Incisive market commentary from David Morrison

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AM Bulletin: Equities and oil slip in early trade
31 Mar 2016
PM Bulletin: Non-Farm Payroll look-ahead
31 Mar 2016
AM Bulletin: Yellen comments boost risk appetite
30 Mar 2016
PM Bulletin: Is a dovish Janet really that bullish?
30 Mar 2016
AM Bulletin: Yellen to speak
29 Mar 2016
PM Bulletin: US indices running into resistance
29 Mar 2016
AM Bulletin: Profit-taking ahead of holiday weekend
24 Mar 2016
PM Bulletin: Dollar correlations
24 Mar 2016
AM Bulletin: Equities head higher
23 Mar 2016
PM Bulletin: Melt-down in precious metals
23 Mar 2016
AM Bulletin: Markets looking for guidance
22 Mar 2016
Weekly Bulletin: US dollar on the back foot
21 Mar 2016
AM Bulletin: USD sell-off boosts oil
18 Mar 2016
PM Bulletin: A look at the S&P500 and FTSE100
18 Mar 2016
AM Bulletin: USD down on dovish Fed
17 Mar 2016
PM Bulletin: USDJPY
17 Mar 2016
AM Bulletin: All ears and eyes on FOMC
16 Mar 2016
PM Bulletin: Reaction to the “Sugar Tax”
16 Mar 2016
AM Bulletin: BOJ unchanged
15 Mar 2016
PM Bulletin: FOMC look-ahead and the USD
15 Mar 2016
Weekly Bulletin: Central banks still in focus
14 Mar 2016
PM Bulletin: Gold
14 Mar 2016
AM Bulletin: Confusion reins
11 Mar 2016
PM Bulletin: EURUSD revisited
11 Mar 2016
AM Bulletin: ECB meeting in focus
10 Mar 2016
PM Bulletin: Mr Draghi fires his bazooka
10 Mar 2016
AM Bulletin: Markets consolidate
09 Mar 2016
PM Bulletin: ECB look-ahead
09 Mar 2016
AM Bulletin: Chinese data weighs on equities
08 Mar 2016
PM Bulletin: Nasdaq 100
08 Mar 2016
Weekly Bulletin: ECB expected to boost stimulus
07 Mar 2016
PM Bulletin: FTSE making steady gains
07 Mar 2016
March: Non Farm Payrolls Out Today
04 Mar 2016
AM Bulletin: Markets quiet ahead of Non-Farms
04 Mar 2016
PM Bulletin: Meanwhile, over in silver...
04 Mar 2016
AM Bulletin: Equities consolidate
03 Mar 2016
PM Bulletin: Non-Farm Payroll look-ahead
03 Mar 2016
AM Bulletin: Equities soar
02 Mar 2016
PM Bulletin: AUDUSD chart
02 Mar 2016
AM Bulletin: See-saw day ends in losses for US equities
01 Mar 2016
PM Bulletin: Glencore
01 Mar 2016
Expand February <span class='blogcount'>(42)</span>February (42)
Expand January <span class='blogcount'>(39)</span>January (39)


Week Ahead: Monday 14th March – Friday 18th March

Economic Outlook  

Last week the ECB provided the markets with more monetary stimulus. In contrast to their last big meeting back in early December, this time round the central bank surprised investors by over-delivering when it came to market expectations. As a recap, the ECB cut its headline Minimum Bid Rate to zero after nearly a year and a half at 0.05%. It cut its deposit rate by 0.1% and will now charge financial institutions 0.4% on surplus funds – another incentive to lend money out into the wider economy. Bond purchases are being ramped up by €20 billion per month to €80 billion (the upper end of expectations), and the ECB will also include investment grade euro-denominated bonds issued by non-bank corporations as eligible assets. Previously QE was limited to regional debt. There will also be four new rounds of Targeted Long Term Refinancing Operations (TLTROs). These allow banks to borrow money from the ECB at 0% for four years. However, if those banks then hit certain lending targets the ECB will pay them as much as 0.4% on what they borrowed. So here’s a real incentive for banks to increase their lending to companies and individuals.

The immediate reaction was a sharp sell-off in the euro and corresponding rallies in equity and bond markets. However, this move reversed suddenly after ECB President Mario Draghi said that while rates will stay very low for prolonged period, the ECB did not anticipate cutting them further. Overall there was a feeling that the ECB had either reached, or was close to, the limits of its expansion of monetary policy.

But Friday saw another about-face from the markets. In early trade European and US stock indices rallied sharply back up to levels reached in the immediate aftermath of the ECB’s announcement. The European banks were particularly strong as the ECB has taken a lot of pressure off this sector.

Meanwhile, the euro pulled back from its best levels, although the key EURUSD pair remained well above its pre-announcement levels.

This week’s major economic releases include:

Monday - EUR Industrial Production; NZD RBNZ Governor Wheeler Speaks

Tuesday - AUD Monetary Policy Meeting Minutes; JPY BOJ Monetary Policy Statement, BOJ Press Conference; USD PPI, Retail Sales, Empire State Manufacturing Index, Business Inventories

Wednesday - GBP Claimant Count Change, Average Earnings Index, Unemployment Rate, Annual Budget Release; CAD Manufacturing Sales; USD Building Permits, CPI, Housing Starts, Capacity Utilization, Industrial Production, Crude Oil Inventories, FOMC Statement, FOMC Economic Projections, FOMC Press Conference

Thursday - AUD Employment Change, Unemployment Rate; CHF SNB Monetary Policy Assessment, Libor Rate; GBP BOE Official Bank Rate, Monetary Policy Summary; USD Philly Fed Manufacturing Index,   Unemployment Claims; JPY Monetary Policy Meeting Minutes

Friday - EUR German PPI; GBP BOE Quarterly Bulletin; CAD CPI, Retail Sales; USD Consumer Sentiment, Inflation Expectations, FOMC Member Dudley Speaks, FOMC Member Rosengren Speaks, FOMC Member Bullard Speaks.

