Incisive market commentary from David Morrison

Stay ahead with our market commentary and webinars from our in house market strategist

Open a Live AccountOpen a Demo Account
+ Show blog menu



Expand 2017 <span class='blogcount'>(348)</span>2017 (348)
Collapse 2016 <span class='blogcount'>(483)</span>2016 (483)
Expand December <span class='blogcount'>(23)</span>December (23)
Expand November <span class='blogcount'>(41)</span>November (41)
Expand October <span class='blogcount'>(37)</span>October (37)
Expand September <span class='blogcount'>(41)</span>September (41)
Expand August <span class='blogcount'>(52)</span>August (52)
Expand July <span class='blogcount'>(38)</span>July (38)
Expand June <span class='blogcount'>(42)</span>June (42)
Expand May <span class='blogcount'>(42)</span>May (42)
Expand April <span class='blogcount'>(45)</span>April (45)
Expand March <span class='blogcount'>(41)</span>March (41)
Collapse February <span class='blogcount'>(42)</span>February (42)
Weekly Bulletin: Equity rally continues
29 Feb 2016
PM Bulletin: Chart for the EURUSD
29 Feb 2016
AM Bulletin: Auction postponement linked to risk rally
26 Feb 2016
PM Bulletin: FOMC members add to confusion over monetary policy
26 Feb 2016
AM Bulletin: US stock indices rebound
25 Feb 2016
PM Bulletin: Lloyds Banking Group
25 Feb 2016
AM Bulletin: Stocks slip on lower crude
24 Feb 2016
PM Bulletin: Gold
24 Feb 2016
PM Bulletin: Crude oil, yen and equities
23 Feb 2016
AM Bulletin: Equities slip after strong start to week
23 Feb 2016
Sterling dumps on Brexit fears
22 Feb 2016
AM Bulletin: Stronger start for global equities
22 Feb 2016
AM Bulletin: Netflix leads Nasdaq lower
19 Feb 2016
PM Bulletin: FTSE revisited
18 Feb 2016
AM Bulletin: Oil still leading equities
18 Feb 2016
PM Bulletin: The yen, Nikkei and negative interest rates
17 Feb 2016
AM Bulletin: Oil and FOMC minutes in focus
17 Feb 2016
PM Bulletin: WTI and Brent
16 Feb 2016
AM Bulletin: Equities, USD, oil rally while precious metals slide
16 Feb 2016
Weekly Bulletin: Yellen keeps us guessing
15 Feb 2016
PM Bulletin: A multi-year look at the FTSE100
15 Feb 2016
PM Bulletin: Andrews’ Pitchfork on S&P500
12 Feb 2016
AM Bulletin: Equities remain vulnerable to further selling
12 Feb 2016
PM Bulletin: EURUSD – what now?
11 Feb 2016
AM Bulletin: Yellen fails to calm nerves
11 Feb 2016
PM Bulletin: Yellen steers through Clashing Rocks
10 Feb 2016
AM Bulletin: Yellen testimony in focus
10 Feb 2016
PM Bulletin: Japanese sell-off spooks investors
09 Feb 2016
AM Bulletin: Investors nervous as crude flirts with $30
09 Feb 2016
PM Bulletin: Big “risk-off” moves to start the week
08 Feb 2016
Weekly Bulletin: Investor jitters raises volatility
08 Feb 2016
February: Non Farm Payrolls Out Today
05 Feb 2016
PM Bulletin: Big miss for Non-Farm Payrolls
05 Feb 2016
AM Bulletin: Non-Farm Friday
05 Feb 2016
PM Bulletin: Non-Farm Payroll look-ahead
04 Feb 2016
AM Bulletin: Dollar slumps; oil spikes
04 Feb 2016
PM Bulletin: Tomorrow’s MPC press conference in focus
03 Feb 2016
AM Bulletin: Weaker crude weighs on equities
03 Feb 2016
PM Bulletin: A look at the EURUSD
02 Feb 2016
AM Bulletin: Google can’t lift indices
02 Feb 2016
PM Bulletin: Charts for USDJPY
01 Feb 2016
Weekly Bulletin: Central banks respond to sell-off
01 Feb 2016
Expand January <span class='blogcount'>(39)</span>January (39)
 Monday 15 February 2016

Weekly Bulletin: Yellen keeps us guessing



Week Ahead: Monday 15th February – Friday 19th February

Economic Outlook  

Crude prices remain a major driver for other risk assets. However, last week they took a supporting role to central banks and monetary policy. Although we have to wait another four weeks until we get the next major central bank meeting, US Federal Reserve Chair Janet Yellen provided some excitement when she testified in Washington. Market participants were desperate to hear what she had to say about future monetary policy.

