EU doubling back?

Nathan Sage, PhillipCapitalUK
27/Jun/2017

The European Union has demanded further assurances from the UK government over the future rights of EU citizens following Brexit

. Michael Barnier, the EU’s chief negotiator, tweeted “same level of protection as in EU law. More ambition, clarity and guarantees needed than in today's UK position” just hours after May announced her detailed 20 page report yesterday afternoon. May’s deal offers EU citizens a chance to gain ‘settled status’ after 5 years or apply for the status following a cut-off date. Bariners tweet is going to delay the talks further as both sides have agreed they will not be moving on to free trade talks until citizens’ rights have been agreed.

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Tags:   Barnier EU Brexit May UK

Commodity commentary

Harry Thompson, PhillipCapitalUK
26/Jun/2017

Gold saw a sharp decline this morning after rising to the $1257 level. However it was the sharp drop at 9am that done the damage; the precious metal dropped around $18 in an hour, finding support at the $1235 level. It has now come to trade just above $1240, however if this level is broken we could see a further decline to $1235 and then $1215 beyond that. On the other hand, there could be a resurgence following the sharp drop, however the uncertainty means tight stops should be in play in case there are any further breaks either way.

Oil has found some support overnight, helped higher by a weak U.S. dollar; however the bearish trend remains intact following 5 weeks of straight declines. WTI currently trades at $43.20 a barrel, and investors will likely need to see a move towards $45 in order to quash the bearish trend. For now, the next resistance higher will be around $43.75. On the downside, support may be found one again at $42.80 should WTI turn lower.

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FX commentary

Harry Thompson, PhillipCapitalUK
26/Jun/2017

EURUSD has moved lower this morning but has found some support around the 1.1180 level. The pair has made a number of higher lows and higher highs, meaning we could see a continuation towards the 1.1210 resistance level should the support here hold. On the downside, a move lower to test 1.1139 could open up the 1.1109 support, which if broken, will likely signal a bearish trend.

GBPUSD has risen this morning on the news that the conservative DUP deal has been struck, however, the pair still trades lower on the day. The pair failed to move above 1.2740 and is now heading lower, continuing the clear downtrend we have seen over the last few months. Sterling’s weakness is likely to keep this bearish trend in play, however a break above the June 14 high of 1.28175 could signal a breakdown in this trend.

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The week ahead

Harry Thompson, PhillipCapitalUK
26/Jun/2017

With expectations of a Fed rate rise decreasing due to dwindling inflation, this week’s Personal Consumption Expenditure (PCE) released on Friday will be of extreme importance as it is the Fed’s preferred gauge of inflation. A positive reading may add support for a rate rise later in the year, however, should the figure disappoint, we could see expectations pushed out further.

United States (Continued)

Major data from the U.S. will begin later today when we get durable goods orders, which are expected to show a decline of 0.6%, better than the previous months -0.8% reading. On Tuesday we will have a chance to hear from Fed Chair Janet Yellen who will speak on global economic issues at an event in London. This is followed by comments in the States from the Fed’s Kashkari, who remarked a couple of weeks ago that he was not convinced that the recent spate of soft inflation readings was not due to one-off factors.  We will get confirmation of U.S. first quarter GDP on Thursday which is expected to show a rise of 1.2% QoQ (annualised).

Eurozone

Data from the Eurozone began this morning with German IFO business climate, expectations and current assessment being released. These figures came in better than expected.

The main reading this week from the Eurozone will come in the form of June’s flash CPI reading which is expected to decline year-on-year to 1.3% following Mays reading of 1.4%. Mario Draghi has confirmed that the bank will keep monetary policy accommodative due to underlying price pressures remaining weak; a dip in inflation will likely confirm this view.

UK

The first week of Brexit negotiations are over and, on face of it, things seem relatively cordial, with a David Davis giving a self-assured performance on the Andrew Marr show yesterday morning. We await the release of the detail on the citizen's rights offer this morning and the reaction of the European's to this - Friday's mood swung between encouraging and dismissive following the initial announcement.

Sterling is not showing any further signs of weakness at the moment, with some support coming from speculation over monetary policy as well as from any negotiation disagreements, in public at least.

Other than Brexit negotiations, the UK will receive first quarter GDP figures which are expected to confirm that growth in the first quarter was 0.2% compared to the prior quarter, whilst year on year was 2.0%. In the same day GfK consumer confidence is expected to drop to -7 in June from -5, highlighting the tough times that lay ahead for the UK consumer as real average wages get squeezed.

Asia

Japan and China will have a flurry of data on Thursday and Friday which could bring some volatility into the region.

Japanese retail sales will kick start proceedings on Thursday, and these are expected to show some weakness in the sector, with the month of month reading expected to show -1.0% from 1.4%. On Friday the Jobless rate is expected to remain steady at 2.8%, whilst core CPI figures are expected to show a positive move higher to 0.4% from 0.3%. However, despite an extensive package of loose monetary policy, these figures still highlight the struggle the Bank of Japan has faced. Industrial production figures on Friday are expected to show weakness in May, with the month on month reading likely to drop to -3.0% from 4.0%. On Friday, we will also receive Chinse PMI figures for the manufacturing and non-manufacturing sectors.

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Morning update

Harry Thompson, PhillipCapitalUK
26/Jun/2017

The U.S. dollar continues to be on the defensive as U.S. bond yields remain suppressed due to investors’ concerns over dwindling inflation.  These concerns have reduced markets expectations of another rate hike this year, which now stands around the 50/50 level. This comes despite the relatively hawkish rhetoric from Fed officials who still believe there is one more rate hike left in 2017.

The most recent comments come from San Francisco Fed President John Williams, who said the U.S. central bank needs to keep raising interest rates in order to keep the economy on a balanced path. However, investors now believe the speed at which the Federal Reserve will tighten policy will be slower due to the weakness in inflation.

Inflation levels have taken a hit over the last two years following the decline of oil as global producers continue pumping oil despite bloated inventory levels. The price of oil has now declined for five consecutive weeks as investors doubt the effectiveness of the OPEC led production cut. These doubts are brought about by the rising production in the United States, as confirmed by Friday’s Baker Hughes rig count, which showed U.S. energy firms added 11 oil rigs last week, bringing the total to 758 rigs, the highest levels since April 2014.

The weakness in the U.S. dollar has helped lift oil overnight, however we could see some life back in the dollar this week should Donald Trump be able to pass his healthcare bill; however the U.S. President has a tough ask due to the stiff Democratic opposition he faces.

Meanwhile in the UK space, the DUP’s leader, Arlene Foster, is back in London to conclude talks that will sustain Theresa May’s minority Conservative government. The two parties have been locked in talks for over two weeks; finally negotiations are expected to reach an agreement by Tuesday. In recent reports, Jeremy Corbyn has vowed to be Prime Minister in 6 months’ time.

Despite a likely DUP deal, Theresa May’s hand in Brexit negotiations appears to have already been weakened. At the end of last week, Theresa May made a ‘fair and serious’ offer on EU citizens’ rights, giving the same rights as UK citizens, including the right to work and healthcare. The offer is contingent on a reciprocal basis that Britons living in the EU would be granted the same. 

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Commodity Commentary

Harry Thompson, PhillipCapitalUK
23/Jun/2017

Spot gold made a high of 1245.14 last night and closed 0.32% higher at 1250.22. Demands for risk-off assets has increased, helping gold to climb this morning to trade just below $1258. A move to $1260 will likely meet resistance with the overall sentiment for gold remaining bearish, however a break above $1260 could send prices towards $1275. On the other hand, if the bearish trend continues, a break below $1245 may open up the $1230 level.

Oil has taken a move higher this morning away from its 10 month low as the recent sell off appears to be overdone. However, the overall sentiment remains bearish, with WTI failing to move above $43.35. WTI will likely need to add $2-3 dollars to reverse the recent bearishness, failing to do so will likely leave the $42 level upon to be tested, which if broken will leave sub $40 still in play.

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FX commentary

Harry Thompson, PhillipCapitalUK
23/Jun/2017

EURUSD moved higher overnight as the U.S. dollar came under pressure, however this morning the pair failed to move above the 1.1190 level where it met offers. The pair has traded between 1.1190 and 1.1110 this week, failing to break out of this range. Should the head lower towards the 1.1150 midpoint, we may see a test again of the 1.1110 level. However, as we have seen all week, the momentum will need to be stronger for a breakout to take place. This afternoons PMI figures from the U.S. as well as the various Fed speakers may provide some momentum for the pair. A break above 1.1190 will open up the 1.13 level.

The pound has also capitalised on a weaker dollar, whilst comments regarding EU citizens following the UK’s exit of the EU has helped GBPUSD rise above 1.27 this morning. However the move higher appears to have lost some momentum as the pair pulls away from its daily high of 1.2744. If the pair moves through the 1.27 level, it may find support at 1.2640 and then 1.2615 beyond that. A move above the 55DMA at 1.2822 may confirm some bullish momentum has returned.

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Oil, a growing concern

Harry Thompson, PhillipCapitalUK
23/Jun/2017

Oil is once again in the spotlight as despite efforts from some of the world’s largest oil producers to reduce global output; the price of oil is set for its worst first half performance in twenty years.

Investors remain concerned that OPEC led production cuts are not having the desired effects, as rising production by shale producers in the U.S. derails their attempts. Oil production in the states has risen by around 10% this year, helping oil to decline by around 20% as global storage levels remain near record highs. As we approach month end the U.S. dollar has weakened as there is a broad move out of riskier assets. This, coupled with a potential disruption with supply in the Gulf of Mexico due to Storm Cindy, has helped oil to move away from its 10 month lows; however it remains in its bearish trend. The continued hawkish Fed will likely have the U.S. dollar supported in the medium term, as investors expect further tightening later in the year. A strengthening U.S. dollar will also add to pressure on commodities denominated in the greenback. Later today we will hear from St. Louis Fed President James Bullard, Cleveland Fed President Loretta Mester, and Fed governor Jerome Powell who will shed some further light on the Fed’s future plans. Data yesterday showed that the U.S. labour market remains tight, despite a slight increase in the number of American’s filling for unemployment benefits. Later today PMI figures from the U.S. will be in the spotlight.

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Commodity Commentary

Harry Thompson, PhillipCapitalUK
22/Jun/2017

Gold has come under pressure this morning after its overnight rally towards the $1255 level. This higher move is a likely confirmation that we could see another leg lower, as it failed to move above the $1257 resistance. As a result, the continued downward trend may continue with prices heading back towards the $1241 support level.

Oil continues to be stuck in a bearish trend, despite a brief rally yesterday following the release of the DoE’s weekly inventories report. After its sharp selloff over the last few days, we could see a moment of consolidation before another move lower. WTI currently trades at $42.78 a barrel, with resistance likely to come at $43 and $43.50. A move below $42 a barrel will likely open up the sub $40 a barrel level.

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FX Commentary

Harry Thompson, PhillipCapitalUK
22/Jun/2017

EURUSD had been creeping higher overnight as the US dollar showed some signs of weakness, however the pair was met with some selling pressure this morning, suggesting that we could see the pair move back towards the 1.1110 support level; if broken, we could see a move towards 1.10. If EURUSD moves above the 1.1180 level, we will likely see resistance at 1.1200, 1.1230 and 1.1250/60. A firm break above the 14 June high at 1.12957 could open up 1.1325 and then 1.1365 beyond this.

A hawkish Andy Haldane sent GBPUSD shooting up 100 pips yesterday lunchtime to trade above the 1.27 level; however it has since come to settle around 1.2660. Beyond this level there is likely support around 1.2615 and then 1.2600/1.2595. Should we see a break below 1.26, we will likely see the pair head towards 12th April low of 1.25. A break above 1.2675 will open up the 1.27 level again, however as we saw yesterday, there is a lot of selling pressure at this level.

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First battle for May

Harry Thompson, PhillipCapitalUK
22/Jun/2017

Later this evening, Theresa May will lay out her plans on how the U.K. proposes to treat EU citizens in her first summit with EU leaders since the dismal result of the UK election.

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Oil lower, Wall Street follows suit

Harry Thompson, PhillipCapitalUK
22/Jun/2017

Oil took a brief breather from its bear market trend yesterday afternoon as the official Department of Energy oil inventories showed a bigger than expected drop. Forecasts were for a drawdown of just over 1 million barrels but data showed a drop of 2.45 million barrels for the week to June 16th. Oil spiked higher by around 45 cents on the news but has come under pressure again overnight as over supply fears cast doubts over efforts by OPEC to reduce global output.

The decline added pressure to oil shares on Wall Street, causing the US30 and the SPX500 to move lower. On top of this, financial stocks showed signs of weakness as the U.S. Treasury yield curve moved to its flattest in almost ten years.

Investors appear to be facing a tough time trying to comprehend a hawkish Federal Reserve at a time when inflation has disappointed. The decline in oil and a narrowing in the U.S./Japanese 10 year yield have meant the U.S. dollar has eased against the Japanese Yen. Some analysts have commented that this may continue until there is evidence of a pickup in inflationary pressures.

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Commodity Commentary

Harry Thompson, PhillipCapitalUK
21/Jun/2017

Gold has found some support overnight and moved to trade just below $1247; however the move higher appears to have run out of steam and we could see gold come under pressure and head back towards the $1241 support level. This will prove to be a crucial level and if broken, we could see prices hit the $1218 support. Prices will likely need to rise back above $1255 to confirm the move higher has some weight behind it.

Oil has once again dropped away as over supply fears continue to dominate headlines. WTI currently trades just above $43 a barrel; however with the bearish momentum, we may see another test of the $42 support. A break below will open up the August 2nd low of $39.17. Investors will want to see a move back above $45 to confirm the bearish momentum has been over turned in the near term.

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Tags:   Gold Oil WTI

FX commentary

Harry Thompson, PhillipCapitalUK
21/Jun/2017

EURUSD has eased slightly this morning after some broad dollar strength. We could see the pair test the support level at 1.1110 should the bearish trend continue. Should this support level be broken, this may open up a further move to the downside towards 1.1025. A move back above the June 15 high of 1.1229 would relieve the downward pressure.

GBPUSD is pushing lower once more this morning; with the overnight bounce being a brief moment of consolidation before a further leg lower. It is likely the pair will need to recapture ground above the June 15th low of 1.2690 to prevent any further near term declines; failing to do so, could possible see the pair hit the next support level at 1.2527.

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Sterling lower, Queen's speech shortly

Harry Thompson, PhillipCapitalUK
21/Jun/2017

Sterling remains under pressure following comments from the Bank of England’s Governor, Mark Carney, who appeared to rule out a rate hike any time soon.

Carney feels that due to the uncertainty that is surrounding Brexit, the Bank should continue to be cautious about the economic outlook, with wage growth being a major concern for the governor.

Speaking at Mansion house, the governor said that “Given the mixed signals on consumer spending and business investment, and given the still subdued domestic inflationary pressures, in particular anaemic wage growth, now is not yet the time to begin that adjustment”.

Meanwhile, Phillip Hammond spoke at the same event, commenting that Brexit negotiations have got off to a positive start. This comes ahead of today’s Queens Speech, due to take place in one moment. Theresa May has said “the government will respond with humility and resolve to the message the electorate sent”.

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Yen well bid

Nathan Sage, PhillipCapitalUK
21/Jun/2017

The Yen is the best performing G10 currency this morning as the JPN225 takes a tumble for the first time in four sessions on worries over what the BoJ will do with the current shape of the yield curve.

Meanwhile, U.S. index provider, MSCI has confirmed that it will include a selection of China’s “A” shares in its emerging market index, a positive move towards opening up Chinese equity markets.

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Conflict at the BoE

Nathan Sage , PhillipCapitalUK
20/Jun/2017

Kristin Forbes, ahead of leaving the Bank of England, has set out her fears on inflation, "For a period now, we have been underestimating the inflationary pressures. I wouldn’t be surprised if we continued to do that."

She also said that there could be a cost to waiting due to rising domestic cost pressures. We now know that Forbes will be replaced by Professor Silvana Tenreyro from the LSE. The big question is, is she a dove or is she a hawk?

Forbes's view on inflation contradicts Mark Carney who may have been looking to cover off any wild comments from the leaving member, as this morning in his Speech at mansion house he's said inflationary pressure remains subdued and he doesn't feel it is time for a rate hike in the UK. Carney led the pack in the 5-3 vote last week which kept interest rates at an all-time low. GBPUSD is weaker as a result of Carney's comments down around 0.45% at time of writing.

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Tags:   BoE Carney Forbes UK

FX commentary

Harry Thompson, PhillipCapitalUK
19/Jun/2017

EURUSD moved higher in Asian trading but found resistance around the 1.1215 level, now trading at 1.1190. The key levels lie at 1.11 and 1.13, meaning if there is a break through either, we could see some strong momentum. The pair has been trading in a wider uptrend, suggesting we could see another move higher.

GBPUSD has been moving higher this morning as Brexit talks begin in Brussels, however the pair has failed to break above the 1.28 level with resistance around the 55-DMA at 1.2806. The wider downward trend still remains intact, with the possibility of a move lower still possible. A continuation of the current bullish drive could be quashed should the pair continue back towards the 1.2980 level last seen in the latter part of May.

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Tags:   EURUSD GBPUSD FX

The week ahead

Harry Thompson, PhillipCapitalUK
19/Jun/2017

Much of the price action this week may be defined by central banks, with a policy decision from the RBNZ, and the release of minutes from various central banks’ policy meetings. PMI figures will dominate a busy schedule on Friday along with Canadian CPI figures. Meanwhile Brexit negotiations will keep investors on edge.

Despite not yet forming a new government, Brexit negotiations will begin today, with the UK’s Brexit secretary David Davis meeting Michel Barnier in Brussels. Since Theresa May lost out on a majority in parliament, there has been calls by many for the ‘hard Brexit’ stance to be dropped, so it will be interesting to hear the initial outcomes from the meetings.

Over the weekend the French president Emmanuel Macron’s centrist movement won a large majority in the French Parliament winning 300 out of 577 seats in the National Assembly. This consolidates the president’s leadership, giving him free reins to transform the French left. Maybe Theresa May should take some pointers from her French counterpart.

Reserve Bank of New Zealand

Following a busy week of central bank monetary policy decisions, it is the turn of the Reserve Bank of New Zealand to announce its latest monetary stance. The policy announcement will take place one June 22, and it is widely expected by investors that they will keep the benchmark interest rate at 1.75%. At their last policy meeting, the bank indirectly committed itself to its current level of accommodation for the foreseeable future, and the recent weakness in first quarter growth will likely cement this view. However, as we saw with the BoJ last week, the bank could sound more upbeat which will likely add support to the Kiwi dollar.

Central Bank Minutes

Next week we will receive the minutes from the Bank of Japans monetary policy meeting from April which could give investors some more insight into the central banks thoughts. On top of this we will also receive the minutes from the Reserve Bank of Australia’s latest policy meeting, where they held the main cash rate at 1.50%.

PMI figures

Friday will see the release of numerous PMI figures, including Japanese Nikkei manufacturing PMI for June, as well as German, Eurozone and U.S. Markit manufacturing and services PMI’s.

Eurozone PMI’s are expected to ease slightly, with the composite reading (which comprises the services and manufacturing components) due to drop to 56.6 from 56.8, however this still signals healthy expansion within the zone, pointing to a strong economic recovery. Meanwhile, Manufacturing PMI in the states is expected to tick higher to 52.9 from 52.7, whilst services are expected lower to 53.5 from 53.6.   