Equities Outlook

There can be little doubt that repeated doses of central bank stimulus are delivering diminishing returns. In fact there’s plenty of evidence to suggest that monetary stimulus is no longer effective. But now all eyes turn to the Fed’s FOMC meeting on Tuesday and Wednesday this week. The question here is if the Fed will also surprise investors, not with further stimulus but by raising rates by another 25 basis points? That would certainly lead to additional volatility as analysts and the markets (as shown by Fed Funds futures) don’t anticipate any change. Certainly, a repeat of the turmoil which followed the December rate hike isn’t something the Fed will want to be considered responsible for, even if the sell-off in China’s stock market took much of the blame last time round. It also wouldn’t be in the Fed’s interest to see the dollar strengthen further from here. Another rate hike this week could see last year’s sub-1.0500 lows for the EURUSD retested very quickly. That could go a long way to derail the recovery in crude, putting further pressure not only on the over-indebted energy sector, but also those emerging market economies with large dollar-denominated debts.

However, as FOMC vice-chairman Stanley Fischer said last week the “first stirrings of an increase in the inflation rate” were evident. He also said that that the US was “in the vicinity of full employment.”  The Unemployment Rate is currently 4.9% while inflation (as measured by CPI) came in at an annualised rate of 1.4% in January, rapidly approaching the Fed’s 2% target. These are key measures of successful monetary policy as maximising employment and stabilising prices are the objectives of the Fed’s dual mandate. In addition, the Fed really needs to reload with further rate increases to give it the ammunition to cut when the economy turns lower again. Finally, it is worth remembering that in its December economic projections, the majority of FOMC members predicted a full 1% of rate hikes in 2016, effectively 25 basis points per quarter. It either has to start this process this week, or dial down its predictions aggressively. We’ll find out on Wednesday.

The Bank of Japan and Bank of England also meet this week and UK Chancellor George Osborne will unveil his Annual Budget on Wednesday.

Commodity/ FX Outlook


Crude oil continues to grind higher. Last week WTI hit its highest level since the beginning of the year while Brent traded around levels last seen in early December 2015. Both contracts posted their fourth successive week of increases. Overall, there is still some upside momentum although the Brent contract struggled to make fresh highs in the latter half of the week.

Analysts appear to be split over whether the lows are in for oil or if there’s a danger of another leg down. The dollar has slipped over the past fortnight and this is helping to underpin oil. However, as always, it is the fundamental supply and demand picture which will determine price action over the medium to long term while investor sentiment adds to short-term volatility. On the latter point, crude sold off sharply on Thursday following news that the much-heralded meeting between OPEC and non-OPEC producers on 20th March had been postponed or even cancelled. The meeting was called in an effort to get widespread agreement for an output freeze. News that Saudi Arabia, Russia, Venezuela and Qatar were in favour of a production ceiling has done much to drive oil’s recent turnaround. This is despite warnings from analysts that only a full-blown cut in output would help work through the record inventory levels that have been weighing on the price. But it is well known that Iran has no interest in agreeing to a freeze as it is busy ramping up production after years of sanctions. Yet Kuwait has said that it will ignore any agreement that grants Iran an exemption. Meanwhile, in its latest monthly report the International Energy Agency said that crude may have bottomed. It predicted that non-OPEC production would fall by 750,000 barrels per day in 2016, significantly below its previous estimate of 600,000 barrels per day.

Gold/ Silver

Gold came under a bit of selling pressure towards the end of last week. The move appeared to be little more than profit-taking ahead of the weekend on the back of a slight uptick in the US dollar. Nevertheless, the metal continues to be remarkably resilient. It is currently up around 20% from its December low of just under $1,050 and every time sellers attempt to push it lower, buyers come in and bid the price back up.

The area around $1,240 acted as resistance for the second half of February. However, once gold broke above here in early March it has held as support. Gold has been out of favour with investors for such a long time now that many people are wary of including it in their portfolios. Gold has had so many false bottoms since it began its sell-off in 2011 and many would-be buyers have been burnt when they’ve tried to pick the low. Now it feels as if the low is in and the fundamental situation once again provides plenty of good reasons for owning gold – negative interest rates being one of them. However, many would-be buyers missed an opportunity to go long at attractive levels in the New Year. Their quandary is whether to buy now but risk a sharp corrective sell-off, or wait for a pull-back which may never come.


The big concern ahead of last week’s ECB meeting was that the central bank would once again fall short of market expectations. However, this wasn’t the case. The ECB delivered on its discount rate cut and on its boost to its monthly bond purchase programme. Not only that but it surprised investors by cutting its minimum bid rate, announcing four new rounds of Targeted Long Term Refinancing Operations (TLTROs) and including investment grade euro-denominated bonds issued by non-bank corporations as assets eligible for regular purchase.

The euro fell sharply in the immediate aftermath of the ECB’s decision. However, it then rallied after Mario Draghi said that while rates will stay low for prolonged period, the ECB did not anticipate cutting them further. The EURUSD broke above 1.1200 for a low-to-high round trip of 3.6% - a move that was bigger in percentage terms than the rally which followed the ECB’s December meeting.

FX traders have focused on the possibility that this is the limit of monetary easing from the ECB. In addition they are looking ahead to the Fed’s rate decision on Wednesday. Few investors expect the Fed to hike rates again this time round. But US unemployment is well below the central bank’s target, while inflation is trending higher. In addition, the ongoing stock market rally and pull-back in the dollar both help give the Fed room if it were to risk tightening again.

*Prices are accurate at time of writing


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: Weekly Bulletin

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