When it came to it she said the usual stuff about the Fed making progress towards its objective of maximum employment and that the FOMC expects inflation to rise to its 2% objective in the medium term. But perhaps the most dovish (and therefore potentially bullish) part of her testimony was when she stated: “Financial conditions in the United States have recently become less supportive of growth, with declines in broad measures of equity prices, higher borrowing rates for riskier borrowers, and a further appreciation of the dollar.”

In other words, the economy is weakening, suggesting that the Fed won’t hike again next month. However, this may not be enough to calm market fears between now and the next Fed meeting on 15th/16th March. After all, fed funds futures don’t anticipate a further hike until the third quarter of 2017. If the Fed is still suggesting that additional tightening is on the cards, then the mismatch will lead to a general loss of risk appetite.

This week’s major economic releases include:

Monday - USD Bank holiday; CNY Trade Balance, New Loans; EUR ECB President Draghi Speaks

Tuesday - AUD Monetary Policy Meeting Minutes; EUR German Constitutional Court Ruling, German ZEW Economic Sentiment, Euro zone ZEW Economic Sentiment; GBP CPI, RPI; CAD Manufacturing Sales; USD Empire State Manufacturing Index

Wednesday - CNY Foreign Direct Investment; GBP Claimant Count Change, Unemployment Rate, Average Earnings; USD Building Permits, PPI, Housing Starts, Capacity Utilization, Industrial Production, FOMC Meeting Minutes

Thursday - AUD Employment Change; CNY CPI, PPI; USD FOMC Member Bullard Speaks, Philly Fed Manufacturing Index, Unemployment Claims, Crude Oil Inventories

Friday - GBP Retail Sales, Public Sector Net Borrowing; CAD Core CPI, Core Retail Sales; USD CPI.

Equities Outlook

It was another bad week for equities and, by extension, global stock indices. Investors are picking on one sector after another for scrutiny as concerns build about the condition of the global economy. Energy and oil-related stocks bore the brunt of last year’s sell-off thanks to the decline in the price of crude. Despite this, most of the major indices managed to hold their own and end 2015 little-changed. But the resilience of the indices papered over the cracks that had appeared in the broader market. The FANG stocks (Facebook, Amazon, Netflix and Google) had dominated trade and helped to hide the fact that many companies outside and inside the S&P500 were struggling. The China-driven New Year sell-off was a precursor to yet another poor earnings season (which is still in progress). Suddenly the FANGs were out of favour and this meant another headwind for equities.

But last week brought another worry as the banking sector came into focus. Banking stocks have fallen sharply over the last six weeks with many of the biggest UK and US names (including Barclays, RBS, Standard Chartered, Citigroup, Bank of America and Morgan Stanley) down over 25% since the beginning of the year. But the situation for some European banks is even worse. The Italian banking sector has been under pressure for some time now on concerns about non-performing loans which are estimated to be around €200 billion. But last week Germany’s Deutsche Bank and France’s Societe Generale also hit the headlines. In an echo of the last banking crisis, investors questioned Deutsche Bank’s solvency. German Finance Minister Wolfgang Schaeuble had to step in to assure the market that the bank was solid. After a one-day slump of 10% in the share price, the stock eventually stabilised after the bank announced a debt buy-back plan.

Commodity/ FX Outlook


At the very end of last week crude oil popped higher and (at the time of writing) was helping to give equities a lift. But to consider that investor sentiment towards oil has turned positive is, I think, to misread the market action.

Last Thursday front month WTI hit its lowest level in fourteen years. Meanwhile Brent briefly broke back below $30 per barrel for the first time since 26th January this year. The underlying supply/demand fundamentals which have helped to drive the oil price relentlessly lower remain unchanged. Production continues to run at record levels while demand growth is slowing. In its February oil market report the International Energy Agency (IEA) noted that global supply dropped by only 200,000 bpd to 96.5 million bpd in January as OPEC output mostly countered a fall in non-OPEC production. Meanwhile, although demand growth hit a record last year averaging 1.6 million barrels per day (bpd), the IEA predicts that this will decline to 1.2 million bpd over 2016 due to slowdowns in Europe, China and the US. In her testimony in Washington last week Janet Yellen also made reference to global financial conditions becoming less supportive of growth.