Fed Speakers

Following the Federal Reserve’s decision last week to raise interest rates by 25 basis points, investors will be keen to hear the thoughts of various board members in order to gain a greater insight into the banks thought process. With inflation data disappointing in recent months, some investors had expected a less hawkish Fed, however, it appears that the central bank are on track to deliver on one more rate hike this year.  As a result, various Fed speakers will be in the spotlight starting with New York Fed President William Dudley and Chicago Fed President Charles Evans on Monday. Tuesday will see Vice Chair Stanley Fischer, Boston Fed President Eric Rosengren, and Dallas Fed President Robert Kaplan speak. Beyond that, St. Louis Fed President James Bullard and Cleveland Fed President Loretta Mester will give speeches.

Canadian CPI

Canadian CPI figures will be released on Friday and will be of particular interest to investors following comments last week from Bank of Canada officials who have hinted at tightening policy sooner than many investors had been expecting. The CPI reading is expected to tick lower on the year to 1.5% from 1.6%, with the monthly reading expected to drop to 0.3% from 0.4%.   

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Brexit Begins

Nathan Sage , PhillipCapitalUK
19/Jun/2017

Brexit talks officially begin at 11am this morning in Europe with the UK government starting off on the back foot following the election debacle.

It’s been almost a year to the day since the British public voted to leave the European Union and Theresa May’s government enter the negotiations with some calling into question the current strategy, saying the government is unsure of what it wants. Chief Brexit negotiator, David Davis, has said that this will be the “most complicated negotiation of all time”.

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Tags:   Brexit May UK EU Davis

Commodity Commentary

Harry Thompson, PhillipCapitalUK
16/Jun/2017

Gold has been trading in a tight range between $1251.3 and $1256 since yesterday lunchtime. The bearish sentiment since the FOMC on Wednesday looks to have lost pace so investors will now look for a recapture above the $1265 level to confirm the pair has reversed this trend. However, if the bearishness continues, the $1246 level could be in play.

WTI

The price of oil continues its decline, currently trading in a tight range. Although it has taken a small bounce this morning, it looks to be a short lived move, failing to break above the $45 a barrel level. If the bearish trend continues, a break below $44.50 will possibly open up $44 a barrel and then $43.15 in extension. For a reversal of this trend, investors will likely need to see a rise above $47.

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FX analysis

Harry Thompson, PhillipCapitalUK
16/Jun/2017

EURUSD has started to climb higher this morning following its decline since Wednesday’s FOMC. The pair despite showing weakness failed to test the 1.1109 support which has reinstalled some bullish momentum in the pair. For this to be reversed, we will likely need to see a break below this support level.

GBPUSD currently trades around the 1.2770 level this morning having spiked higher yesterday following the MPC meeting where we saw two more members vote for a rate rise. The pair had been moving lower before the announcement and it is possible this bearishness may return due to the political uncertainty and looming Brexit talks that may undermine the pound. The next resistance above is the 50% Fibonacci resistance at 1.2795, with a break above possibly highlighting a continuation of the bullish sentiment seen yesterday.

AUDUSD may continue to move higher as the US dollar struggles to pick up. The Aussie dollar has enjoyed a positive week, and the pullback yesterday to the 0.7575 support has meant further upside could persist as the pair bounces off this support level.

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Eurozone gaining momentum

Nathan Sage, PhillipCapitalUK
16/Jun/2017

The IMF has said that the Eurozone recovery “has gained momentum” but has warned that high debt levels in the region could come under strain as accommodative monetary policy is unwound. Greece and the other Eurozone members have agreed a debt deal but IMF support also needed in the long term, assurances required.

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Tags:   Eurozone IMF Greece Euro

Eurozone CPI eyed

Harry Thompson, PhillipCapitalUK
16/Jun/2017

Eurozone CPI data is due out at 10am and is expected to show a decline in May to -0.1% from 0.4% (MoM) and 1.4% from 1.9% (YoY). Core CPI is expected to remain steady on the year at 0.9%.

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BoJ on Hold

Harry Thompson, PhillipCapitalUK
16/Jun/2017

The Bank of Japan has left monetary policy unchanged but has revised up its view on consumption. The bank has also revised up its views on overseas economies in what was seen as a more upbeat view.

However, it is clear that the bank will not be withdrawing its ultra-loose monetary policy as inflation levels remain disappointingly low. Speaking at the moment, BoJ governor Kuroda commented that an exit from stimulus is not appropriate now, with the bank only halfway to reaching its inflation target.

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MPC turning hawkish?

Harry Thompson, PhillipCapitalUK
15/Jun/2017

There has been no change to UK monetary policy but the vote was 5-3 against a rate hike with Saunders and McCafferty joining Forbes on the hawkish side of the fence. Sterling rises to 1.2785 against the dollar.

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EURUSD & GBPUSD

Harry Thompson, PhillipCapitalUK
15/Jun/2017

EURUSD failed to break above the 1.13 level yesterday following the disappointing US data, meaning the pair headed back towards the 1.1172 support where it currently trades now. The announcement of a rate hike from the FOMC was the catalyst lower yesterday evening, with a move below the 1.1172 support opening up the 1.11 support and potentially lower.

GBPUSD followed the path of EURUSD yesterday and gave away gains following the FOMC announcement. The pair currently trades just below the 1.27 level which could now act as a resistance level with sterling coming under pressure this morning. The next major support level on the downside being 1.2616. To reverse the bearish trend, it is possible the pair will need to claim ground above the 50 day SMA around 1.2820.

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Raising rates

Harry Thompson, PhillipCapitalUK
15/Jun/2017

The US FOMC hiked interest rates yesterday as widely expected, but kept to its path of 3 hikes in 2017, with preliminary comments on winding down its balance sheet holdings. This resulted in a rather hawkish meeting outcome which dampened US equities.

There was a feeling of confidence from the Federal Reserve who brushed off recent mixed data, and most importantly felt the recent weakness in inflation was transitory. Playing down inflation worries, Janet Yellen went onto confirm that the Feds balance sheet would be wound down at a gradual pace before increasing each quarter, with the process starting “relatively soon”.

Despite this, the recent weakness in data, which included yesterday’s consumer prices and retail sales, will have some investors on edge, and if there is further evidence that inflation is slowing, we could see the Fed adjust their interest rate outlook.

On top of this, concerns grow over the Trump administration following the news that U.S. president was being investigated for possible obstruction of justice in regards to the FBI’s Russia probe. The weak data and political uncertainty in the states has added some pressure to the U.S. dollar which has lost around 6% this year.

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Tags:   FOMC US Trump Yellen Fed

FOMC ahead

Nathan Sage, PhillipCapitalUK
14/Jun/2017

The Federal Open Market Committee conclude their two day meeting this evening with the announcement coming at 19:00 London time. Markets are poised and ready for at least a 25 basis point hike following a rather hawkish fed over the last few months.

Trump has dented expectation of the rate horizon as his administration upsets the political status quo worldwide; the recent NFPs disappointed but were held up by a drop in the unemployment rate to 4.3%. Janet Yellen’s post decision press conference will be keenly watched as she comments on the economy and the Fed’s latest quarterly inflation report, also due tomorrow.

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Oil under pressure

Harry Thompson, PhillipCapitalUK
14/Jun/2017

The price of oil has come under pressure as industry data has shown U.S. stockpiles have risen, whilst OPEC have reported a rise in production levels, despite its pledge to reduce output.

Data from the American Petroleum Institute showed that U.S. crude stocks rose by 2.8 million barrels last week, meaning supply remains near record levels. On top of this, despite agreeing to cut production beyond the initial six month period, OPEC has reported that output rose in May by 336,000 barrels per day. Investors will now look to today’s official stockpile data which could add further pressure to the price of oil should it confirm a rise in stockpiles.

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UK Inflation near four year high

Harry Thompson, PhillipCapitalUK
13/Jun/2017

The latest inflation reading from the UK is at its highest level since June 2013, well above the Bank of England’s 2% target. The key driver behind the rise in prices has been the fall in the value of the pound since last year’s EU referendum which has driven up import prices.

The UK consumer will likely continue to feel the squeeze especially if the pound remains under pressure following the results of the UK election which produced a hung parliament. Analysts believe that inflation may continue to rise well into the latter parts of 2017, impacting consumer’s disposable income. The Bank of England will meet to discuss monetary policy this week; however it is widely expected that the overshoot in inflation will not mean interest rates will start moving higher anytime soon.

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May set to stay

Harry Thompson, PhillipCapitalUK
13/Jun/2017

Following a meeting of the 1992 committee, Theresa May has made it evident she will remain as Prime Minister, vowing to clear up “the mess” she made last week after calling the snap general election.

May was able to win some support from the doubters within the party, with Boris Johnson describing her performance as ‘stonking’. However, it is likely that rifts will still remain as some MPs felt let down that the courage she showed last night at the meeting was not on display throughout the election campaign. The election result raises questions about how long the Tory government will last, how much of its agenda it can get through parliament and what its approach to Brexit will be especially as it has to rely on votes from Northern Ireland's DUP. The political uncertainty has increased markedly after last week's hung parliament election result and will continue to weigh on the pound in coming weeks.

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Canadian rate hike expectations increase

Nathan Sage, PhillipCapitalUK
13/Jun/2017

The Canadian dollar jumped last night after a central banker gave an upbeat assessment of the economy, leading traders to bet on a rate hike sooner rather than later.

In a speech on Monday senior deputy governor Carolyn Wilkins said that the country was now mostly past the oil slump and that policymakers were seeing encouraging signs from the economy. Wilkins said “Monetary policy actions influence financial conditions and economic decisions right away but can take as long as two years to have their full effect on inflation,” suggesting they’d rather see a stable path of interest rates compared to short sharp rises. The Canadian dollar strengthened against all of it major peers, fetching C$1.3286 against the dollar this morning.

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UK election aftermath

Harry Thompson, PhillipCapitalUK
12/Jun/2017

Over the weekend, Theresa May has sought to bring some calm to UK politics by trying to reunite her party following the dismal results in the UK general election last week. The result of the election, a hung parliament, has resulted in great uncertainty and has been argued to be the worst result as the UK heads into Brexit negotiations.

Over the weekend, Jeremy Corbyn’s comments show he is still adamant he can come into power should attempts by May to form a government fail. May now faces the task of bringing together her party and building support for the likely deal with the Democratic Unionist Party (DUP) of Ireland. The DUP has 10 seats in parliament, which coupled with the seats won by the Conservatives, would mean May would have enough votes for a majority.

May has reappointed most of her ministers to the cabinet, however there was a surprise inclusion of Michael Gove, whom she sacked from the cabinet last year. It has been said that May’s move to bring Gove back into the cabinet is a way of ‘keeping her enemies close’. It is reported that Theresa May will face a leadership challenge from within the party, with Boris Johnson the favourite, however he has denied these rumours over the weekend.

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The week ahead

Harry Thompson, PhillipCapitalUK
12/Jun/2017

The focus in the UK this week will shift to the Bank of England who is widely expected to leave the benchmark interest rate at 0.25% at their policy meeting on Thursday. Investors now wonder what knock on effect a hung parliemnt will have. As a result we may see rates stay low for the foreseeable future as the UK now faces greater uncertainties with a minority government in power and Brexit negotiations to come.

On the same day we will receive retail sales data which are expected to post a month of month fall of 1.0% after April’s 2.3% gain.   

Ahead of the BoE, we will receive CPI data which is expected to post a reading of 2.7%, the same as the previous month and a leap away from March’s 2.3%. Inflation in the UK has surged since the UK’s decision to leave the European Union as the value of sterling dropped dramatically. Employment data will follow this on Wednesday which will be a good indication of the state of the UK labour market. A focus will be the release of average weekly earnings which dropped below inflation for the first time since mid-2014.

Federal Reserve

The main focus of the week will be the Federal Reserve, who will likely announce at least a 25 basis point interest rate hike. Alongside this, we will receive the Feds quarterly economic projections. However, assumptions of further tightening from the Fed in 2017 have been hit by weakening inflation expectations as Trump fails to deliver his fiscal stimulus, wage growth dwindles and oil prices remain weak as the US shale boom mounts. So as markets prepare for an almost certain rate hike this week, investors will be keen to understand the Fed’s views on the flat lining inflation measures, and if this will impact on any future rate hikes.

Bank of Japan

The Japanese economy is showing signs of fragility as core machine orders fell more than expected in April, dropping 3.1% compared to the forecast 1.3% drop. This fragility has meant investors are expecting no change in the Bank of Japan’s monetary stance this week. Speaking last week, BoJ Governor Kuroda commented that although the country had escaped deflation, they are still a long way from reaching their 2% inflation target. “While the policy approach has steered Japan’s economy in the right direction, our intellectual journey has not yet been completed,” Kuroda said. However, due the substantial size of the Central bank’s balance sheet following five years of unprecedented quantitative easing, the bank has been urged to not remain silent on how they eventually plan to unwind it.

Eurozone  

The main focus in the Eurozone this week will be the release of CPI data, which is expected to decline in May by 0.1% following a positive 0.4% the prior month; the year on year figure is expected to drop to 1.4% from 1.9%. Before this on Wednesday we will receive industrial production data from the bloc of countries and this is expected to rise to 0.5% MoM from a negative 0.1%.

 Asia

Chinese retail sales and industrial production figures are set for release on Wednesday morning, whilst New Zealand GDP is due for release later that night and is expected to have risen in the first quarter to 0.7%. Meanwhile, Australian unemployment is expected to hold steady at 5.7% on Thursday. 

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Conservative Minority

Nathan Sage, PhillipCapitalUK
09/Jun/2017

The British public have voted and we have a hung parliament in the UK with no party forming an overall majority. Surprisingly for some, Labour performed the best gaining 31 seats compared to the Conservatives who have lost 12 seats, the overall turnout for the election was up 2.6% at 68.7%. The Scottish National Party has lost around a third of their seats, mostly to the Conservatives, down 19 at 35 in total. UKIP have lost their one and only seat gaining around 2% of the popular vote and Paul Nuttall has resigned as party leader this morning.

The pound dropped sharply as the polls closed last night and the exit polls showed the Conservatives falling short of a majority, currently down around 1.7% on the day.

Jeremy Corbyn called for Theresa May's resignation this morning as it became clear that no majority was going to be won, saying "Well the mandate she's got is lost Conservative seats, lost votes, lost support and lost confidence. I would have thought that's enough to go, actually, and make way for a government that will be truly representative of all of the people of this country." May defied her critics and worked with the DUP to gain backing, then visited the queen earlier this afternoon to formally ask to form a government.

The focus will now turn to Brexit negotiations which are due to start this month, however everyone will now question if May's negotiating position has been weakened after a disastrous general election.

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Oil under pressure

Harry Thompson, PhillipCapitalUK
08/Jun/2017

The price of oil has come under pressure this week following the release of the Energy Information Administration’s weekly inventories report on Wednesday. Investors had been hopeful that official stockpile data would show a drawdown, following the industry data from the American Petroleum institute the day before which showed a decline in excess of 4 million barrels. However this was not the case and we saw oil prices move lower by around 3.5% where they currently trade now.

Attempts by OPEC to buoy markets by extending their production cut looks to be in vein as rising shale production from the U.S. looks to offset their effort in the near term. U.S. stockpiles are expected to decline at this time of year as warmer weather sets in; however an increase in imports of crude, a sharp decline in exports and a drop in the demand for gasoline caused stockpiles to bloat last week.

With investors now focusing on the effectiveness and strength of the OPEC led production cut, we could see oil prices remain under pressure in the coming weeks. Prices will find support should stability in the Middle East return, however it could be argued that a solid support will only be found once U.S. crude inventories start to drawdown from their historical high levels.

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Comey To Testify

Nathan Sage, PhillipCapitalUK
08/Jun/2017

The former FBI Director James Comey submitted a seven page opening statement ahead of his testimony to the Senate Intelligence Committee today.

Comey has recalled having nine one-on-one conversations with the President in the four months he was director; this contrasts the two he had with President Obama in three and a half years. Comey has highlighted that he “felt compelled” to document the conversation, something he hadn’t done before. Today’s testimony is going to be top news in the US and could potentially be very damaging for the president.

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Tags:   Trump Comey Senate FBI

Campaigning resumed

Nathan Sage , PhillipCapitalUK
05/Jun/2017

The general election campaign resumed swiftly after terror attack when Prime Minister May confirmed that the election would go ahead as planned.

At the core of the campaign now lies the demand of who can keep Britain safe. Opposition Leader Corbyn, attacked the Conservative government over police cuts and further accusing the government of "suppressing" a report into the foreign funding of extremist groups. The election has further shed light to Northern Ireland division which will see the Irish electorate choose between nationalist and unionist parties. This will validate Ireland’s willingness to either unite with mainland Ireland or remain part of the U.K.

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Oil plunges as Qatar is cast off.

Nathan Sage , PhillipCapitalUK
05/Jun/2017

Oil jumped after Saudi Arabia, Egypt, the United Arab Emirates and Bahrain cut ties with Qatar on Monday.

The isolationist move came as countries accused the wealthy country of supporting terrorism and more specifically the Muslim Brotherhood. Qatar is the largest supplier of liquefied natural gas and a major seller of condensate - a low-density liquid fuel and refining product derived from natural gas, UK and US oil trade around $49.82 and $47.62.

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Trump withdraws from Paris Agreement.

Nathan Sage, PhillipCapitalUK
02/Jun/2017

On Thursday President Donald Trump officialised his decision to withdrawal from the 2015 global agreement to fight climate change.

The agreement, stipulated by 190 major leaders around the globe in concordance with the UN agency for climate change, aims at mitigating global warming. The decision to pull out came from the US President’s opinion that the “Paris accord would undermine the U.S. economy, cost U.S. jobs, weaken American national sovereignty and put the country at a permanent disadvantage to the other countries of the world.” The move has been heavily criticised by major figures around the world dubbing it a knock-back to international efforts with far-reaching consequences for this century and beyond.

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She's a no show!

Nathan Sage, PhillipCapitalUK
01/Jun/2017

Leading Politicians from seven parties were questioned yesterday evening on their leadership plans ahead of the UK June general election, there was one missing person.....Theresa May.

This is the last of a series of broadcasts intended to clarify pressing policy issues ahead of polling day on the 8th of June. Theresa May came under attack for sending Home Secretary Amber Rudd to take part in the BBC Live instead of her; “Where do you think Theresa May is tonight? Take a look out your window. She might be out there sizing up your house to pay for your social care” Tim Farron said referring to the ‘Dementia Tax’. Since calling the snap election, May ruled out appearing on the televised debate preferring instead “taking questions and talking to people”. Labour leader Jeremy Corbyn engaged in various discussions with Conservative representative, Rudd – he was applauded for his statements on degrading living standards in the UK. Brexit negotiations are around the corner, set to begin on the 19th of June.

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Chinese PMI divergence.

Nathan Sage, PhillipCapitalUK
01/Jun/2017

Chinese manufacturing activity showed its first contraction in 11 months as the Caixin/Markit Manufacturing PMI fell to 49.6 from 50.3 missing the estimate of 50.1.

The PMI shows a drop below the key 50 level which separate expansion and contraction and is the third straight month of decline for the figure since it’s high of 51.7 in February. The private Caixin figure is in stark contrast to the official figure of 51.2 released Wednesday which showed a steady growth in the sector. The difference is likely due to the fact that Caixin reports on the smaller firms, which tend not to benefit from the construction boom as much as the larger state backed companies.

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Hung Parliment on it's way....

