, we’re unlikely to know one way or another until hedge funds publish their returns at the end of the year.

 Precious metals found some support after the release of September’s disappointing Non-Farm Payroll numbers. As things stand, anything that weighs against a Fed rate hike is positive for precious metals. That is why both gold and silver also got some support from Janet Yellen’s comments on Friday. The Fed Chair mused on the possibility of the US central bank running a “high pressure economy” to counter the damage from the financial crisis. This was interpreted as the Fed looking to overshoot its 2% inflation target which suggests lower rates for longer.

Forex Update

Yesterday the US dollar gave back some of its gains from last week. On Friday the Dollar Index hit a fresh seven-month high, closing the week out above 98.00 while the EURUSD slipped below 1.1000 for the first time since the end of July. Yesterday’s pull-back looked like little more than profit-taking. The greenback continues to get a lift from expectations that the US Federal Reserve will hike rates at its December meeting.

This view was strengthened by comments made by FOMC-voting member and Federal Reserve Bank of Boston President Eric Rosengren. Mr Rosengren was one of three (out of ten) FOMC committee members who voted for an immediate rate hike at last month’s meeting. Yesterday he spelt out the reasons saying he was worried about a jobless rate that might dip to an ultra-low level, but then force the Fed to risk a recession with faster rate of monetary tightening.

On Friday Fed Chair Janet Yellen delivered a speech at the Federal Reserve Bank of Boston’s Annual Research Conference. In it she said that the Fed was becoming increasingly concerned that the US’s economic potential was fading. She suggested that the Fed may need to run a "high-pressure economy" to reverse damage from the 2008-2009 crisis. This suggested that she would be willing to let inflation push above the Fed’s 2% inflation target. This in turn would suggest lower rates for longer, potentially discounting a December hike.

Minutes released last Wednesday from the FOMC’s September meeting showed that several FOMC members felt the decision to wait was a “close call” and several said that they saw a rate hike coming “relatively soon.” It was also noted that a “reasonable argument” could be made for a hike and that several participants were concerned that another delay “risked eroding its credibility, especially given that recent economic data had largely corroborated the Committee’s economic outlook.”

Upcoming events

Today’s significant economic events include the release of UK CPI, RPI and HPI. From the US we have CPI, the NAHB Housing Market Index and TIC Long-Term.


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

Category: AM Bulletin

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