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

European equities and US stock index futures are sharply lower in early trade on Thursday. The sell-off follows on from a relatively hawkish set of FOMC minutes, some disappointing trade data from China and a pull-back in the oil price. However, there’s also a feeling that stock markets are looking a bit pricey at current levels and in need of a correction, particularly in the US. There are some concerns that the third quarter earnings season is not going to beat expectations sufficiently to provide a catalyst for buying. Having said all this, both the Dow and the S&P 500 are now trading near the bottom of recent ranges at 18,000 and 2,120 respectively. So it will be worth watching now to see if these levels hold or are broken with conviction.

Last night’s minutes of September's Federal Open Market Committee were sold as hawkish in keeping the prospect of a December rate hike live. However, market reaction suggested that most investors viewed them as dovish, with the dollar selling off and precious metals rallying. In the end the major US indices ended little-changed. The September meeting was unusual in that there was dissent amongst members. Three of the FOMC's 10 voting members opposed the final statement which kept the fed funds target capped at 0.5%. Esther George, Loretta Mester and Eric Rosengren wanted an immediate 25 basis point hike.

Overnight, China reported that its Trade Balance shrank to +$42 billion – way below expectations of a $53.1 billion surplus and last month’s $52.1 billion. The news has hit mining stocks hard and the selling has rolled over into other sectors.

The FTSE 100 ended the day 46.9 points lower at 7,024

The German DAX fell 54.1 points or 0.5% to end the day at 10,523.1

The US30 closed 15.5 points higher at 18,144.2. The S&P 500 ended up 0.1 % at 2,139.2 while the Nasdaq 100 fell 0.05% to close at 4,819.6


Shares in Premier Foods (PFD) were down over 17% at one stage yesterday after the group reported a 5.4% drop in sales for the second quarter. The company behind brands such as Bisto, Mr Kipling, Birds and Lloyd Grossman blamed September’s warm weather for the decline. This meant less demand for gravy, custard, stock cubes, cook-in sauces and other foodstuffs typically consumed when the weather is inclement. Despite this, Premier kept its full-year profits forecast unchanged crediting careful cost management. The stock ended the day 6.2% at 49 pence.

Commodities Update

Yesterday crude oil gave back some of its recent gains as investors decided it was a good time to book profits. Some commentators said the trigger for the pull-back was the rally in the dollar. However, the greenback and crude have been going up in tandem since mid-September so it’s not worth paying too much attention to that theory. Instead, the move looks largely technical as WTI approached (and failed to break above) its highs from early June. It was a similar story for Brent which managed to break above its own high from early June but failed to hold above it.

Oil came under further selling pressure yesterday evening. This followed the latest US crude oil inventory release from the American Petroleum Industry (API). This showed the first increase in stockpiles in six weeks with crude up 2.7 million barrels on expectations of a 2 million barrel build. Stocks at Cushing and for gasoline were also sharply higher.

Of course, it’s too early to tell if this is the start of a deeper correction or simply consolidation ahead of another leg higher. However, it’s fair to say that doubts are creeping in about OPEC’s commitment to cut production. In addition, there are fears that the OPEC-inspired rally since August risks destabilising the oil market over longer-term. OPEC really has to come up with the goods at their November meeting. If they fall short, then the markets will have to deal with additional supply that has come as a direct result of the rally in oil since the Algeria meeting. This comes from both OPEC and non-OPEC countries. It appears that OPEC members are desperately boosting production in order to capitalise on higher prices and ahead of any quota agreement in November. OPEC has just said that its production is now at the highest level in over eight years. Meanwhile, the big non-OPEC producers (Russia and the US) are doing the same thing.

Gold and silver trod water for most of yesterday. It felt as if both metals wanted to push higher in an attempt to make back some of last week’s losses. However, yet again dollar strength kept the two metals in check.

In some ways the fact that gold and silver appear to be consolidating despite the ongoing dollar rally is quite constructive. However, last week’s rout is still fresh in investors’ minds. Few seem ready to take on any additional exposure until the two metals establish decent support. The trouble seems to be that there was little reason for last week’s slump. All it took was some wild speculation that the Fed could hike in November and a modest spike in the dollar for gold and silver to scythe through significant support and trigger a wave of stop orders. As a consequence, it may take some time for market confidence to return.

Forex Update

Movements in sterling continue to grab the attention of FX traders. Yesterday the British pound rallied after hitting a fresh 31-year closing low on Tuesday. Sterling’s recovery was attributed to UK Prime Minister Theresa May who announced late on Tuesday that she is going to allow “a full and transparent” debate in Parliament before triggering Article 50. However, she held back from promising MPs a formal vote on the government’s negotiating strategy. This was the trigger for a short-covering bounce which faded somewhat as yesterday’s session progressed.

While Theresa May has softened her stance and so reduced fears of the UK locking itself out of the single market, relatively little has changed. While any parliamentary debate will see large numbers of our elected representatives voicing their concerns over the Brexit vote, there must be little chance that the referendum result will be reversed, or even run again.

So it is important to remember that there are other forces at play when it comes to movements in the British pound. Firstly, the US Federal Reserve is threatening to hike rates while the Bank of England said it is prepared to loosen monetary policy further before the year-end. Secondly, Chancellor Philip Hammond has indicated that he will announce a package of infrastructure spending at next month’s Autumn Statement. If so, then this means he will abandon previous plans to cut the budget deficit with a view to controlling the national debt. Given that government debt to GDP is currently around 90% it’s no wonder that investors are reassessing their willingness to hold sterling.

Meanwhile the US dollar continues to push higher. The Dollar Index hit a six-month high while the EURUSD fell to its lowest level since the end of July. All this comes as investors continue to price in the probability of a Fed rate hike in December. Last night brought the release of minutes from the Fed’s FOMC meeting in September. This was when the US central bank held off from hiking rates. The minutes showed that the three Fed officials who were in favour of hiking rates were concerned that waiting too long could risk sending the US into recession.

Upcoming events

Today’s significant economic events include US Weekly Jobless Claims, Import Prices, Crude Oil Inventories and the Federal Budget Balance. There’s also an unconfirmed report that Bank of England Governor Mark Carney is speaking in Birmingham. 


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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