Nathan Sage , PhillipCapitalUK
31/May/2017

....according to a Times article which cites YouGov poll data.

The UK electorate will go to the polls next week in a general election which was predicted to be a Tory landslide on the scale of Tony Blair’s Labour victory in 1997. However a poll released today by the Times newspaper based on YouGov figures shows that the gap between Labour and the Conservatives has narrowed again, to the point they may not even win a majority. The Times said the YouGov data showed the Tories could lose up to 20 seats whilst Labour could gain around 30 cutting Theresa May’s current slim 17 seat majority. The pound has dropped below 1.28 this morning as the uncertainty worries investors.

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Trump Feeling the Pressure?

Nathan Sage, PhillipCapitalUK
31/May/2017

“We have a MASSIVE trade deficit with Germany, plus they pay FAR LESS than they should on NATO & military. Very bad for U.S. This will change”.

This was trumps tweet in the early hours of this morning accusing Germany for its trade surplus and military spending. Following comments on Monday from German Chancellor Angela Merkel who at an election rally in Munich said that there is a need for Europe to take matters into its own hands and strengthen its role as leading diplomatic player in the international arena, citing Ukraine and Libya as examples. She went on to state that Europe may no longer rely on British and US allies. This clearly didn't sit well with the US President.

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The UK Consumer

Nathan Sage, PhillipCapitalUK
31/May/2017

Confidence from the UK consumer is as yet unaffected and we appear not to be feeling the squeeze, yet!

According to GfK this morning, it's monthly reading has improved to -5 from -7; the forecast had been for a deterioration to -8. Business confidence is down however, with Lloyds telling us that its business barometer has fallen from 47 to 27 this month. The BRC is seeing upward price pressures in food from the weak pound in its shop price index but this is being offset by heavy discounting in non-food items. An overall reading of -0.4% YoY for shop price inflation is slightly weaker than the -0.3% expected. Net consumer credit for April is forecast to come in at £1.5bn, against £1.6bn for March.

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Tags:   UK Consumer BRC GfK

Eurozone still require stimulus, Draghi.

Harry Thompson, PhillipCapitalUK
30/May/2017

The European Central Bank President Mario Draghi has commented that due to subdued inflation and weak wage growth, substantial stimulus is still required; this is despite growth in the bloc improving.

The central bank has come under pressure from some leaders to begin planning an exit strategy from the ultra-accommodative monetary policy. However Draghi’s comments have dampened any prospect of tapering in the near term, adding some pressure to the euro. The next big decision will likely come in the autumn when the banks current bond purchasing program is set to expire.

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Debt deadlines loom

Nathan Sage, PhillipCapitalUK
30/May/2017

The Greek Debt saga is hitting the headlines again this morning following a panic warning from the country that there is not a clear path through the debt to recovery.

Greek finance Minister Euclid Tsakalatos highlighted the fear felt in Athens as a July deadline of $7.5Bn of repayments loom, which rumours that creditors may delay the latest instalments until after the German elections in September. Tsakalatos has said that the Greeks have held up their side of the deal by passing very unpopular reforms to bring down spending by 2% of GDP yet the EU and IMF had not kept theirs.

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UK election TV debate

Nathan Sage, PhillipCapitalUK
30/May/2017

The Labour and Conservative party leaders each had a turn last night to answer questions from a studio audience before sitting down one on one with Jeremy Paxman, who has a reputation for his fierce interview style.

Prime Minster Theresa May came under scrutiny from Paxman who called her “a blowhard who collapses at the first sign of gunfire”, sighting her U-turns on policy in the run up to the election. The Opposition leader Jeremy Corbyn however seemed to perform well cutting a relaxed man who fielded some awkward questions relating to the Monarchy and his own style of leadership. The pound fell heavily last week as a YouGov poll showed the tory lead had been cut to 5 points from 20 at the start of the campaign, with a landside tory victory being called into question.

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FOMC minutes to pressure gold?

Harry Thompson, PhillipCapitalUK
24/May/2017

The precious metal was unable to break the 1265 resistance level as the greenback regained some ground yesterday as investors turned their attention to the upcoming June FOMC meeting. Focus will shift to the release of May’s FOMC minutes later today, however there will likely be no alteration in market’s expectations of a June rate hike; this currently stands at 100% according to Bloomberg’s world interest rate probability calculator.

Speaking yesterday, the head of the Federal Reserve Bank of Philadelphia Patrick Harker said that a U.S. interest rate hike next month is a “distinct possibility”. As a result the precious metal has shown signs of weakness and this could continue should the minutes later today show that the Fed is likely to raise rates two or three times more in the year. Higher U.S. interest rates push the dollar up along with bond yields, which increases the opportunity cost of holding the metal.

As investors look to move away from the non-yielding metal, we could see prices heading towards the $1240/45 price level. However, should the minutes disappoint investors, the precious metal may move to test the $1265 resistance again.
 
Support: 1245, 1240
Resistance: 1255, 1260, 1265

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Trump budget

Harry Thompson, PhillipCapitalUK
24/May/2017

Donald Trump has released his first budget to lawmakers and he proposes cuts in healthcare and food assistance programs for the poor in order to save the government $3.6 trillion over the next decade.

The austere budget is unlikely to be approved in its current format due to the politically sensitive cuts for the lower-income Americans; the largest cuts will come from the Medicaid healthcare program for the poor introduced by the Republicans. There are some measures of increased spending which include more funds for the Pentagon, the military and funds to build a wall along the border with Mexico. In other news, Donald Trump is set to meet the pope later today.

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China downgraded

Nathan Sage, PhillipCapitalUK
24/May/2017

The investors service Moody’s has downgraded the Chinese credit rating this morning, for the first time in nearly 30 years, as they expect the financial strength of the country to weaken.

The Chinese government has been grappling with years of credit-fuelled stimulus which has led to a ballooning in debt levels across the nation. As growth slows in the world’s second largest economy Moody’s expects the government to continue their stimulus measures which will China’s finance ministry has criticised the downgraded saying it was based on “inappropriate methodology”.

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Tags:   Moodys China

FOMC minutes

Harry Thompson, PhillipCapitalUK
24/May/2017

Later today at 19.00 (London time) the awaited U.S. FOMC minutes from the May meeting will be released, giving investors the opportunity to understand the thought process behind the decision and also to gain any clues about future policy.

Markets imply that there is a 100% probability the Fed will hike rates at their June meeting. Nonetheless, investor will be looking for confirmations. They may have received this last night as the Fed’s Harker believes a June hike is a "distinct possibility”, and he sees three overall for 2017. He went onto add that he favours balance sheet unwinding this year but would be worried if there were any downside surprises on inflation.

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Tags:   FOMC Minutes Fed Harker

UK public finances feel the Brexit pinch

Harry Thompson, PhillipCapitalUK
24/May/2017

Data yesterday showed that the pressure of Brexit on UK consumers is hurting the government’s finances, as sales tax revenues declined last month causing the budget deficit to widen by more than expected.

According to the Office for National Statistics, the headline budget deficit measure rose 13 percent to 10.4 billion pounds in April. On top of this, we saw weaker than expected distributive trades survey from the CBI, which saw retail sales fall from +38 to +2. It would appear a repeat of last month's strong retail sales figures is unlikely.

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Gold consolidates

Harry Thompson, PhillipCapitalUK
23/May/2017

An explosion at a UK concert which has left at least 22 people dead and many more injured caused gold to move slightly higher in the Asian session, adding around 0.1% in the wake of the incident. However as the European markets have opened up, gold has been on the move lower as the market reaction has been fairly muted.

The precious metal has been supported in recent times as political tensions in the United States have weighed on sentiment and the U.S. dollar. On the technical front, gold has broken through the $1,257 resistance level which has opened up a possible move higher to $1,272. Meanwhile, the 50 day moving average has moved above the 200 day moving average, a possible sign that the precious metal is outperforming in the short term and could reverse the longer downward trend. This formation is known as a ‘golden cross’, but shouldn’t be used on its own as cue to take action.

Gold has been consolidating in recent times and there is a rather even chance at both an upside breakout, or a reversal of the trend. As a result we could see prices continue to consolidate around their current levels as a lack of price action exists. Today’s U.S. PMI figures could bring about some movement, however with the crucial OPEC meeting taking place this Thursday, we could see investors wait on the side-lines to after this event.

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Oil falls on Trump budget proposal

Harry Thompson, PhillipCapitalUK
23/May/2017

The price of oil has moved lower overnight following the announcement that U.S. president Donald Trump would like to sell half of the country’s oil reserves.

The proposal is part of his budget which will be handed to congress and has been put forward as a way to raise $16.5 billion. Although the sale would not be until a later date in 2018, it would mean releasing supplies into an already saturated market, which will likely dent OPEC’s efforts to rebalance the oil market. As a result, futures contracts beyond Q1 in 2018 have fallen by over a dollar compared to the beginning of the year. Trumps budget is expected to cut $3.6 trillion in government spending over 10 years, balancing the budget by the end of the decade.

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UK terror attack

Harry Thompson, PhillipCapitalUK
23/May/2017

A suspected terrorist attack has taken place at a UK concert in Manchester where it is reported a lone person donated a device which has killed at least 22 people and left scores wounded.

So far no known terrorist groups have claimed the attack as their own, however if confirmed, it would be the deadliest militant attack on UK soil since 52 people were killed in London in 2005. Campaigning for the UK general election has been suspended and Theresa May will hold a crisis response meeting today. Sterling saw a move lower against its peers overnight, however the market reaction was fairly muted.

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The Week Ahead

Harry Thompson, PhillipCapitalUK
22/May/2017

This week, expect the US May 2017 FOMC meeting minutes release and OPEC's 172nd meeting in Vienna to take the spotlight. On the data front we will receive GDP figures from the U.S. and the UK, as well as PMI figures from the Eurozone.

The US May 2017 FOMC Meeting Minutes
One of the main events this week is the release of the minutes from May’s FOMC meeting. With the June 2017 FOMC meeting on the horizon (with an interest rate hike of 25 basis points then already more or less priced into the Federal Funds futures markets), look to May's meeting minutes release to further sieve out clues to the US Fed's prospective monetary policy action. The US Fed is expected to stay its path of 3 interest rate hikes in 2017 despite recent showings of soft economic data.

Elsewhere, we will receive flash services and manufacturing PMI figures from the states on Tuesday, with the former expected to hold steady, whilst Manufacturing is expected to tick up slightly. On top of this we will get durable goods and GDP figures from the U.S. later on in the week. The initial reading of first quarter GDP growth disappointed investors, coming at 0.7%, however the figure is expected to be revised to 0.9%. Despite this positive move higher, it still indicates below trend growth.

OPEC's 172nd Ordinary Meeting in Vienna
There has been a lot of talk surrounding OPEC's decision later this Thursday, with the broad consensus expecting the cartel to extend its output cuts into 2018, which may well act as a buoying factor for crude oil prices amid relentlessly increasing US shale rig counts and US inventory. Watch if this market-expected consensus actually materialises or if there are other additional developments (e.g. deepening of cuts) which may ensue from this meeting. 

UK GDP and Inflation report hearing

The United Kingdom will also receive the second estimate of first quarter GDP. Unlike the U.S., this figure is not expected to be revised higher, with the second reading expected to confirm that the UK economy lost momentum in the first quarter. Investors will also have a chance to hear Mark Carney and the Bank of England be scrutinised by the Treasury Select committee on Tuesday regarding the most recent Inflation Report.

Eurozone PMIs

Eurozone PMI’s will be released this week and are expected to show that the Eurozone is continuing its recovery. The Composite reading is expected to tick lower, however it will still signal sustainable momentum, with all readings expected to post a reading of 55+.

There is a lack of data out of the Eurozone this week, which means investors main focus will be on Tuesday as Germany’s Ifo business gauge is also out. The three indices, the business climate, current conditions and expectations, are forecast to improve further in May.

Bank of Canada

The BoC will be the only central bank with a policy meeting this week, and investors are expecting no change from the Bank. There are concerns over the declining trend in core inflation as well as concerns with an overheating housing market. On top of this, the uncertainty that is surrounding future trade relations with the U.S. will mean it is unlikely the bank will alter monetary policy.

 

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EU ministers meet today

Harry Thompson, PhillipCapitalUK
22/May/2017

EU finance ministers are due to meet to discuss Brexit (divorce bill) & Greece (debt forgiveness) today. Ahead of this meeting the UK Prime Minister reminds on contributions to the Union as of this date; Davis says the UK will walk away if the bill is unreasonable. Elsewhere, there are two Fed speakers today, Harker & Kashkari. A June rate hike has moved back towards 100% - any dovish comments would surprise markets.

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Oil markets buoyant

Harry Thompson, PhillipCapitalUK
22/May/2017

Saudi Arabia has signalled agreement to an extension of production cuts for a further nine months pushing WTI to over $51 a barrel. The rise in the price of oil has contributed to the rise in equity markets as oil companies’ benefit.

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Tags:   Oil WTI Saudi Arabia

North Korea claims a break through

Harry Thomspon, PhillipCapitalUK
22/May/2017

North Korea has successfully tested an intermediate-range ballistic missile on Sunday, adding to the growing fears that the stand alone state is advancing in its regime to build weapons that can strike U.S. targets.

North Korea has now claimed after this test launch that they have developed the capabilities to strike the U.S. mainland, a claim that some Western missile experts have played down. U.S. Secretary of State Rex Tillerson said economic and diplomatic pressure would continue to be applied to North Korea.

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Greek parliament passes Austerity bill

Harry Thompson, PhillipCapitalUK
19/May/2017

Members of the Greek parliament have.passed through the latest austerity bill, which raises taxes and cuts pensions. This comes in the face of protests but it will now allow new bail-out instalment.

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Trump “witch hunt”

Harry Thompson, PhillipCapitalUK
19/May/2017

Donald Trump has denied any wrong doing following several days of political turmoil in Washington following the report that the President asked former FBI director James Comey to drop a probe into his former security adviser.

"The entire thing has been a witch hunt and there is no collusion between certainly myself and my campaign - but I can always speak for myself - and the Russians. Zero," he told a news conference. A defiant tone from a president who could possible face legal proceedings should the evidence prove true. The most allegations say that advisers to Trumps campaign had 18 calls and emails during the last seven months of the 2016 presidential race.

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Energy Outlook

Harry Thompson, PhillipCapitalUK
18/May/2017

Despite U.S. oil inventories posting a decline last week, the price of oil has come under pressure today as investors remain concerned about the level of global production and whether or not an extension of the OPEC led supply cut will have the desired effects.

It is widely expected that the extension will be agreed; however investors remain cautious as to how compliant OPEC members will be. As the U.S. shale production rises, albeit at a more moderate pace, OPEC members may refrain from complying fully due to fear of losing further market share with U.S. producers.

Investors will be eagerly waiting for concrete evidence over the supply cut extension, and also on how compliant members are. There was a sharp selloff this morning following data posted on the Joint Organisations Data Initiative’ website which showed Saudi Arabia exports rose in March to 7.23m barrels per day, up from 6.96 million; this reaction highlights how susceptible the price of oil is to perceived negative news.

Positive Pre-OPEC Meeting Developments

Saudi Arabia and Russia have agreed to extend the output cuts for 9 more months until March 2018 based on their latest statements. Oil traders are anticipating a 6 months extension to the current OPEC-led global production at OPEC May 25th meeting, which has added some support to prices over the last few weeks.

EIA Crude Oil and Distillate Inventories Analysis

Based on yesterday’s EIA data release, the crude oil and distillate drawdown continues, albeit less than expected for some products. Total U.S crude oil inventories fell less than expected, with actual drawdown coming out at 1.753 million barrels, falling short of estimates of 2.475 million barrels. The same story was repeated in the gasoline space, with actual drawdown coming out at 413K barrels, versus consensus of 925K barrels. For distillates, it was a more bullish picture, where we saw a drawdown 1.944 million barrels, outperforming consensus of 1.541 million barrels. Refining capacity continues to rise again, after falling during the previous week. The annual U.S summer seasonal drawdown is underway, thus giving a boost to crude oil prices yesterday.

EIA Natural Gas Inventory Analysis

U.S natural gas storage seasonally increases around the start of the U.S summer season every year. As of 5th May 2017, U.S natural gas inventories stood at 2.301 trillion cubic feet. Rising inventory levels tend to put downward pressure on natural gas prices, however this has not been the case in recent weeks as investors are hopeful that recent reports that show the U.S. is in for a warmer summer are true. A warmer summer season tends to lend support to the price of natural gas as demand for air conditioning rises. This would explain why speculative net long positions for natural gas future contracts continue to increase, keeping natural gas prices in a sideways range, instead of a decline.

Speculative Positions Analysis (9 May 2017)

Based on latest Commitment of Traders figures released by CFTC and ICE on speculative open interest position as of 9th May 2017, WTI net speculative long positions continued to fall last week as investors reacted to rising U.S production. Brent net speculative long positions rebounded on much bullish OPEC rhetoric ahead of the May 25th OPEC production cut extension meeting. U.S natural gas net speculative long positions continued to increase on speculation of a hotter U.S Summer. These speculative positions kept prices afloat, instead of going into the usual summer sell-down on a seasonal inventory rise. 

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Gold supported

Harry Thompson, PhillipCapitalUK
18/May/2017

Financial markets seem to be going into a risk-off mentality, signifying that participants are giving more consideration to the possibility of President Trump’s possible impeachment over “TrumpGate” than a strengthening U.S Economy.

The current implied probability of a June rate hike has fallen from 100% a week ago to the current 76.5%. Safe haven assets, such as gold, Japanese Yen, and U.S Treasuries have risen at the expense of riskier assets such as the US Dollar and U.S Equities. Gold prices rose by 2.1% yesterday, and it is likely gold will remain supported until investors gain more clarity over the current state of U.S. politics.

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Australian unemployment lower

Harry Thompson, PhillipCapitalUK
18/May/2017

The Aussie dollar has moved higher overnight following the unemployment rate falling to a lower than expected seasonally adjusted 5.7%. The number of people employed rose by 37,400 in April, and has eased concerns around the weakness in the job market, an area of concern for the RBA.

However, wage growth remains weak suggesting there is still plenty of spare capacity in the job market. The central bank currently face problems with a booming housing market meaning any interest rate movements will massively impact consumers as household debt has climbed to record levels.

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Asia lower, cues from U.S.

Harry Thompson, PhillipCapitalUK
18/May/2017

Asian markets have moved lower overnight, hit by the uncertainties surrounding the Trump administration following reports he tried to interfere in a federal investigation. Asian markets took their cues from their US counterparts as the US30 and the SPX500 both declined around 1.8% yesterday.

FBI chief Robert Mueller has been appointed to investigate alleged Russian interference in the 2016 election campaign; however this did little to boost markets. Investors have been waiting for the much anticipated pro-growth policies from Trump; however the uncertainty over Trumps futures has some investors unwinding their ‘Trump trades’, pushing equity markets and the US dollar lower.

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Trump gate adds support to gold

Harry Thompson, PhillipCapitalUK
17/May/2017

Political tensions in the U.S. are approaching boiling point as the “Trumpgate” saga rattles on. Rising interest rates will likely weigh on gold in the long run, however the political uncertainty in the states is adding support to prices at the moment.

In a memo leaked to the U.S Press, U.S President Donald Trump had allegedly asked former FBI Director James Comey to drop an investigation into former National Security Advisor Michael Flynn. This revelation raises the political peril for the Trump’s Administration by introducing the possibility that President Trump may have obstructed justice, an impeachable offence.