So supply looks set to continue to outstrip demand, particularly as Iranian exports come back on stream. This dynamic is unlikely to change much for the rest of the year unless the global economy shifts up a gear, which looks increasingly unlikely. In fact it feels as if the only time crude oil gets a lift is when a story hits the newswires claiming that producers are close to arranging a meeting to discuss output cuts. But there seems very little chance of any production cuts being agreed with OPEC, let alone between OPEC and non-OPEC producers. I think all these stories about “talks” are probably nothing more than a blatant attempt to jawbone the market higher (just like the world’s central bankers are so keen on doing) because there’s not a snowball’s chance in hell of an agreement ever being reached. I could be wrong of course, but I don’t think I am.

Technically the outlook is mixed. According to the charts, WTI has still to find a bottom. This is in stark contrast to gold and silver. The outlook for Brent is more ambiguous. It is very early days but if it can now hold above $30 then it may be due a counter-trend rally. The chart for copper looks similar.

Gold/ Silver

It was a stunning week for precious metals. Gold burst through resistance at $1,200 and as of Friday afternoon, was on course for its best week since early 2012 – in nominal terms and percentage-wise. It was a similar story for silver, and it now looks as if both precious metals bottomed back in December.

Recent dollar weakness has played a large part in the rally, and overall gold and silver are getting a boost from the prospect of the US Federal Reserve holding off from hiking rates this year. That is what the fed funds futures market is suggesting anyway. But gold and silver have also been boosted by the double whammy of safe-haven buying, and the fact that both have been so steadfastly rejected by investors for the last few years. The sell-off in equities and other risk assets has come on the back of worries over global growth and fears of another crisis due to uncertainty over the health of bank balance sheets. This has been caused and/or compounded by the actions of central banks as negative interest rates become another tool of monetary policy, while the Fed’s December rate hike is being seen as a major policy error.

It is perhaps no surprise that both metals should have been out of favour for so long. The price crash that followed the rally of the two metals from 2008 to 2011 was brutal. But the rally from mid-January looks overdone and a pull-back from current levels followed by some price consolidation would be healthy and set the metals up for further gains.


Last week’s FX volatility was less to do with wild swings in currency pairs and more to do with an apparent fundamental switch in market sentiment towards the US dollar.

In fairness investor sentiment began to change at the beginning of the month. But it became much clearer over the course of last week. The big question now is whether this is just another leg down and further consolidation before the dollar resumes the rally which began in 2014, or the beginning of a reversal and a protracted downtrend for the greenback.

It all comes down to central bank monetary policy. We know that the European Central Bank and Bank of Japan are looking to ease monetary policy further. Given the state of the Chinese economy, it looks inevitable that the People’s Bank of China will also have to provide further stimulus too. This should be dollar supportive. However, it’s likely that this support could crumble if it becomes accepted wisdom that the US Federal Reserve made a major policy error in raising rates in December while projecting further hikes throughout 2016. In her testimonies to Congress and the Senate last week Janet Yellen was downbeat about the outlook for global growth. This dovishness helped to send the dollar lower. However, the move wasn’t all one way as Mrs Yellen said nothing which explicitly took a March rate hike off the table. Of course she was hardly going to come out more than a month before an FOMC meeting and say there’s no chance of a rate hike, but it still rattled investors.

The best guide is to look at what the bond market is saying. On Thursday the yield on the 10-year US Treasury dropped to its lowest level since September 2012. Meanwhile the Fed Funds futures market now doesn’t expect another US rate hike until the third quarter of 2017. Now the fixed income guys could be getting ahead of themselves. But they are putting their money where their mouths are and this is dollar negative.

Looking at the USDJPY – as I wrote last week I would imagine that Japanese policymakers are having sleepless nights over the strengthening yen. I would expect intervention soon. The only question is whether the BOJ dives in straight away, or waits to see if the USDJPY tests support around 110.00. I’m guessing the latter.

*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

Add a comment Add comment            


© 2018 Spread Co Limited. All Rights Reserved.

Spread Co Limited is a limited liability company registered in England and Wales with its registered office at 22 Bruton Street, London W1J 6QE. Company No. 05614477. Spread Co Limited is authorised and regulated by the Financial Conduct Authority. Register No. 446677.

Spread betting and CFD trading are leveraged products and can result in losses that exceed your deposits. Ensure you understand the risks.

Losses can exceed deposits. Click here to learn more.