Representative Jason Chaffetz, the head of the House Oversight Committee, delivered the strongest Republican response, saying his panel will demand to see the memo. This incident brings back memories of the Watergate Scandal of 1972 where former President Richard Nixon was forced to resign after his administration was found to have undertaken clandestine and illegal surveillance activities. President Nixon had tried to obstruct justice by attempting to fire the independent special prosecutor Archibald Cox, which eventually led to the resignations of his Attorney General and his Deputy Attorney General, in an event dubbed by the U.S Media as “The Saturday Night Massacre”.

President Trump is also under fire from the U.S Intelligence community after it was also revealed that he had shared highly-classified intelligence about the Islamic State when he met Russian Foreign Minister Sergei Lavrov and ambassador Sergey Kislyak the previous week. This information had been provided by a U.S. partner through an intelligence-sharing arrangement considered so sensitive that details have been withheld from allies and tightly restricted even within the U.S. government.

This political development caused financial markets to go into a risk-off mode, where gold prices rose and the US Dollar fell. Gold has risen to trade around the $1243 level with $1245 being the immediate resistance halting any further gains for the time being. The long term downside risks to gold remain as US interest look set to continue to move higher which impacts the non-yielding precious metal. However, the short term picture shows safe haven flows will likely keep gold supported as the Trump administration is on the brink of political turmoil. Investors also remain wary of North Korea who continues to defy the UN and test fire nuclear weapons. 

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UK weekly earnings in sight

Harry Thompson, PhillipCapitalUK
17/May/2017

Yesterday’s inflation numbers surprised on the upside, posting a reading of 2.7% from an expected 2.6%. All eyes will be on today’s average earnings figures to see if they fall further behind inflation. Data released in 25 minutes.

Average Weekly Earnings including bonuses is expected at +2.4% m/m (prev. +2.3%); excluding bonuses +2.1%m/m (prev.+2.2%). Other data includes: ILO Unemployment 3 mth 4.7% (prev. 4.7%); Employment Change 3m/3m +21k (prev.+39k). The Claimant Count Rate (prev. 2.2%) and Jobless Claims Change (prev. +25.5k) are also being released but there are no expected figures available.

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Oil lower as U.S. inventories set to rise

Harry Thompson, PhillipCapitalUK
17/May/2017

The price of oil has moved lower overnight following the industry data from the American Petroleum Institute which showed U.S. crude inventories rose last week by 882K barrels.

Markets were buoyed last week following the decline in inventories by 5.2 million barrels as investors had hoped it signalled the start of the seasonal drawdown; however the data from API has shown this is not the case. Investors will await for official stockpile data later today from the DoE. In a side note, the International Energy Agency said on Tuesday that commercial oil inventories in industrialised countries rose by 24.1 million barrels in the first quarter of 2017. This has shown the vulnerability of OPECs supply cuts as it has so far failed to have the desired effects.

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Oil supported, risks remain

Harry Thompson, PhillipCapitalUK
16/May/2017

Oil supported, risks remain. The price of oil has been well supported following the news that Saudi Arabia and Russia would agree to extend the OPEC supply cut into 2018. WTI has been edging towards the $50 a barrel level whilst Brent trades just above $52 a barrel. However some analysts believe that the recent rise in oil cannot be sustained as risks remain that could derail any attempts by OPEC to rebalance the market.

Despite certain OPEC members agreeing on an extension, there are some cartel members who are ramping production, namely Nigeria, Libya and Iran. As we have seen in the first half of the year, the OPEC cut has done little so far to achieve sustainable results in terms of reducing the supply glut, and with some members unlikely to agree to further cuts, OPEC attempts could fall short due to problems within the cartel, let alone the rising production from non OPEC members such as the United States. Analysts also point to dwindling global growth which is reducing the demand for oil. Despite this, investors appear to have taken faith and oil prices remain supported.

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Find your trade, what's out this week?

Harry Thompson, PhillipCapitalUK
16/May/2017

Find your trade this week with an overview of the major macro-economic releases starting with this morning’s Eurozone GDP release at 10am.

Eurozone GDP is released today at 10am and is expected to show no change from the preliminary reading of 0.5% q/q. Eurozone CPI data will be released on Wednesday which is expected to show a gain to 1.9% y/y from 1.5%, whilst core CPI is expected at 1.2% y/y.

The U.S. will release industrial production data on Tuesday which is expected to drop to 0.4% from 0.5%. Building and housing data will be released shortly before this. Wednesday will see the release of crude oil inventories which will be eagerly watched to see if stockpiles continue their decline following last week’s 5.2 million barrel drawdown.

Australian unemployment figures will be released on Thursday and hold significant importance as the RBA has highlighted the mixed labour market as a concern with regards to CPI remaining within their target range. The unemployment rate is expected to remain steady at 5.9%.

Japanese GDP data will be released on Thursday and this is expected to rise to 1.8% in the first quarter from 1.2% in the last quarter of 2016. The data will likely show that a pickup in global demand and a weaker Japanese Yen has boosted exports from the country.

Canadian CPI is released on Friday and is expected to show a rise year on year in April to 1.7% from 1.6%.

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A busy week for sterling

Harry Thompson, PhillipCapitalUK
16/May/2017

Much of the talk in the UK has been of how consumer’s purchasing power will likely be squeezed as prices head higher following the decline of sterling since the June referendum last year. As a result, there will be a big focus on the UK this week as we receive key indicators on inflation, household spending and employment data.

The main gauge of inflation is forecast to jump to 2.6% in April y/y from 2.3% in March, whilst core inflation is also forecast to spike higher, rising from 1.8% to 2.2%. The headline figure’s forecast is well above the Bank of England’s target of 2%, however the bank signalled less urgency to raise rates last week in its quarterly inflation report as they believe inflation will peak in 2017.

UK unemployment is expected to hold steady at 4.7% for Q1; however wage growth is expected to remain moderate over the period, ticking up to 2.4% y/y from a prior 2.3%. However, Mark Carney signalled last week that wage growth should finally start to pick up from its historically low levels, “Our central expectation is that we do expect wages to pick up and real income growth to turn positive over the course of the next few years and that is during the period of leaving the EU,” said Mr Carney. This is no doubt a positive for the Bank who has had to deal with subdued wage growth for an extended period since the financial crisis.

However, one of the main focusses will be on Thursday when we receive retail sales numbers. The first quarter readings did not paint a rosy picture in the retail sphere which is a concern for an economy that is led by the consumer. Retail sales are forecast to bounce back in April, rising by 1% month-on-month and 2.6% on the year.

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Gold finding support

Harry Thompson, PhillipCapitalUK
15/May/2017

Gold has started the week on the front foot as the U.S. dollar remains weak following Friday’s mixed data which saw CPI and retail sales disappoint. Investors are building up for an FOMC rate hike in June; however political risks and soft economic data could act as a support for the precious metal.

April’s stellar nonfarm payroll figure and unemployment number had already set the expectations for a June rate hike. Expectations increased throughout the week as several Fed members were echoing the hawkish tones that we have come to expect from the Fed in recent times. The most hawkish of these was Eric Rosengren, a FOMC non-voter who urged his voting colleagues to raise interest rates 3 more times this year, bringing up his total number of anticipated rate hikes for the year to 5. In addition to this, he also advocated the shrinking of the Fed’s balance sheet after their next hike to avoid creating an “over-hot economy”. Gold prices dropped on this hawkish rhetoric, with financial markets pricing in a 90%+ probability of a rate hike during the June FOMC meeting. The continued build up to a Fed rate hike will likely weigh on the precious metal as we head closer to the announcement next month.   

However, the spill out from Trump firing FBI director James Comey could add support to gold prices over the coming weeks should political tensions in Washington rise. The surprise dismissal of Director Comey, who played a controversial role in last year's U.S Presidential election, came as he was leading a probe into whether President Trump's aides have colluded with Moscow to sway last November’s votes. There is a possibility of the “TrumpGate” issue escalating, should the U.S Congress want to further investigate President Trump’s sacking of Comey.

Gold could also find support should we see further signs that growth in the U.S. is dwindling. The U.S economic data released last Friday was generally quite mixed, with April CPI and retail sales coming out below expectations, while the April real average earnings and the May preliminary consumer confidence came out better than expected. As we saw last week, investors appeared to take the soft data more seriously, with gold finding support off the back of the mixed release.

Investors will be keeping a close eye on economic releases especially on the back of Macy's weaker than expected quarterly results last week. This has sparked off concerns about the strength of U.S retail and consumer spending, which directly affects the state of the U.S economy, given that the U.S economy is largely driven by consumer spending. Any signs of further soft data will likely add support to the precious metal as we could see some Fed members join the likes of William Dudley (an FOMC voting member) and echo a more cautious tone compared to other officials. 

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Merkel speech shortly

Nathan Sage, PhillipCapitalUK
15/May/2017

Current German Chancellor Angela Merkel has been given a boost over the weekend as her party won in an election Sunday night in the country's most populous state.

The leader was all but written off last year as her open boarder policy on refugees seemed to be reaching tipping point for the German people, however Sunday’s win clearly showed her draw for voters ahead of this year’s election. Merkel is gaining momentum both domestically and internationally as she vows to hold together the EU, fend off Trump’s attacks and promote further free trade. Merkel will hold a conference today around midday to welcome newly inaugurated French President Emmanuel Macron as she tries to reignite the strong Franco-German bond.

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Energy outlook

Harry Thompson, PhillipCapitalUK
15/May/2017

Saudi Arabia and Russia agree that oil production cuts should continue for another nine months, supporting the price of oil this morning. Read on for our weekly energy report. The following drivers have been colour-coded depending on whether they are bullish or bearish drivers. Green for bullish drivers and red for bearish drivers.

 

Rising U.S Production

U.S crude oil production has risen by an average of 81K barrels per month over the last year with current absolute daily production levels reaching 9.31 million. Rising U.S production has been weighing on markets in recent months, however the situation seems to have turned this week as the market shifts its focus onto the U.S inventory drawdown and OPEC’s May 25 output cut extension meeting. However, a continued upward trend of rising production will weigh on prices.

Saudi Arabia reduces its Asian Shipments

Saudi Arabia has notified several Asian refiners of its first cuts in crude allocations since OPEC's output reduction took effect in January. Saudi Aramco will reduce supplies to Asian customers by about 7 million barrels in June.

EIA Crude Oil and Distillate Inventories Analysis

Overall the EIA data released on Wednesday was a bullish driver for oil, with a more than expected drawdown across the board. Total U.S crude oil inventories fell more than expected, with actual drawdown coming out at 5.247 million barrels, beating estimates of a 1.984 million barrel decline.

For gasoline, the actual drawdown was 150K barrels, beating consensus of 65K barrels. In the distillate space, actual drawdown came out at 1.587 million barrels, outperforming expectations of a 625K barrels drawdown. This drawdown comes even as refining capacity in the U.S dropped by 1.8% over the previous week, signifying that the annual U.S summer seasonal drawdown is underway, thus giving a boost to crude oil prices.

Speculative positions

Based on the latest commitment of traders figures released by CFTC and ICE on speculative open interest position as of 2nd May 2017, crude oil net speculative long positions, in both the WTI and Brent variants, were being reduced, while natural gas net speculative long positions were rising.

Crude oil was initially plagued by a sell-down by riskparity funds and CTAs (Commodity Trader Advisors) over the previous week. There was speculative repositioning in WTI from long to short positions during that period of time. However, given the developments this week, speculators would have likely started moving back into speculative long positions and out of speculative shorts.

Outlook

Oil posted its first weekly gain in roughly a month as investors remain hopeful that U.S. stockpiles will continue to drawdown and the OPEC led supply cut will be extended.

Prices may continue to rally as we head towards the May 25 OPEC meeting where we will likely know the fate of a production cut extension. As more and more members of the cartel have come out and supported it, investors have been increasing bets that the oil market will be heading to a balanced level sooner rather than later. However, if an extension agreement is not reached, we could see the price of oil come under immediate pressure as investors unwind their bets.

Rig counts and U.S. inventories will likely be keenly watched by investors to understand if non OPEC production will continue to rise and offset the cartels efforts. Baker Hughes U.S. rig count is released every Friday and U.S. stockpile data is released every Wednesday.    

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Gold investors eye U.S. data

Harry Thompson, PhillipCapitalUK
12/May/2017

Gold’s rise over the last two days has taken it above the $1228 resistance level. Price action will likely be muted this morning as investors wait this afternoon’s release of key U.S. data.

U.S. equities closed lower yesterday as retail stocks fell sharply on the back of Macy's weaker than expected quarterly results. (Macy’s is a retail department store in the U.S.). Given that the U.S economy is largely driven by consumer spending, this has sparked off concerns about the strength of the sector, which directly affects the state of the U.S economy. This sentiment spread across all the U.S equity indices, which all ended in the red yesterday. Gold prices benefited from this development.

Speaking yesterday, New York Federal Reserve President William Dudley has said that the Federal Reserve will normalise its balance sheet in a "very careful way", while leaving "sufficient" excess reserves in the financial system. This statement slightly affected the market’s anticipation of a June FOMC rate hike, with the implied probability of an interest rate hike falling from 100% to 95.4%. Gold prices were further supported by this statement.

Prices action will likely be muted this morning as investors wait this afternoon’s releases of April’s U.S. consumer price index, April‘s advance retail sales and May’s consumer confidence. Positive readings will likely send gold lower after its two day rally as investors once again focus on the almost inevitable June rate hike from the Fed. Prices could further be squeezed if the Fed’s Charles Evans joins in the hawkish rhetoric; he speaks later today.

However, any hint of soft data and a dovish tone from Evans, will likely support gold prices meaning we could see the $1228 resistance level turn into support. Gold is currently trading at this $1228 resistance, with $1232 and $1235 likely to be the next levels of resistance to the upside.

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Comey saga continues

Nathan Sage, PhillipCapitalUK
12/May/2017

Trump decision to Fire FBI chief James Comey earlier this week is still hitting the headlines as acting Director has contradicted Trump saying Comey hadn’t lost control of the Bureau.

Andrew McCabe told the Senate intelligence committee on Thursday that the alleged collusion between Russia and Trump was “highly significant” and the investigation won’t be knocked off course. Trump doubled down on his criticism of Comey on Thursday night getting quite irate on NBC telling everyone “He’s [Comey] a showboat. He’s a grandstander. The FBI is in turmoil… Everybody knows that”.

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Tags:   Trump Comey FBI

Oil set for weekly gain

Harry Thompson, PhillipCapitalUK
12/May/2017

The price of oil has held its gains overnight making it set for a week of gains as market sentiment remains lofted following a decline in US inventories last week and the increased likelihood that an OPEC supply cut will be extended.

A report from OPEC has shown that members were sticking to their production quota in April, meaning an extension beyond the initial 6 month period could help reduce the oversupply. On a side note, China and India have signalled a change in policy regarding electric cars, indicating they are likely to move away from gasoline vehicles. Following this change in stance from the two fastest growing oil markets, the International Energy Agency has said it will review its electric vehicle usage and oil demand as it had previously expected oil requirements for vehicles to rise until 2040.

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BoE on hold

Harry Thompson, PhillipCapitalUK
11/May/2017

The Bank of England has held interest rates at 0.25% in a move widely anticipated by markets. Once again the Bank’s Forbes voted for a 25 basis point rate hike, a move opposed by the other seven members on the MPC.

The Bank decided unanimously to continue its purchasing plan at £435 billion. The Bank believes a smooth Brexit could mean that rates within the UK rise quicker. The bank has cut its growth forecast for 2017 and rasied the inflation forecast to 2.7%. Mark Carney has just finished speaking.

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Super Thursday, BoE ahead

Nathan Sage, PhillipCapitalUK
11/May/2017

The MPC announces its latest decision today, followed by the Quarterly Inflation Report. No change is expected on policy, with the only question being whether Saunders joined Forbes in voting for a hike.

The QIR is expected to show a downward revision to growth forecasts but what for inflation? Any upward revision here will ring alarm bells - the MPC has said there are limits to its tolerance for above target inflation but have not quantified it yet, so Carney may give us a clue today.

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ECB and Fed diverge

Harry Thompson, PhillipCapitalUK
11/May/2017

Speaking yesterday, the head of the ECB, Mario Draghi, highlighted his concerns over the state of the labour market in the EU, leaving him still showing dovish tendencies. Whilst Praet, the chief economist of the ECB said that there needs to be tapering of QE before rates go up.

Draghi’s comments come in contrast to that of the Federal Reserve who have on numerous occasions pointed out the resilience of the U.S. labour market. Speaking yesterday, Fed member Rosengren said he wants 3 more hikes this year and a balance sheet reduction to avoid overheating. Dudley speaks later today.

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RBNZ hold neutral bias

Harry Thompson, PhillipCapitalUK
11/May/2017

The Reserve Bank of New Zealand held its official cash rate at 1.75% in a move that was widely anticipated by markets. However the New Zealand dollar moved to an 11 month low as the Bank did not move away from its neutral monetary stance; some investors believed the bank would adopt more of a tightening bias.

Instead, the Bank expects monetary policy to remain accommodative for a considerable time and project the official cash rate to hit 2% in June 2020. The Bank highlighted that numerous uncertainties remain, however they expect headline inflation to reach midpoint of their target over the medium term.

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Gold recovers, range bound

Harry Thompson, PhillipCapitalUK
10/May/2017

Gold prices recovered some of their losses yesterday as there was some unwinding of riskier assets following the surprise announcement that Donald Trump had sacked FBI director James Comey.

The week had started with a risk on approach following the results of the French Presidential election; we saw gold, the safe haven asset, trade near an 8 week low before the shock announcement. As markets learnt of the sacking, the US dollar slipped as demand for safe haven assets increased. Gold climbed towards the $1223 level having hit a low yesterday evening of $1214.25.

Fears of tensions rising on the Korean peninsula also increased yesterday following comments from Pyongyang's ambassador to the United Kingdom, Choe Il, who said North Korea is ready to conduct a sixth nuclear test. Tensions have rescinded in recent days, however any comments from the U.S. regarding a new nuclear test from the North will likely support gold prices.

Looking ahead, the precious metal will likely feel the pressure as the Federal Reserve look to continue their policy normalisation. Markets are gearing up for an almost certain rate hike from the FOMC at their June meeting. Higher US interest rates dampen the appeal of the non-interest bearing metal. Fed speakers have continued with their hawkish comments and this looks set to continue today with Rosengren & Kashkari who speak again this evening. If the Fed continues to discuss higher interest rates and a reduction in their balance sheet, we could see gold come under further pressure beyond the June meeting.

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API report

Nathan Sage, PhillipCapitalUK
10/May/2017

The American Petroleum Institute has reported a hefty drawdown in US crude inventories overnight dropping just under 5.8 million barrels, compared to estimates of a 1.8 million drop.

The Market is still worried about oversupply as gasoline inventories showed a 3.2 million gain from an expected 700,000 fall, as refiners continue to turn crude oil into gasoline above demand for the fuel. Crude is experiencing an overall drawdown however refiners are simply converting it into gasoline and moving it from one side of the refinery to the other.

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No hike from MPC, NIESR

Harry Thompson, PhillipCapitalUK
10/May/2017

The NIESR, in a report, suggest there will be no rate hikes in the UK until after Brexit and leaves its growth forecasts at +1.7% 2017 and +1.9% 2018.

In the same report, the NIESR believe that Sterling’s rise since the snap UK general election was announced will limit the surge in price inflation; however it will fly past the Bank of England’s 2% target. The Times' shadow MPC do not think now is the time to be tightening, citing the current catch-all, slowing growth and weak wages. It does, however, think rates will move in the second half of next year.

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Gold remains under pressure

Harry Thompson, PhillipCapitalUK
09/May/2017

After a strong US employment report last Friday and with French election risk off the table, demand for safe haven assets has subsided. The result has been gold prices leaning towards the bearish side, closing lower yesterday and currently trading down around $2 today.

Fed speakers

Yesterday, Loretta Mester (a non-FOMC voter) cautioned that the Fed must be “very vigilant against falling behind” on needed interest-rate hikes and “If (the Fed) delay too long in taking the next normalization step... (they) could risk a recession” and that a gradual upward path of rate hikes “will help prolong the expansion, not curtail it”.

James Bullard (non-FOMC voter), on the other hand, was more dovish. He has said that the economy's weak performance at the start of the year should slow Federal Reserve plans for further rate increases. Continued strong global demand for safe assets along with sluggish growth in the U.S. workforce, he said, will hold down U.S. interest rates for the foreseeable future. In particular, he said that has lowered the "natural" rate of interest that serves as a rough estimate of where the federal funds target rate would come to rest over the long term.

Overnight markets were quiet as investor look to take a break after an eventful weekend. Given that that are various Fed members scheduled to speak in the upcoming days, downside potential for gold persist given the Fed's recent hawkish tone.

Support : 1225, 1220, 1200
Resistance : 1235, 1240 

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Tags:   Gold Fed

Oil stalls, API ahead

Harry Thompson, PhillipCapitalUK
09/May/2017

Despite the likelihood that OPEC will extend a production beyond the initial 6 month period, the price of oil has failed to climb to levels seen earlier in 2017 when the OPEC supply cut began.

The market is under pressure as rising US production and concerns over global demand mean the rebalancing of markets may take longer than initially thought. We could see some pickup in activity today as the American Petroleum Institute release their weekly industry report and the EIA updates its short term energy outlook. These releases may revive bets on OPEC's inability to offset swelling swing supply, kick-starting further selling pressure.

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Tags:   OPEC Oil API EIA

Tories hold lead

Harry Thompson, PhillipCapitalUK
09/May/2017

An opinion poll conducted by Survation on Tuesday showed that support for the leading Conservative Party has been maintained at 17 points over Labour, meanwhile support for UKIP has plummeted.

The poll showed that 47% of those polled would vote blue, whilst Labour received 30% of the votes, with the Lib Dems on 7% and UKIP on just 4%. The poll has shown that 54% of UKIP voters would now vote conservative, boosting the Tories hand in the coming June election. Theresa May has vowed to bring down immigration to the ‘tens of thousands’ and cap energy bills.

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South Koreans to the polls

Harry Thompson, PhillipCapitalUK
09/May/2017

South Koreans have headed to the polls today to vote for a new leader of country following the ousting of the former leader president Park Geun-hye. There is expected to be a record turnout following the corruption scandal that hit their last leader which was a major political shock for the country.

It is widely expected that the liberal candidate Moon Jae-in will succeed, as he narrowly lost to Park in the 2012 elections. A Gallup Korea poll last Wednesday showed Moon with 38 percent support in a field of 13 candidates.

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The week ahead – 08 May

Harry Thompson, PhillipCapitalUK
08/May/2017

Following the results of Sunday’s French presidential elections, the general sentiment for this week has started with a risk-on mood, and it is expected to continue, short of the development of any unexpected geopolitical risk. The key market moving events revolve around the Bank of England, scheduled speeches from central banking officials and key economic data from the U.S. and China.

Bank of England (BOE) Monetary Decision

The BOE is expected to maintain the status quo in monetary policy and interest rates as the UK prepares to go through several risk events. Firstly, the British will be having a General Election on the 8 June 2017 to choose the leaders who will lead them through the foreseeably complicated “Brexit” Negotiations with the European Union. It is widely expected for rates to remain at 0.25%, however investors will be keen to see if there were any dissenters on the committee. The Bank will also release its quarterly inflation report.  Do expect volatility on the GBP pairs and the FTSE index on this announcement.

U.S Federal Reserve (Fed) Officials’ Speeches
Several Fed officials are scheduled to speak this week. It is highly likely that they are going to be engaging in more hawkish rhetoric after last Friday’s stellar Non-Farm Payroll and unemployment data. Any indication of a June FOMC rate hike may send more fund flows into riskier assets and out of the safe-havens such as gold and Treasuries.

U.S and Chinese Key Economic Data
In the U.S space, do keep an eye on April CPI, Advance Retail Sales and May Preliminary Consumer Confidence Index. Should these continue to be positive, market participants are expected to continue posturing their portfolios for a June rate hike. In the Chinese space, do watch out for the April New Yuan Loans as well as inflation readings (CPI and PPI). If these numbers are better than expected, this may reverse the effects of last week’s PMI disappointment.

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Oil lifted

Nathan Sage, PhillipCapitalUK
08/May/2017

Saudi-Arabia, the de facto leader of OPEC, has said that the oil market is rebalancing after years of oversupply but they expect the oil output cut to be extended until the end of the year.

The OPEC led cut is due to come to an end in June and the expectation of an extension is boosting oil this morning with UK and US oil opening higher and now trading around $49.50 and $46.70 respectively. The relentless drilling in the US has capped gains, Baker Hughes rig count continued to rise last week now standing at 703 a rise of 6 on the week.

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June rate hike almost certain

Harry Thompson, PhillipCapitalUK
08/May/2017

A positive nonfarm payroll figure on Friday has supported the Federal Reserve’s comments that the sluggish first quarter growth was ‘transitory’. Nonfarm payrolls added 211,000 jobs in April, whilst the unemployment rate dropped to a 10 year low of 4.4%.

The report pointed to a resilient labour market and will likely mean growth in the U.S. will expand at a “moderate” pace. Fed speakers on Friday did not shy away from the topic of further rate rises this year, talk of reducing the Fed balance sheet was also high on the agenda. Investors are now gearing up for a 100% chance of a rate hike this coming June. The Fed’s Mester and Bullard speak later today.

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French elections, sigh of relief

Harry Thompson, PhillipCapitalUK
08/May/2017

Centrist candidate Emmanuel Macron has decisively won the French presidential election, defeating far-right candidate Marine Le Pen. Mr. Macron won by 66.06% to 33.94% to become, at 39, the country's youngest president. Mr. Macron will also become the first president from outside the two traditional main parties since the modern republic's foundation in 1958.

Investors and politicians alike are breathing a sigh of relief this morning as a victory for Marine Le Pen was seen as to likely derail the European Union. Instead, Macron has vowed to “recreate the link between Europe and its people” as he takes his pro-business/EU vision into office. The European Union has so far withstood challenges to its existence, with defeats for anti-EU candidates in the Netherlands and now France. Investor relief has caused the Euro and equity markets to move higher following the result, with a move away from the safe haven Japanese Yen causing the JPN225 to move to multi month highs.

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Weak yen likely to lift JPN225

Nathan Sage, PhillipCapitalUK
05/May/2017

The USD/JPY pair saw mild retracement activity yesterday following successive sessions of gains, but the net 2-day move is still up. The net gain in USD/JPY over the past 2 days is expected to translate into lifts for the Nikkei 225, which often moves largely in tandem with the currency pair.

The index has not been trading for the past 2 days due to holidays, and is set to play catch up next Monday. Watch for the unravelling of key risk events over the weekend for cues. While the Nikkei 225 is currently deemed to have latent upside potential given the recent USD/JPY run, watch for the outcome of the 2nd Round of the French Presidential Elections over the weekend to justify further relief moves on Monday. A secured Macron victory would do well to diffuse this risk event and pave the way for potential further bullishness.

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Local elections

Nathan Sage, PhillipCapitalUK
05/May/2017

The Conservative party have made big gains in Thursday’s local elections, leading analysts to lean towards a comfortable Tory victory in the June 8th general election.

The Tories have gained more than 100 seats already and have won the west of England mayoral position. The Conservatives are clearly the shining star at the cost of Labour who have diminished and UKIP who have been obliterated, with early results showing they haven’t held a single seat.

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Energy Outlook

Harry Thompson, PhillipCapitalUK
04/May/2017

Oil prices have remained under pressure overnight and it is possible that this will continue with much of the fundamentals against oil at the moment. Read on for our full energy outlook report.

EIA Crude Oil and Distillate Inventories Analysis

U.S crude oil production have risen an average of 78K barrels per month for the previous year with current absolute daily production levels reaching 9.293 million. This rising U.S production is weighing heavily on investors’ sentiments and pulling WTI prices down, with some slight negative spill-over effects onto the Brent variant despite OPEC’s best efforts to reduce their production.

U.S crude oil inventories have started their seasonal drawdown as refining capacity heads back up to summer season peak. Crude oil inventories were declined last week at a lower than expected rate, with the actual figure coming out at negative 930K versus negative 2.914 million.

Gasoline inventories are starting to rise again in preparation for the summer driving season, though less than expected, coming out at 191K, versus consensus of 1.656 million.

For the distillates, there was an unexpected drawdown of 562K against the consensus of a 1.6 million surplus. Absolute crude oil inventory levels in the U.S have fallen slightly to 527.77 million barrels. This bearish development caused crude oil prices to continue dropping last night.

Speculative Positions Analysis (25 April 2017)

Based on latest Commitment of Traders figures released by CFTC and ICE on speculative open interest position as of 25th April 2017, WTI is plagued by a significant speculative sell-off in line with rising U.S production, while Brent speculative positions are dragged down at a smaller scale as traders are giving OPEC and their partners some recognition for their production reduction efforts. Natural gas speculative positions still remain relatively unchanged, being more biased towards the long side, as concerns of higher summer temperatures continue to linger.

Weekly Outlook

Oil prices have remained under pressure overnight and it is possible that this will continue with much of the fundamentals against oil at the moment. WTI has only posted two days of gains over the last 16 days, dropping around $6.30 a barrel over this period. The pressures on oil include bloated inventories, increased U.S. supply; a drop in compliance to the OPEC led supply cuts, and a stronger U.S. dollar.

A potential lift to the commodity could come later on in May if OPEC members and non OPEC members, mainly Russia, agree to extend their supply cut beyond the initial 6 month period. Analysts believe that an OPEC led production cut is likely this coming month, however, the initial six month production cut hasn’t been what some were expecting, mainly due to the rising production levels in the states. Many questions will be asked of OPEC heading into the second half of 2017, especially if the production cuts fail to stabilise the market.    

Disclaimer:

The information used here is obtained from sources that we consider to be reliable but its accuracy and completeness cannot be guaranteed.

 

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First general election indicator

Nathan Sage, PhillipCapitalUK
04/May/2017

Local elections in the UK today could give some clues as to how well the conservative party and possibly how badly the Labour party will fair in the snap general election on the 8th of June.

5,000 council seats and 6 regional mayors are being contested across England, Scotland and Wales. Although the results won’t directly relate to parliamentary seats the feeling is that if local councilors lose their positions then they will be less likely to hit the campaign trail for door to door support of their party, bad for Labour.

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Gold under pressure

Harry Thompson, PhillipCapitalUK
04/May/2017

Gold continues to head lower today, currently trading around $36 lower on the week. The positive U.S. data and the hawkish FOMC has left a June hike on the table. We take a look at gold moving into tomorrow's nonfarm payrolls release.

Solid U.S Economic Data

Gold prices fell yesterday as April ADP numbers exceeded expectations, creating a belief that Friday’s nonfarm payroll numbers will follow suit.

ADP figures for April came out at 177K, slightly exceeding the consensus of 175K. ISM April nonmanufacturing also aided the risk-on sentiment, coming out at 57.5, beating consensus of 55.8. The positive economic data caused a sell-off in safe haven assets such as gold, in favour of riskier assets.

Traders have been using ADP figures as a leading proxy for NFP data, where the usual trading pattern observed in past occasions are traders short-selling gold on the back of strong ADP numbers and then short-cover on NFP data release two days later. As result, based on past events, gold prices may correct on the release of Friday’s NFP numbers, the extent of a correction if the numbers exceed expectations will be determined by how far-off the actual release differs from consensus.

FOMC on hold, June still on

The U.S. Federal Reserve announced that they will not be raising interest rates in May, playing down the slow economic growth in the first quarter. Financial markets are currently pricing in an 81.2% chance of a June FOMC rate hike. As mentioned yesterday, gold prices have been observed to fall in anticipation of rate hike but rise after the anticipated rate hike is actually enacted. As a result of previous price actions, gold price may continue to be under pressure as we head into the next FOMC meeting on 14 June as traders continue to position for this, short of any development of geopolitical risk or uncertainty.

A risk that could cause gold to move higher could be this weekend’s French presidential election result. A win for Marine Le Pen is likely to cause markets to move into a risk off mode due to her stance on the European Union and the Euro. 

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Final clash before Sunday's 2nd round vote

Harry Thompson, PhillipCapitalUK
04/May/2017

The two candidates for this Sundays French Presidential election have clashed in a live debate that has been described as "extraordinarily violent, bitter (and) harsh" by Ifop analysts Frederic Dabi.

The two candidates clashed on their vision of France, both describing two very different scenarios with terrorism, the euro and EU membership the hot topics. Polls since the first round of voting have put Macron 20 points ahead of Le Pen (60-40), and the opinion poll by Elabe for BFMTV after the debate confirmed his status as the front runner, with 63% of those polled finding Macron more convincing. Please be reminded that the margin requirements will be increasing this Friday at 4pm ahead of the second round of voting.

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Inventories fall, slowly

Nathan Sage, PhillipCapitalUK
04/May/2017

Oil has been trading near its lows overnight, falling in its third out of four sessions, as official US figures showed a smaller than expected decline in inventories yesterday afternoon.

Data showed that inventories had fallen by just over 900,000 for the week to April 28 much less than the expected drop of 2.9 million barrels, stocks have declined for the last four weeks but still stand at 527.8 million barrels 3% higher than this time last year. As US Shale production continues to rise fears are growing over member states commitment to the OPEC cuts, independent surveys are showing that Russia’s cut has slipped slightly in recent weeks. UK and US oil hit March lows yesterday and still trade near the bottom of their recent range at $50.40 and $47.55 respectively.

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FOMC on hold, June hike on

Harry Thompson, PhillipCapitalUK
04/May/2017

The FOMC have kept the benchmark interest rate steady following their two day meeting and have left the door open for a June rate hike, playing down the weak first quarter growth.

Some analysts believe a June rate hike is dependent on the data over the coming weeks, as well as the situation in Washington and whether the new administration will push through their desired tax cut plans. The US dollar has moved higher overnight and is currently trading at 112.74 against the Japanese yen, whilst EURUSD has moved lower to trade at 1.0885. The Fed highlighted the strength of the labour market during their two day policy meeting, and investors’ attention will now switch to this Friday’s nonfarm payrolls report; 185k is the expected figure.

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French Elections: TV debate tonight

Harry Thompson, PhillipCapitalUK
03/May/2017

Marine Le Pen from the National Front and Emmanuel Macron from En Marche! are set to face off in the 2nd round of the French Presidential Elections this coming Sunday. While markets are not expected to react fully until this event's outcome is certain, expect the previous post-1st round rally in equities and the Euro to fade and transition towards caution as voting looms.

While the general polling consensus favours the globalist Macron for victory, the surprise outcome of a Le Pen victory is not a remote possibility so watch if this unravels too.

The two candidates will go head to head in a televised debate tonight. Expect the euro to fluctuate around the event, much like the U.S. dollar did during the live TV debates during the U.S. presidential elections.

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Gold range bound ahead of FOMC

Harry Thompson, PhillipCapitalUK
03/May/2017

Gold saw a rather uneventful trading session yesterday as the precious metal traded narrowly within about a 5 dollar range. Volatility may likely remain low while markets wait on the FOMC rate decision due out this evening. A signal from the Fed that rates will likely increase in June (about a 66% probability based on interest rate futures) should see the US dollar rally and consequently send gold lower. The past three Federal Reserve rate hikes have shown gold prices fall in anticipation of rate hike but rise after the anticipated rate hike is enacted.

If the FOMC statement appears unclear or on the dovish side to what we have been used to from the Fed, gold prices may move higher as investors unwind their rate hike bets. The precious metal has been sold off for an extended period and a dovish fed could signal a turnaround for the precious metal.

ADP figures are out later today, and in the past traders have been using ADP figures as a leading proxy for nonfarm payrolls data, where the usual trading pattern observed in past occasions are traders short-selling gold on the back of a strong ADP number. 

Support levels:  1250, 1244
Resistance levels: 1270, 1278.50, 1288 

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A drop in OPEC compliance levels

Harry Thompson, PhillipCapitalUK
03/May/2017

The price of oil tumbled in yesterday’s trading, with WTI hitting a low of $47.5 a barrel. It has since moved away from its multi week lows; however prices remain under pressure as concerns mount over increased supply from the U.S., Canada and Libya, as well as a drop in the compliance to the OPEC led production cut by some if its members.

Compliance to the OPEC led production cuts slipped to 90% in April from 92% in March, mainly due to higher production levels in Angola and the UAE. The OPEC led production cuts have failed to drive markets higher as supply from the U.S. has been steadily rising as seen with inventories remaining near record highs and crude oil being discharged onto ships hitting 45 million barrels per day in April. Prices did manage to gain some ground late on however as data from the American Petroleum institute showed that crude inventories fell by 4.2 million barrels last week. Official stockpile data will be released at 3:30pm today.

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Eurozone GDP to support euro?

Harry Thompson, PhillipCapitalUK
03/May/2017

At 10am today we will receive Q1 GDP figures for the Eurozone which may add some support to the euro ahead of the FOMC meeting later in the day.

GDP figures for the bloc of countries have ranged between 1.5-1.7percent year on year since September 2015 and markets are expecting a reading to the higher end of this range for Q1 of 2017. Speaking last week, Mario Draghi has commented that the recovery in the Eurozone has “become increasingly solid”, and if Q1 GDP outperforms, we will likely see equities and the Euro strengthen.

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Tags:   Eurozone GDP Euro

FOMC and Nonfarm payrolls

Harry Thompson, PhillipCapitalUK
02/May/2017

This Wednesday we will hear from the FOMC following their May monetary policy meeting that will likely conclude with no change in their current stance. Bloomberg’s world interest rate probability calculator is currently showing a 14.4% chance that the Federal Reserve will hike interest rates by 25 basis points.

However, Janet Yellen has warned investors in the past that every meeting is ‘live’, and the bank could hike rates at any meeting. There is no press conference scheduled, so if there is no move on monetary policy from the FOMC, investors will have to wait until Friday before they will hear from Janet Yellen; she will be speaking after market close.

Friday will reveal April’s nonfarm payroll reading and analysts are expecting a rebound in the figure following March’s disappointing figure. Current expectations are for a reading of 190k which would indicate a healthy labour market following the prior figure of 90k.

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JPN225 strong on weak yen

Nathan Sage, PhillipCapitalUK
02/May/2017

The US Dollar has seen continued but slowing gains against the safe haven Yen since the weekend, providing lifts for the JPN225 index this morning. Positions from the safe haven Yen continued to unwind as major risk events like the French Presidential Elections are deemed to have diminished. The Bank of Japan’s commitment to loose monetary policy also aided a continued lift for the index.

This week, look to US data and technicals for cues, at present the USD/JPY pair is testing its crucial 38.2% Fibonacci resistance level of 111.97, which could spell a possible rebound for both the currency pair and the Nikkei 225 should this level fail to be breached. Also, we may start to see some retracement activity and caution ahead of key US economic data releases, as the markets gauge and assess possible comments and monetary policy action from the FOMC meeting this week.

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RBA holds rates, expected.

Harry Thompson, PhillipCapitalUK
02/May/2017

The Reserve Bank of Australia has held interest rates at 1.5%, a move widely anticipated by markets. The Governor of the Bank, Philip Lowes once again commented on the rapid growth in house prices in certain areas as well as the levels of household debt; both key reasons why the cash rate will not be moved lower.

The RBA has been forced to balance the risk of further stimulating the housing market against a desire to boost inflation from historically low levels. The Bank had a more bullish view on the global economy; whilst admitting that wage growth may remain slow for some time.

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Softer factory data, U.S. and China.

Harry Thompson, PhillipCapitalUK
02/May/2017

Tech industry earnings have helped push Asian shares higher; this is despite weaker than expected factory data from the world’s two largest economies.

China’s twin manufacturing PMIs (NBS PMI at 51.2, Caixin PMI at 50.3) came in lower than expected for April 2017, signalling a transition towards a sideways trend for factory expansion activity. U.S. factory data also pointed to a slowdown in the sector, with ISM’s manufacturing PMI coming in at 54.8 from 57.2 in March. However, despite the misses, the data still points to expansion in the sectors.

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Big bank breakup

Nathan Sage, PhillipCapitalUK
02/May/2017

United States President Trump has said in an interview with Bloomberg news in the oval office that he is actively considering breaking up the big banks.

Trump said “There’s some people that want to go back to the old system, right? So we’re going to look at that.” By the “old system” Trump means reviving a Depression-era law which separates consumer and investment banking branches. Trump touches on the ongoing north Korea-US tensions by saying he would, against the advice of his aides, meet with the separatist state leader under “certain conditions”.

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Tags:   Trump Banks

UK GDP slows

Harry Thompson, PhillipCapitalUK
28/Apr/2017

UK GDP for the first quarter has missed estimates of 0.4% and posted a reading of 0.3%. Growth taking a hit as inflation levels rise.

1Q GDP rises 0.3% vs estimates of 0.4% (QoQ)
1Q GDP rises 2.1% vs estimate of 2.2% (YoY)

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Tags:   UK GDP

Oil up, weekly losses likely

Harry Thompson, PhillipCapitalUK
28/Apr/2017

The price of oil has risen on Friday has investors are hopeful that an OPEC led supply cut will be extended beyond its planned timeframe.

OPEC agreed to cut production by 1.8 million barrels per day in the first half of 2017. However, oil is on for its second week of consecutive losses as rising U.S. shale production and a restart of a large Libyan oil field are a cause for concern for some investors. In order for the OPEC supply cuts to take effect, some analysts believe that an extension is necessary, however there are some risks that countries such as Russia do not want to take part.

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Tags:   Oil OPEC

Tensions high

Harry Thompson, PhillipCapitalUK
28/Apr/2017

Speaking yesterday, U.S. president Donald Trump has said there was the possibility of a “major” conflict with North Korea as tensions over its nuclear programme teeter on a knife edge. Is the Yen really a safe haven flow if they are under threat of attack? Some analysts believe the swiss franc is the only safe haven currency.

Speaking in the oval office, Trump said "There is a chance that we could end up having a major, major conflict with North Korea." However, the President reiterated that he wanted a peaceful end to the crisis. In the same interview he also commented that South Korea should pay the bill for the U.S. THAAD anti-missile system, and will be looking to renegotiate/terminate the current free trade pact with the South because of the trade deficit that has been created.

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ECB leaves rates unchanged

Harry Thompson, PhillipCapitalUK
27/Apr/2017

In a move widely expected by markets, Mario Draghi and the ECB have left interests rates in the Eurozone on hold with a cautious sounding Draghi putting pressure on the single currency.

Investors took some faith from the recognition that the recovery in the euro area was now “solid and broad” after a “fragile and uneven recovery” in 2016. These comments initially sent the euro higher, however it soon reversed these gains as Draghi failed to drop any hints that the banks quantitative easing (QE), would be reduced.

Recent data has highlighted a robust euro area economy which has some analysts expecting a change in the Banks forward guidance. However, there was little evidence that the Bank will be looking to move away form its ultra-loose monetary policy anytime soon as inflation pressures within the bloc remain weak.

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Can the euro sustain its recent rise?

Harry Thompson, PhillipCapitalUK
27/Apr/2017

The ECB know doubt had a smile, albeit behind closed doors, following the results of the first round of voting in the French presidential elections. The result has meant that there is a shift away from politics and investors are now looking ahead to the ECB policy meeting today.

The Euro has been on a path higher since Sunday as a possible run off between two anti-EU candidates in France has been avoided. However, some analysts believe that the rally in the single currency is attributed to investors pricing in a possible change of language from the ECB in regards to their current monetary stance.

The ECB is expected not to alter their monetary policy today; however investors will be looking for a change in language which would suggest the bank may be looking to tapper their quantitative easing program. Speaking last Friday, Mario Draghi has committed the bank to ‘very substantial’ accommodative policy due to the risks that are still present, so investors may be disappointed this time round.

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Rising U.S. oil output pressures oil

Harry Thompson, PhillipCapitalUK
27/Apr/2017

The price of oil is trading roughly in the middle of its trading range for the week as investors pounder yesterday’s official stockpile data from the Department of Energy. Despite a decline in U.S. crude oil inventories by more than double the expectations of analysts, the price of oil has remained under pressure as the report also showed that U.S. output rose for the 10th consecutive week.

Despite the decline in inventories, levels remain bloated, and with expanding U.S. production looking to derail an OPEC led production cut, there is little to cheer about. Investors are likely waiting for any confirmation that OPEC members and their Russian counterpart will extend the current supply cut beyond the initial agreed period.

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No Change from the BoJ

Nathan Sage, PhillipCapitalUK
27/Apr/2017

The Bank of Japan has kept its monetary policy unchanged overnight, in a move that is hardly surprising for the export lead territory. The BoJ, known for its cautious stance on future policy, has given its most upbeat assessment of the economy in almost nine years signaling its own confidence in overseas demand for its products.

In a press conference this morning BoJ governor Haruhiko Kuroda said that the BoJ are only halfway to their price target and it is far too early to talk about exiting, when the time comes to exit the BoJ will communicate it properly to markets.

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Markets await Trump

Harry Thompson, PhillipCapitalUK
26/Apr/2017

Gold prices have seen a steady decline this week as investors take a risk-on approach, as seen from the major stock indices making a bullish run over the past few days. Gold prices managed to find support at 1260 before looking at a short rebound earlier. Gold is currently trading around 1265.

As global investors continue to ride on the positive vibe, safe haven demand continues to drop. The positive mood in the U.S. boils down to sound corporate earnings, as well as the hope that Donald Trump will push through his delayed tax bill. Much of the focus will be on Donald Trump today and whether he will deliver his packages to overhaul the US tax code. We could see gold range bound until any further developments.

Investors have been increasing their monetary policy expectations from the Federal Reserve, with the implied Fed funds futures at its steepest level in three weeks. Historically, gold has declined as investors increase their bets that the Federal Reserve will raise rates as the U.S. dollar appreciates and makes the dollar denominated commodity more expensive for foreign investors.

There are several geo-political issues that could support gold prices and may cause some volatility in the days ahead. The ongoing tensions between the U.S. and North Korea could result in military action which could swiftly erase the positive sentiment that is currently surrounding markets. Despite an expected win from Macron in the second round of the French presidential election, any support for Le Pen could give gold some room to move higher as investors move into risk off.

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Official stockpile data ahead

Harry Thompson, PhillipCapitalUK
26/Apr/2017

The price of oil came under pressure last night as industry data from the American Petroleum Institute showed a surprise build in U.S. crude oil inventories. The data has highlighted the threat that rising U.S. production is having on the OPEC led production cuts.

The API data showed that oil inventories rose by 897K barrels last week, with a rise in bookings on shipment tanks contributing to the rise in inventories. Markets are hopeful that inventories will begin to wind down in the coming weeks as refineries become more productive over the summer season when gasoline demand is high. Official stockpile data from the DOE will be released later today.

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Equities continue to rise

Harry Thompson, PhillipCapitalUK
26/Apr/2017

Corporate earnings are adding to equity market strength, which coupled with the expected Tax cuts from Donald trump, is fuelling investors’ optimism about the world’s largest economy.

The NASDAQ hit a record high yesterday whilst other US indices pushed higher. This positive sentiment spilt over into the Asian session, helping to push Asian markets to a fifth consecutive day of gains. However, bond markets are not showing any substantial signs of weakness in reaction to this. Is this a safety play on North Korea?

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Macron returns

Nathan Sage, PhillipCapitalUK
26/Apr/2017

French Presidential Candidate Emmanuel Macron has returned to the campaign trail, appearing on French evening News last night to defend the criticism he has been facing.

Macron, who won 24% of Sunday’s vote, faced criticism after he took his team out for dinner Sunday night following the vote in a move some branded premature and inappropriate given the deep divisions across the nation. Marine Le Pen on the other hand was immediately in front of the cameras and on the attack calling Macron complacent. Le Pen has looked to soften her image in the run off by distancing herself from the Front National in a bid to appear to a wider audience, polls still suggest that Macron will win by a margin of 20%.

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Safe haven demand eases

Harry Thompson, PhillipCapitalUK
25/Apr/2017

As political uncertainty from the euro-zone dissipates, markets are at last breathing a sigh of relief. Global investors are leaning towards a risk-on sentiment, which caused safe haven demand (Gold, Yen & the dollar) to decline further while stock index futures continue to rise.

On an intraday outlook, gold may move in a sideways range till Trump’s speech on his tax reform policy this Wednesday. Donald Trump’s time in office is almost at 100 days and he has so far failed to unveil a tax plan that markets are highly anticipating. According to news reports online, Donald Trump may disappoint markets by not announcing any tax reforms this coming week; instead it is expected by some that he will announce tax reductions. A lack of clear direction could weaken the US dollar and therefore lend support to gold prices as investors lose faith in the Trump administration. Gold prices tend to rise and fall in reverse correlation with the US dollar.

Geopolitical tensions

North Korea has a knack for conducting nuclear tests to mark key anniversary events so watch for possible escalating geopolitical tensions this week. North Korea is set to celebrate the 85th anniversary of its army today. As with Kim Il Sung’s 150th birthday celebrations 2 weeks ago, expect a show of force, coupled with a grand ceremony. That aside, what markets are really looking out for today would be a possible nuclear test by the state which will further escalate the already stiff tensions between itself, China and the United States. As previously witnessed, when geopolitical tensions have risen, the price of gold tends to be supported.

Support : 1270, 1265
Resistance : 1280, 1287

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No second Scottish referendum

Harry Thompson, PhillipCapitalUK
25/Apr/2017

According to a recent poll conducted by Kantar, only 26% of people interviewed thought a Scottish independence vote should be held in Autumn 2018/Spring 2019, with only 18% saying it should be held at a later date. Of those questioned, 46% said there shouldn’t be one at all.

Nicola Sturgeon has made the case for a second referendum one her main points of confrontation with Westminster ever since Scotland rejected leaving the European Union. Of those who were certain to vote should a referendum take place, 55% would vote against it, suggesting support for independence is little changed since the 2014 referendum.

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The week ahead

Harry Thompson, PhillipCapitalUK
24/Apr/2017

The week has started in a positive mood as Macron and Le Pen head through to the second round of voting in the French presidential elections. However, markets remain cautious following the geopolitical tensions that still remain between the United States and North Korea. We take a look at the weekly events which includes monetary policy decisions from the BoJ and the ECB, as well as growth figures from the UK and the states.

Central Bank Focus

The Bank of Japan (BoJ) will release its outlook report and monetary policy decision this Thursday. Speaking last week, BoJ governor Kuroda signalled that the bank will continue its current pace of asset purchasing. He also noted that a continued rise in the Japanese Yen will likely cause a delay in the Bank hitting its 2% inflation target. The head of the BoJ went on to add that the Japanese economy is performing better than expected, however escalating geopolitical tensions were clouding the global outlook. The increase in political tensions this year was expected, however the growing concerns over a North Korea and U.S. conflict has made the Japanese Yen a place of refuge for investors. Market participants will be looking ahead to Thursday to see if the Central Bank will reduce its inflation target as a result.  

The European Central Bank will also give its monetary policy stance later on Thursday, and there is wide spread expectations that Mario Draghi will leave monetary policy on hold. Draghi set the tone for Thursday’s meeting when he spoke on Friday, highlighting that despite pickups in global growth and trade, the central Bank is committed to ‘very substantial’ accommodative policy due to the risks that are still present. The central banker said that he has yet to see evidence of a durable rise in Eurozone inflation which makes Friday’s flash estimate of Eurozone inflation an important release. It is expected to show annual CPI rising to 1.8% in April, with core inflation also edging upwards, to 1%.

Growth figures

Growth for the world’s largest economy will be on display this Friday as the United States releases its Q1 GDP figure. Recent data has shown that there has been a pickup in global activity; however Friday’s Q1 GDP release is expected to show growth of 1.1% from a previous 2.1%; this comes despite a resilient labour market over the period. A slowdown in growth for the first quarter has some questioning how this will affect the future monetary path of the Federal Reserve, who have so far taken a relatively hawkish stance. Markets are at least expecting another couple of rate hikes this year, however if the U.S economy shows signs that it is not gaining momentum, we could see some investors reduce these expectations. 

Another potential spanner in the works for the Federal Reserve could be the inability of Donald Trump to pass measures through both houses of congress. U.S Congress has only 4 days left to pass a spending package to keep the U.S government open beyond April 28, when funding expires for numerous federal programs. If the Trump administration and the Congressional Republicans fail to avert this government shutdown, it might weaken investors’ confidence in their ability to deliver their other promises and investors may move into risk-off mode.

The UK is expected to release growth figures for Q1 and this is expected to post a reading of 0.4%, notably lower than the 0.7% posted in the previous quarter. Once a resilient bunch, it would appear that the UK consumer has turned cautious as Britain faces a squeeze as real wages decline. The pound had a positive week last week following the announcement of a general election in June. However a lower than expected Q1 GDP figure will likely add pressure back onto sterling.     

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What's moving gold this week?

Harry Thompson, PhillipCapitalUK
24/Apr/2017

There are several risk factors that are pending this week and worth taking a note of. Firstly, the final round of the French presidential elections is slated to take place in a fortnight’s time, on 7th May 2017. Currently, market expectations of a Ms Le Pen victory are very low and this has possibly been priced into markets already with some unwinding of safe haven assets as reported by many analysts. However, if there are signs that Ms Le Pen’s chance of winning are starting to rise, gold prices could be supported, as we saw in the run up to the first round of voting.

Secondly, there might be a possibility that North Korea will conduct its 6th nuclear test in recent times on 25th April 2017, which is the 85th anniversary of the founding of the Korean People's Army. Southern Korean and U.S forces in South Korea are in a state of heightened alert with a large concentration of military hardware amassing on both sides of the 38th parallel. U.S. officials said there was a higher-than-usual level of activity by Chinese bombers, signalling a possible heightened state of readiness by reclusive North Korea's sole major ally; although the officials played down concern and left open a range of possible reasons.

The third foreseeable risk factor is the possible threat of a U.S government shutdown that potentially hinges on disagreements on the funding of President Trump’s proposed Mexican border wall and Obamacare funding. U.S Congress has only 4 days left to pass a spending package to keep the U.S government open beyond April 28, when funding expires for numerous federal programs. If the Trump administration and the Congressional Republicans fail to avert this government shutdown, it might weaken investors’ confidence in their ability to deliver their other promises and investors may move into risk-off mode.

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Chinese regulators clamping down

Harry Thompson, PhillipCapitalUK
24/Apr/2017

Chinese markets were under pressure during Monday’s trading as retracement from the index’s Xiongan-related stocks, coupled with a slew of regulatory comments in the shadow banking, insurance, property and securities trading space gave investors little to cheer about.

China has shown increasingly robust signs of stabilisation, as readings such as the Q1 GDP growth figure of 6.9% and NBS manufacturing PMI figures point to a strengthening Chinese economy. Whilst positive news like this can push markets higher, the increased robustness of the Chinese economy can also give the regulators leeway to enact desired tightening measures as they try to rein in credit growth, swelling property prices and speculative behaviour in the markets.

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Markets relieved after 1st round of voting

Harry Thompson, PhillipCapitalUK
24/Apr/2017

The first round of the French presidential election has gone to script with Macron and Le Pen through to slug it out in the final round. Polls suggest that Macron will win and although he is not part of one of the two main French political parties, his position as a pro-European centrist will mean business as usual for the country.

The euro has shown signs of relief this morning, gaining against its peers. Opinion polls suggest that Macron will easily brush past Le pen in the second round of voting which has caused some unwinding of safe have assets as the likely outcome lessens the risk of an anti-establishment shockwave in Europe.

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Energy report

Harry Thompson, PhillipCapitalUK
21/Apr/2017

Crude oil prices have remained under pressure today, currently trading near their weekly lows. Prices may find support from the growing belief that OPEC will extend a production cut, meanwhile drawdowns in U.S. crude stockpiles could extend as more refineries come back online. These factors could be outweighed by the rising production in the states as more shale producers come back online. A key date will by May 25 when OPEC members will meet to discuss a potential extension of their supply cuts. Read on for this week's energy review.

OPEC Output Reduction Reaffirmation

The OPEC Secretary General, Mohammad Barkindo made comments that they are committed to restoring market stability by bringing global inventories down to the industry's five-year average.

Kuwait's oil minister Essam alMarzouq expects an extension of the agreement in a statement made at a Gulf industry forum with five other Gulf energy ministers. He also added that they have seen a noticeable compliance from non-OPEC members which highlights the importance of extending the agreement. In the same event,

Saudi Oil Minister Khalid al-Falih mentioned that the current agreements needs to be extended to drain high global inventories and that talks are still ongoing. He stressed that "(their) target is the level of inventories. This is the main indicator for the success of the initiative".

OPEC meets on May 25 to discuss possible extension of supply curbs with non-OPEC countries that total 1.8 M BpD, of which OPEC is responsible for 2/3 of the quota.

Geopolitical Risk Dissipation

Russian Deputy Foreign Minister, Mikhail Bogdanov has said on Monday that diplomats from Russia, U.S and the UN are planning to discuss the Syrian crisis in Geneva next week. This latest development shows that there might be some hope for U.S-Russia cooperation to solve the problem in Syria, as well as improve U.S-Russia ties that have been “at an all-time low”. This dissipation of tension in the Mediterranean Sea has reduced the risk of a crude oil supply disruption through the Suez canal.

EIA Crude Oil and Distillate Inventories Analysis

Overall based on the actual EIA data released for the week, there was a generally more-than-expected drawdown in inventories of crude oil and its distillates with the only exception of gasoline which saw a more-than-expected build-up in inventories.

U.S crude oil inventories have started to drawdown as more and more refineries continue to restart (93%) after the maintenance season. The EIA reported a drawdown of 1.034 million barrels, slightly more than expected.

On the gasoline side, inventories have started to build-up again in preparation for the summer driving season; weekly change for last week came out at 1.542 million barrels surplus versus consensus of 1.633 million barrels drawdown.

In the distillate space, inventories continue to decline more than expected at 1.955 million versus consensus of 789 thousand barrels.

Current crude oil inventory level stand at 532.343 million barrels and is expected to drawdown as more refineries are coming back online

EIA Natural Gas Inventory Analysis

Based on EIA data and seasonality analysis, U.S natural gas storage should start to rise and continue an upward trend as the seasonal demand should die down. Below normal temperatures around the Great Lakes and north-eastern USA are most likely to give way to warmer climates by the start of May, putting pressure on natural gas prices.

Speculative Positions Analysis (11 April 2017)

Absolute net speculative positions in crude oil and natural gas futures are currently on the high side; this probably explains the current downward pressure as some speculators close their long positions. Crude oil prices have been rising for the past month until they stalled yesterday which may have caused some speculators to take profits. Natural gas prices have already been edging lower over the last fortnight.

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Tags:   Oil WTI OPEC

Terror attacks ahead of the French presidential election

Harry Thompson, PhillipCapitalUK
21/Apr/2017

There are two days to France’s presidential election with no clear winner in sight as the main contenders scrap for votes in a flurry of campaign rallies. Based on current opinion polls, the 4 front-runners (Marine Le Pen, Emmanuel Macron, François Fillon, Jean-Luc Mélenchon) are clustered around 20%, with rest of the surveyees remaining undecided.

Overnight there was a terrorist attack in Champs Élysées, in the heart of Paris, where an attacker opened fire on a police van, killing 1 officer and seriously wounding 2 others. ISIS has claimed responsibility for the attack in a statement by the Jihadi group’s propaganda agency Amaq. Terrorism and security are high on the list of voters’ concerns, though unemployment and dwindling spending power are more pressing. This latest terror attack runs the risk of swaying more undecided voters to the right-wing candidate, Ms Le Pen, who is seen as firm on crime and security. She has vowed to shut France’s borders and to deport foreigners with suspected links to Islamic extremist organisations, overlooking the fact that most of those involved in terrorist attacks in France in recent years were French. If she goes on to win this round and the following runoff round a fortnight later, there will be far-reaching implications not just for France, but for the whole Eurozone. The possibility of “FrExit” and perhaps the eventual breakup of the Eurozone will become a more likely reality.

Gold prices strengthened on this development as Ms Le Pen is seen to have a higher chance of winning. Prices are expected to stay elevated, with greater volatility on Monday when the results of first round will be counted.

Support: 1275, 1270
Resistance: 1282, 1285, and 1290

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Where's that fleet gone?

Harry Thompson, PhillipCapitalUK
20/Apr/2017

Financial markets started to move into risk-on yesterday, when it was revealed that the USS Carl Vinson aircraft carrier was nowhere near the Korean Peninsula over the last few days.

This development comes after U.S President Trump was boasting last week that he has dispatched that carrier strike group to the region to send a "powerful signal" to North Korea ahead of their most important holiday, the Day of the Sun. The strike group had been scheduled to make port visits to Australia, but on April 8 the US Pacific Fleet announced it would "sail north and report on station in the Western Pacific Ocean after departing Singapore". This initial posturing made investors very jittery in anticipation of what actions might President Trump order on North Korea given that he had ordered military strikes in Syria the week before.

It was revealed only yesterday that the Carl Vinson strike group was instead conducting planned exercises with HMAS Ballarat in the Indian Ocean. This latest revelation led markets to breathe a sigh of relief and thus there was some easing off of the risk-off sentiment, hence the general decline in gold price yesterday.

U.S Monetary Normalisation Reaffirmations

More U.S. Federal Reserve officials are coming out to reaffirm the market of gradual monetary policy normalisation. Fed vice Chair, Stanley Fischer spoke about expecting policy normalisation to be gradual and an ongoing approach to raising rates maximises prospects for economic expansion.

Eric Rosengren, a FOMC non-voter said that the Fed should begin shedding its bond holdings soon but do so in a very gradual way that has little effect on its planned interest rate hikes. These factors together caused the US dollar to rise and push down gold prices yesterday.

As a result of the easing geopolitical tensions, there is a high possibility that gold prices will retest the critical support level of US$1,272/Oz.

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Tags:   Gold Fed Trump

French polls show Macron support up

Harry Thompson, PhillipCapitalUK
20/Apr/2017

A recent poll has shown first round support for Emmanual Macron has risen by 1 point to 25%, whilst support for Fillon drops 1 point to 19%. Support for the far-right candidate Marine Le Pen remains unchanged at 22% and far left candidate Jean-Luc Melenchon remains on 19%.

The polls highlight how close the contest is and the uncertainty has pushed up premiums for front-end euro put options against the dollar and yen meaning traders see the first round of French elections as bearing the greater risk, according to an article from Bloomberg.

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UK consumer dipping into savings

Nathan Sage, PhillipCapitalUK
20/Apr/2017

There is a report from Markit this morning that shows the UK consumer, rather than cutting spending as incomes are squeezed, is dipping into savings and turning to unsecured funding means.

The latter point will not go unnoticed at the Bank of England, where the FPC has already expressed concern at this trend. Macro-prudential moves may not be that far away. Carney speaks in Washington early this evening London time.

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Elections in focus

Nathan Sage, PhillipCapitalUK
19/Apr/2017

The headlines across Asia revolved around the UK’s snap election decision with sterling outperforming across the board as traders interpret the election as ultimately delivering more power to Prime Minister Theresa May and her ability to deliver a ‘softer’ Brexit.

Gilt yields rose on the day as the safe haven product lost some of its shine but yields on European debt held their levels ahead of this weekend’s French election and the uncertainty around who’ll progress to the second round. UK equities were weaker yesterday, similar to most European indices, as the strength in the pound undermined the more internationally composed FTSE100.

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Oil holds near week low

Harry Thompson, PhillipCapitalUK
19/Apr/2017

The price of oil has held its ground near its weekly low as signs indicate that drawdowns in US stockpiles is slowing, however hopes that OPEC will extend their output cut will likely support prices above the $50 a barrel level for the coming weeks.

Industry data from the American Petroleum Institute showed that US stockpiles declined by 840k barrels last week, down from the -1.3 million barrels the week before. Investors will be keeping an eye on official stockpile data later today from the EIA which is expected to show a drawdown of 1.4 million barrels last week, lower than the 2.17million the week before.

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Snap UK general election

Harry Thompson, PhillipCapitalUK
18/Apr/2017

Theresa May has announced that she will seek approval from parliament for a snap UK election on June 8. Theresa May had been playing down any prospects of a General Election for some time, however speaking this morning she confirmed that “we need a general election and we need one now”.

May challenged opposition parties to support her call for an election as she aims to give her government the mandate to proceed with Brexit negotiations with the UK electorate behind her. The UK is currently torn over Brexit, and the move has been applauded by some to give the UK electorate the power to have a say over the direction the country is going to take. A recent poll has the conservatives at a 21 point lead over the Labour party, its strongest lead whilst in government since 1983.

Nicola Sturgeon, leader of the SNP has criticised May’s decision as it is her attempt at moving “the UK right, force through a hard Brexit and impose deeper cuts”. Markets on the other hand have taken the new positively, with Sterling on the move higher; it currently trades just about 1.27 against the US dollar.

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Gold lower as geopolitical risks cool

Harry Thompson, PhillipCapitalUK
18/Apr/2017

Gold looks to have started its retracement as the hype surrounding the geopolitical risks cool off slightly.

China has been trying hard to de-escalate the tension in the Korean Peninsula and the U.S’s willingness to work with them is an encouraging sign that President Trump is trying to avoid an armed conflict with North Korea. Russian Deputy Foreign Minister, Mikhail Bogdanov has said yesterday that diplomats from Russia, U.S and the UN are planning to discuss the Syrian crisis in Geneva next week. This latest development shows that there might be some hope for U.S.-Russia cooperation to solve the problem in Syria, as well as improve U.S-Russia ties that are “at an all-time low”.

As a result, market sentiment seems to be shifting back in favour of risk-on as participants reassess that the geopolitical risks may not be as bad as they were anticipating. Markets tend to get caught up on the negative issues, but find it hard to sustain such fear-driven rallies. Prices of safe haven assets, such as gold, the Japanese Yen and U.S Treasuries have started the week lower in favour of more risky assets such the U.S Dollar and equities. The risk-on trend will likely continue this week, should there be no unexpected escalation of any outstanding geopolitical risks.

Gold prices may find support as we head into this weekend’s French Presidential election. Catalysts for gold to move higher could come from polls showing rising support for the far-rights Le Pen and far-leftist Jean-Luc Melenchon.

Today’s economic news should not move the USD too much given that only housing data and industrial production is scheduled. If favouring a short trade, look to the support level at 1282 being broken as a possible sign prices are moving further lower.

Support levels:  1282, 1271, 1260, and 1245
Resistance levels: 1300 – 1305, 1315

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Expected rise in U.S. production.

Harry Thompson, PhillipCapitalUK
18/Apr/2017

A report from the U.S. Energy Information Administration has shown that more U.S oil could be on its way to the market, pushing the price of oil lower in thin holiday trading.

The price of oil has been steadily rising over the last few weeks, supported by news that OPEC members are willing to extend a production cut beyond the initial 6 months; OPEC will meet on May 25 to discuss an extension. However, the report released on Monday from the EIA shows that shale production in May will likely post its biggest monthly gain in more than two years; May output is expected to rise by 123k barrels. A rise in U.S. production is the biggest threat to OPECs plans to rebalance the oil market.

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French presidential elections

Harry Thompson, PhillipCapitalUK
18/Apr/2017

The first round of the French Presidential elections are slated to occur this Sunday. For some time there has been two front runners to move forward from the first round of voting, this being Marine Le Pen from the National Front and Emmanuel Macron from En Marche!

As no one candidate is expected to hold the majority vote required to win the 1st round, a 2nd round of elections set on 7th May this year is largely expected. However, opinion polls have shown a surge in support for far-left candidate Jean-Luc Melenchon. In the event of a Le Pen-Macron face-off, opinion polls suggest that the odds would heavily favour the latter, which is expected to result in risk diffusion. Regardless, expect caution to loom in the Eurozone space ahead of the 1st round of elections this week.

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Crude oil fundamental drivers

Harry Thompson, PhillipCapitalUK
13/Apr/2017

The following drivers have been colour-coded depending on whether they are bullish, bearish or neutral drivers; Green for bullish drivers, red for bearish drivers and blue for neutral drivers. Read on below to find out what is driver the crude oil market.

Possible Trump Executive Order Drilling Deregulation

U.S President Donald Trump is preparing to issue an executive order with the goal of giving oil companies more opportunities to drill offshore, reversing Obama-era policies that restricted the activity. Gasoline cargoes in the Caribbean are looking for homes.

Saudi Arabia hints at OPEC deal extension

Saudi Arabia has informed OPEC officials that they are in favour of extending OPEC-led cuts by an additional 6 months. This significant statement of intent should continue to shore up prices.

Geopolitical Risk & US Dollar Weakness

 U.S and Russia relations are currently very tense, after the U.S military launched missile strikes against the Syrian regime, which Russia considers as its ally, after the Syrian regime used chemical weapons against its own people. Tensions are also rising in the Korean Peninsula after U.S President Donald Trump has ordered the Carl Vinson Carrier Strike Group into the region as North Korea celebrates its founder’s birthday this Saturday, usually with the traditional test missile launch. These geopolitical tensions have dragged the U.S dollar in the past week and energy prices that are denominated in U.S dollar have to adjust upwards to compensate for this depreciation. The potential conflict in the Middle East is also expected to continue to put upward pressure on crude oil prices until the situation is de-escalated.

EIA Inventory Analysis

Overall based on the actual EIA data released for the week, there was a generally more-than-expected drawdown or less-than-expected surplus in inventories of crude oil and its distillates. U.S crude oil inventories have started to drawdown as more and more refineries continue to restart after the maintenance season (91%), coming out at 2.166 million barrels, above the consensus of 772K barrels. On the gasoline side, inventories continue to drawdown more-than-expected, coming out 2.973 million barrels versus consensus of 1.272 million barrels. In the distillate space, inventories continue to be drawdown more than expected at 2.153 million versus consensus of 888K barrels. Current crude oil inventory levels stand at 533.37 million barrels.

Speculative Positions Analysis (4 April 2017)

Net speculative positions in crude oil futures seem poised to continue rising for both the WTI and Brent variants, while natural gas net speculative positions look over-stretched on the long side. Current crude oil net long speculative levels are still below pre-OPEC agreement level as of 4th April 2017 snapshot. Crude oil long-short ratios adjusted for prices still look severely oversold as of that snapshot too. Natural gas long-short ratios adjusted for prices still look on the high side with a high probability of unwinding of long positions.

Weekly Outlook

Based on the facts, data and analysis presented in this report, it is likely that crude oil prices will be supported in the coming weeks, especially if an OPEC led production cut extension materialises. The International Energy Agency has commented on Thursday that the oil market is “slowly but surely” reaching a balance, and if the OPEC led cut is extended, this will likely push markets further in the right direction. In the near term, investors should keep a close eye on the geopolitical tensions that could escalate in the Middle East which will likely affect supply from the region should military action pick up. 

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Gold breaks 1275 resistance

Harry Thompson, PhillipCapitalUK
13/Apr/2017

Markets continue to price in their growing concerns over geopolitical risks which have seen US treasury yields decline whilst gold and the Japanese yen have been well bid. Gold prices may continue to rise and be supported if these factors continue to escalate or weigh even more heavily on investors’ minds.

Trump: “US $ is too Strong”

U.S President Donald Trump has commented that the US dollar is too strong. His blunt remarks about the greenback mark a departure from the recent practice of presidents, who have generally steered clear of commenting on the value of the currency for fear of jolting markets. It’s usually left to the Treasury secretary to comment on the government’s behalf on currency matters, and the standard line is that a strong dollar is good for America. Treasury Secretary Steven Mnuchin has said that long term strengthening of the dollar is in the best interest of the economy, while in the short-term it could create issues.

"I think our dollar is getting too strong, and partially that's my fault because people have confidence in me. But that's hurting—that will hurt ultimately," (U.S President Trump in an interview with the Wall Street Journey 12 April 2017)

Latest Developments in Geopolitical Risk

U.S-Russia tension over U.S Syria Missile Strike

U.S Secretary of State, Rex Tillerson visited Russia yesterday in an attempt to deescalate rising tensions between U.S and Russia following last Friday’s U.S missile strikes. He met the Russian President Vladimir Putin and Russian Foreign Minister Sergei Lavrov. He has conveyed his concerns to Mr Putin that relations between the 2 countries are at "a low point". Relations between the Cold War adversaries have become even more volatile following last Friday’s U.S. strike against a Syrian airfield where U.S officials believe launched a chemical attack that killed more than 80 civilians in northwest Syria. Russian leaders have expressed scepticism that Syrian President Assad, a Russian ally, was behind the attack and had warned the U.S. not to take such military actions again. While Mr Lavrov and Mr Tillerson expressed agreement on what the future of Syria should look like, they laid out vastly different paths to get there.

U.S-North Korea Situation

North Korea state media has warned of a nuclear strike if they are provoked as the U.S Carrier Strike Group approaches the Korean Peninsula. The latest intelligence is that North Korea may launch Nuclear Missiles from their submarine fleet further offshore to evade detection from U.S THAAD systems based in South Korea. This development may lead to an escalation in the Korean Peninsula if not properly managed.

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Seesawing trade balance

Nathan Sage, PhillipCapitalUK
13/Apr/2017

Chinese trade data was released early this morning and it paints a positive picture of the world’s second largest economy, with the Asia superpower getting back to its old tricks of an export lead economy.

Exports for March rocketed to a 16.4% gain on Februarys -1.3% drop, much better than the 4.3% analysts had expected. Imports were also up over the period rising from 15.5% to 20.3%, down from the large increase of 38.1% in February. The volatile import and exports figures of recent months have led to a seesawing in the trade balance, China posted a surprisingly rare trade deficit in February of -$9.15b, March’s figure swung back to a surplus of $23.93b.

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Geopolitical concerns supporting gold

Harry Thompson, PhillipCapitalUK
12/Apr/2017

Markets are pricing in their rising concerns of the below 3 events and positioning back towards risk-off sentiment. Safe haven assets such as gold, U.S Treasuries, Japanese Yen are rising in favour of riskier assets such as the U.S Dollar and global equities. Gold prices may continue to rise if these factors continue to escalate or weigh even more heavily on investors’ minds. Read below for an update on the geopolitical risks that are driving gold prices.

Possible Russian Retaliation against U.S Missile strikes in Syria.

Global tensions continued to escalate yesterday after Western countries were joined by Middle Eastern allies in a push to isolate Syrian President Bashar al-Assad following the previous use of chemical weapons on his own people. There is a rising possibility of armed conflict between U.S and Russia in the event of a miscalculation by either side, sparking off memories of the tense situation during the cold war era.

Deployment of U.S Aircraft Carrier Strike Group towards North Korea

The U.S Carl Vinson Carrier Strike Group his on route towards the Korean Peninsula and it has been reported that Japanese ships will team up with the US navy and conduct military drills in the area. It is expected that this show of force will likely spark outrage with officials in Beijing after China’s President Xi has told Trump that the situation should be resolved by peaceful means.

Tightening French Presidential Election Race

The existence of the Eurozone continues to remain under threat as the French Presidential race narrows to a close fight between Le Pen, Macron and far-left candidate Jean-Luc Melenchon.  Should Le Pen or Melenchon gain victory, huge questions over the future of the bloc of countries will be raised, especially with the German elections later in September. 

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Safe haven flows pick up

Harry Thompson, PhillipCapitalUK
12/Apr/2017

Investors have moved into safe haven assets as jitters over geopolitical tensions increase. Tensions on the Korean Peninsula are expected to be keenly eyed this week as the exchange of words between the governments of North Korea and the United States indicate accelerating aggression ahead of North Korea founder’s Kim Il Sung 105th birthday celebration this Saturday. Watch for North Korea’s continuation of its nuclear testing tradition during such celebrations, reactions from the United States and also the possibility of China getting embroiled in these developments.

Investors have moved into government bonds, gold and the Japanese Yen as a result. The appreciation of the Yen against the US Dollar dampened the export-reliant Nikkei 225 index. At present, the USD/JPY currency pair has already erased more than half of its gains from the “Trump rally”, breaching its crucial 50% Fibonacci retracement level.

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Your essential guide to the upcoming European elections

Harry Thompson, PhillipCapitalUK
11/Apr/2017

The coming European Elections in France and Germany would be key market events that all investors would be keeping an eye out for. How the elections pan out may determine if there would be massive changes to Europe as we know it. Following BrExit, investors are no doubt wondering if there would be a possibility of a FrExit or GerExit. Read on to get yourself up to speed on the latest developments in France and Europe and get to know the key title contenders in France and Germany.

French Presidential Election

Key Contenders

Marine Le Pen from the National Front v.s  Emmanuel Macron from En Marche and most recently, far-left candidate Jean-Luc Melenchon.

What Has Happened

What was initially a fight between Marine Le Pen, Emmanuel Macron and François Fillon (from The Republicans) has narrowed to a close fight between Le Pen, Macron and far-left candidate Jean-Luc Melenchon. It no longer looks as if it will be a two horse race between Macron and Le Pen which has made things more difficult for investors in already uncertain times.

When Are The Polls

1st round takes place on the 23rd of April 2017, polling closes between 7pm – 8pm.

2nd round takes place on the 7th of May 2017, polling closes between 7pm – 8pm.

Why Is This Important

European asset markets are expected to face very different and polarised outcomes, depending on who ultimately wins the Presidential Elections.

Assets To Watch

Euro STOXX 50, DAX, CAC 40, Gold & the Euro.

Should Le Pen or Melenchon gain victory, or appear to be on their way to victory, the euro and many European indices will likely exhibit initial dampeners whilst Bunds and gold will rally.

German Federal Election

Key Contenders

Angela Merkel from Christian Democratic Union v.s  Frauke Petry from Alternative for Germany v.s Martin Schultz from Social Democratic Party

What Has Happened

Early polls show Angela Merkel and Martin Schultz leading the votes. However, populist Frauke Petry has seen surprising support and could destabilise the Eurozone if her radical views gain momentum.

When Are The Polls

24th September 2017. Time to be available at a later date.

Why Is This Important

Frauke Petry is a known Eurosceptic and would seek to lead a German exit if she comes into power. Her anti-migrant stand would also fuel social tensions and threaten the status of Germany as the backbone of EU stability.

Assets To Watch

DAX, Euro Stoxx 50, Gold & the Euro

A victory for Frauke Petry could see the euro crumble as the AfD may seek to exit the EU. Germany has been the backbone of the EU and without it, the union and currency could lose its relevance. In this scenario, German bunds may rally as there is a flight to safety, however with Germany being the source of instability, we will likely see US treasury bonds sought after. 

A victory for the incumbent will likely mean investors return to the markets with confidence. This will also mean that the European Central Bank can scale back their potential risk scenarios, allowing them to discuss higher interest rates as inflation in the zone picks up.

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Yen-Nikkei correlation strong

Harry Thompson, PhillipCapitalUK
11/Apr/2017

The Yen-Nikkei 225 correlation is at play again. The tandem movements between the USD/JPY currency pair and the Nikkei 225 are once again observed as a dampened US Dollar after US Fed Chief Janet Yellen’s speech led to downward price action for the Nikkei 225.

Whilst there were no particularly dovish remarks given by the US Fed Chief, the currency pair’s move can be interpreted as profit taking as a result of no particularly new developments in the US monetary policy space.

The Nikkei 225 has tested resistance, and has failed to breach. Technically speaking, the index’s immediate 23.6% Fibonacci resistance level of 18,786 still holds in the face of a strengthening Yen against the US Dollar. Technically speaking, given this continuation of the broader downtrend, there may be still some leeway for further downward price action, but confirmation can be sought from a downward cross of index prices below its 1- hour 20 SMA.

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UK data - Inflation up next

Nathan Sage, PhillipCapitalUK
11/Apr/2017

There is another question mark this morning over the continued appetite of the UK consumer as the BRC reports a worse than expected -1% YoY fall in like-for-like retail sales, the forecast had been for -0.3% YoY. We get inflation data today for the UK and the forecast for CPI is +0.3% MoM +2.3% YoY; RPI is forecast to come in at +0.4% MoM +3.2% YoY.

An overshoot of the above figures will likely put the bank in a sticky situation amid Brexit uncertainty. Speaking last week, the BoE’s Vlieghe said that slow wage growth will mean the economy can continue to grow without pushing up inflation. As a result, inflation figures today and Wednesday’s jobs report will be eagerly watched. Will we have a few more dissenters on the MPC  on the 11th May?   

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The week ahead - Market outlook

Harry Thompson, PhillipCapitalUK
10/Apr/2017

This week is a short week for many Western economies however there is still a substantial amount of data and events to focus on. Watch for global key inflation data releases, US Fed Chief Yellen's speech and key statistics from China.

This Week Is Inflation Week – BOE in Focus
The United Kingdom, China and the United States are all slated to release CPI data this week.

Of particular concern would be the UK's inflation release, as figures already show prices have exceeded the Bank of England's target of 2%; further breaching which would put the central bank in a difficult spot amid Brexit uncertainty. The UK labour market report will also be watched by investors to ascertain if wages are remaining soft in the face of higher inflation which could weaken the case for tightening monetary policy.

Yellen's Speech
US Fed Chief Janet Yellen is slated to speak later this evening. Watch for clues on future monetary policy  actions (markets are looking at the next possible interest rate hike in June) and also on talk of the US Fed reducing the size of its balance sheet (as observed in the March 2017 US FOMC meeting minutes).

Following Yellen’s speech tonight, there will be little out of the US until the latter part of the week. This includes the University of Michigan's preliminary reading on consumer confidence for April, monthly data on US consumer prices and retail sales. With the Federal Reserve appearing increasingly hawkish and looking to tighten policy in 2017, these figures will be a main focus for investors as they try and price in further rate hikes from the Fed. 

Chinese data

With many Western economies on a short week, Chinese inflation figures and trade statistics for March will be eagerly watched by investors. Inflation is expected to rise to 1% in March compared to a year earlier, this is slightly better than last month’s 0.8% rise. 

Chinese trade figures are also due out this week and are expected to show a rise in US dollar terms to $10 billion from $9.15 billion. Chinese trade data will likely be in the limelight following Donald Trump’s accusations in the past that China operates unfair trade practices. It looks as though the relationship between the two superpowers has improved since last week’s meeting, with a cooperative approach taken towards trade.

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Weekly gold review and outlook

Harry Thompson, PhillipCapitalUK
10/Apr/2017

Gold prices had a volatile past week with mixed data from the US causing prices to go on a bit of a roller coaster ride. Geo-political risks rising and then cooling by the end of the week added to the volatility. The possibility of a strong US dollar this week may add pressure to gold.

Gold was driven up last Monday by weaker-than-expected U.S construction spending and auto sales. However these gains were reversed the following day as there was a greater reduction in the U.S February trade deficit and more-than expected increment in U.S February durable goods orders.

Wednesday proved to be another volatile day. Gold prices initially fell in anticipation of solid March ADP numbers of 263K which beat market expectation of 185K. Two hours later, a weaker-than-expected March ISM Services/Non-Manufacturing Composite caused gold prices to rise again. This rise was further fuelled by the release of March FOMC meeting minutes on Wednesday that was perceived by markets to be relatively dovish after all the extremely hawkish Fed rhetoric a fortnight ago. Gold prices reversed on Thursday afternoon after the ECB’s Mario Draghi passed dovish comments that caused the EUR to fall against the U.S Dollar. The strengthening US Dollar caused gold prices to fall.

Things changed on Friday morning, when U.S President Donald Trump, (against warnings from Russia), ordered missile strikes against military targets in Syria after Syrian President, Bashar al-Assad’s regime used poison gas to kill scores of civilians. Gold prices spiked 1.5% within an hour of the release of this news as markets became weary of the geopolitical risk of this armed conflict.

The biggest surprise was yet to come. Non-Farm Payroll numbers were the biggest disappointment, coming in at 89K, around half of the expected figure of 180K. The positive surprise was that unemployment figures kept on edging closer to the natural rate; unemployment came in at 4.5% versus 4.7% consensus and prior.

An amicable meeting that ended with lots of kind words in the official statements between U.S President Trump and Chinese President Xi also helped to ease the earlier geopolitical tension fears of trade arguments between the leaders of the world’s two largest economies. Gold prices fell in favour of the U.S. dollar. Gold prices ended the week up by only 0.07%.

Speculative COMEX Gold Futures Open Interest Monitoring (4 April 2017)

Based on a snapshot of the breakdown of last Tuesday’s (4 April 2017) COMEX gold futures open Interest positions, we see speculative net long positions increasing by 16% to 116K. Long positions rose by 7.23% contracts to 168K, short positions declined by 9% to 52K contracts.

Weekly Outlook

Gold prices may come under pressure this week as markets seem to be positioning with a risk-on sentiment following the improved Sino-U.S relations at the end of last week which saw the US dollar move higher.

There is the potential for the dollar to move higher this week with a few key economic events ahead. U.S Fed Chair, Janet Yellen will be speaking later today (10pm London time), it is important to watch out for any comments that she may have on last’s Friday surprising Non-Farm Payroll data where March Non-Farm Payroll growth disappointed but the unemployment rate fell more than expected. Investors will also be looking ahead to U.S. data on retail sales and inflation ahead of the long Easter weekend.

Currently, there are 3 foreseeable geo-political risk events that may lend substantial support to gold; 1. Russian retaliation of U.S missile strikes in Syria, 2. President Trump ordering strikes against North Korea, 3. Marine Le Pen gaining popularity ahead of the 1st round of voting in the French Presidential election on the 23 April 2017. These risk factors may drive gold prices high.

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Gold well bid

Nathan Sage, PhillipCapitalUK
07/Apr/2017

Gold was supported last night as news hit the wire that the U.S had bombed a syrian air base. Trading in the precious metal may get a little choppy this afternoon and heading into the weekend as nonfarm payrolls will likely kick off some dollar volatility.

Dovish ECB Comments

ECB President Mario Draghi’s speech yesterday afternoon was perceived by the financial markets to be dovish. He insisted that current ECB monetary policy stance remains appropriate and stressed that “sufficient confidence” would be necessary to consider monetary policy tightening. He also reaffirmed his stance that the ECB would stick to its generous asset-buying program of 60 billion €/Month until at least the end of the year. This caused the euro to weaken against the US Dollar. The strengthened U.S Dollar exerted slight downward pressure on gold prices yesterday.

U.S Military retaliation against Syria Chemical Attacks

The U.S. military has launched more than 50 Tomahawk missiles aimed at Syria, two days after the Syrian President, Bashar al-Assad’s regime used poison gas to kill scores of civilians, an act that drew international condemnation and that President Donald Trump called “an affront to humanity.” Russia's deputy U.N. envoy, Vladimir Safronkov, had warned that day of "negative consequences" if the U.S. carried out military strikes on Syria over the attack. This geopolitical uncertainty has caused financial market to go into risk-off sentiments, causing a sudden spike in gold prices this morning.

Gold has settled around $1,264 so far this morning, its highest point in five months, and most will expect it to stay relatively flat heading into the big risk event of the day, Nonfarm Payrolls. Trading in the precious metal may get a little choppy this afternoon and heading into the weekend as nonfarm payrolls will likely kick off some dollar volatility. Geopolitically gold is likely to be very reactive to any negative headlines out of the Trump-Xi meeting this afternoon, where the real issues are going to be discussed following last night’s cosy candlelit dinner. Trump will be a busy man today attending to President XI’s visit and keeping an eye on the ongoing developments in Syria and the Russian influence on Assad’s regime. 

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Nonfarm Payrolls ahead

Nathan Sage, PhillipCapitalUK
07/Apr/2017

Today we'll see the first Nonfarm payrolls data in the second quarter of 2017, expected to slip slightly from February's 235k to 180k. Although this week's data has been nothing but positive for the US labour market with private ADP employment data showing that 263,000 jobs were added in March, compared to a revised figure of 245,000 in February, a big surprise to the upside as analysts were predicting a drop to 185,000. Yesterday we also saw US initial jobless claims, a figure that tracks the number of people applying for unemployment benefit, drop from an upwardly revised figure of 259k to 234k.

The US federal Reserve raised rates three weeks ago, only the third time since the financial crisis, yet rate setters have been nothing but vocal about the path of rates going forward. With most saying that they expect rates to rise another two to three times this year, traders are pricing a 63% chance in June and then roughly an 80% chance of a hike from September to the end of the year. The Fed's minutes released Wednesday night said "Most participants anticipated that gradual increases in the federal funds rate would continue and judged that a change to the Committee's reinvestment policy would likely be appropriate later this year." This will keep traders on their toes as by reducing its $4.2 trillion balance sheet the fed will likely pause hiking rates as the balance sheet reduction filters into the economy.

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Energy outlook

Harry Thompson, PhillipCapitalUK
06/Apr/2017

Crude oil had a positive week last week, having risen by 1% for WTI and 1.8% for Brent. Analysing technical analysis oscillators such as MACD (Moving Average Converge and Divergence), price action for crude oil will highlight an overbought situation. A price oscillator can remain over-bought for a long period of time if the momentum is strong enough; hence it may not be worthwhile to read this as a reversal sign.

The WTI-Brent spread has generally been widening to the downside over the last 6 months as the U.S and Canada continues to increase their production whilst the rest of the world is trying to reduce output. The spread could narrow back down to –US$2.28 or US$2.20 before further widening if the U.S and Canada continue to increase their daily production at current rates.

Fundamental drivers

The following drivers have been colour-coded depending on whether they are bullish, bearish or neutral drivers; green for bullish drivers, red for bearish drivers and blue for neutral drivers.

EIA Inventory Analysis

There was an unexpected surplus in crude oil inventories last week, with EIA reporting a surplus of 1.566M instead of a drawdown of 435k that was expected by markets. Current absolute inventory levels are nearing the 540M mark.

Moving onto gasoline inventories, there was a less-than expected drawdown of 1.413M versus a consensus of 1.535M drawdown. The less-than-expected drawdown also occurred in the distillate space where actual drawdown came out at 536K, short of the 795K expected. These put downward pressure on crude oil prices overnight, and we saw both Brent and WTI fall by around 2%.

U.S Refining Capacity Utilization

On a positive note, U.S Refining Capacity is continuing to increase after the seasonal Q1 downtime for refitting, where refiners retool their refineries to switch to producing more gasoline for the increased gasoline demand over the summer season. There should be a greater demand for crude oil stocks soon as more and more refineries return online. This should serve as a bullish driver for crude oil prices in Q2.

Global Production Reduction Monitoring

Roughly, the 3-months average cuts for OPEC is around 900K barrels per day (BpD) whilst non-OPEC producers are around 440K BpD. The Non-OPEC figure has been adjusted to exclude the collective increment of 220K BpD (3- Months average) from Canada and the U.S.

That represents a 3-months average compliance of 75% for OPEC and 73% for Non-OPEC respectively. Based on this, it is possible that the 20 members of OPEC and Non-OPEC may extend their production cut deal beyond the current agreed duration. This is probably why oil traders took the 6 months extension statement from the 25th -26th March meeting seriously and hauled the freefall in crude oil prices. In order to increase the effectiveness of their deal, the coalition will probably have to enlist the cooperation of the U.S and Canada. This could continue to serve as a bullish driver for crude oil prices.

CFTC Speculative Positions (28 March 2017)

Based on last Friday’s CFTC Commitment of Traders (COT) data release for the previous Tuesday (28 March 2017), speculative net longs have continued to slip downwards to 244K. Speculative short positions have only increased slightly to 117K. As can be seen from the diagram above, speculative long-short open interest ratios have been adjusting back downwards in line with the falling crude oil prices over the last 1 month, crude oil prices have bottomed out since then. As a result, this ratio should have increased.

Weekly Outlook

As a result of this analysis, oil prices will likely remain supported in the coming weeks as investors digest the possibility that an OPEC production cut will be extended. A joint committee of ministers from OPEC and non-OPEC members will meet at the end of April, with a final decision to be made on May 25; make note of any comments between now and then. The increase in gasoline demand in Q2 will also act as a support for oil prices. 

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Tags:   Oil WTI Brent EIA OPEC

Gold rangebound ahead of Nonfarms

Harry Thompson, PhillipCapitalUK
06/Apr/2017

Gold prices surged in response to yesterday’s events. A dovish FOMC minutes saw the dollar fall as markets did not see the same hawkish tone that was present in recent speeches. Further to that, equity markets plunged as some members “viewed equity prices as quite high relative to standard valuation measures.”

Despite this bullish catalyst, the rally stopped short of its recent highs and ran into resistance at 1260. The precious metal has been range bound in the last week, and as a result it may be wise to wait for the breakout of this resistance level before committing to the long position.

The US nonfarm payrolls report are due out tomorrow, meaning the likelihood that  there will be a breakout before then is low as most participants stay on the side-lines. It may be wise to work a stop above this resistance level to guard against the unexpected. The US will see jobless claims out later today, and hence some volatility is expected, especially if numbers come out strong like yesterday’s ADP employment data.

Support levels:  1242 – 1245, 1233
Resistance levels: 1260, 1300

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HKG50 focus

Harry Thompson, PhillipCapitalUK
06/Apr/2017

The Hang Seng Index saw decent gains yesterday, lifted by optimism in the Chinese equity space. Recent Chinese government plans to assign the Hebei province as a special economic zone and also the liberalisation of 7 provinces as Free Trade Zones aided Chinese equities in their rally, which rubbed off on the Hang Seng Index in the form of increased index prices.

Watch for drags stemming from caution ahead of the Trump-Xi meet, and a sharp overnight reversal in the US equity markets. Whilst the Chinese equity markets have given the Hang Seng Index reason for cheer lately, it may exhibit caution ahead of the landmark Trump-Xi meet. Also, the index may see imported dampened sentiment from poor overnight US equity index performance (due to hawkish US FOMC March meeting minutes). Technically speaking, a range bound play between 24,150 and 24,467 may persist in the absence of any meaningful breach of these key levels.

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Oil under pressure

Harry Thompson, PhillipCapitalUK
06/Apr/2017

WTI oil above $51 a barrel however remains under pressure as U.S supply surges.

Oil trades slightly lower on Thursday as market jitters return following the surprise rise in US crude supplies last week. According to the Energy Information Administration, crude inventories rose 1.6 million barrels, well above the expected 435k rise. U.S. output has risen seven-straight weeks, to a 14-month high of 9.2 million barrels a day. A rise in US production is threatening to de-rail OPEC’s bid to rebalance the oil market following years of oversupply. There was some positives taken from the report from the Energy Information Administration; US refining rates are rising as we head into the summer seasons where demand for fuel increases.

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Gold up on risk off mood

Harry Thompson, PhillipCapitalUK
04/Apr/2017

Gold just celebrated its best performing quarter despite the increase in US interest rates last December and this March. With the upcoming release of the last FOMC meeting minutes, gold will possibly consolidate ahead of this. A catalyst higher could potentially be tonight’s second French Presidential debate.

Yesterday’s U.S data was generally more negative than expected, with PMI Manufacturing figures failing to beat consensus.  Construction spending changes came in below expectations merely increasing by 0.8%, below consensus of 1%. Vehicles sales also joined in the disappointment, with total figures coming in at an increment of 16.53 million, also below expectations of a 17.3 million increment.

 Investor sentiments have been very risk-on and bullish since last week’s strong data showing. The downside of such strong risk-on sentiments is that the risk-off shock of negative data can outweigh the risk-on price changes of positive data. Gold prices unexpectedly rose yesterday because of this development.
 
The precious metal just celebrated its best performing quarter despite the increase in US interest rates last December and this March. Expectations are slowly being adjusted for Trump’s economic and fiscal policies, which provide a strong support for gold. More investors also tend to look at risk-off assets like gold because of the uncertainties over European elections. In addition to this, Fed officials have been dovish recently to cool USD markets down. A weakening USD has further strengthened gold.
 
With the upcoming release of the last FOMC meeting minutes, gold will possibly consolidate ahead of this. A catalyst higher could potentially be tonight’s second French Presidential debate. Should Marine Le pen appear to come out on top, the risk off mood will continue, with gold likely to be well bid.

In the medium term, if prices finally break 1260, it is possible for gold to head towards 1300 by the second half of the year.
 
Support: 1240, 1235, 1222
Resistance: 1258.50, 1275

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Weekly gold outlook

Harry Thompson, PhillipCapitalUK
03/Apr/2017

Overall, the week ended bearish for gold as continuous strengthening of economic conditions, coupled with hawkish comments from Fed members, saw gold prices fall given rising anticipation of more rate hikes to come. We take a look a closer look at where gold has been and what to expect this week.

ObamaCare Replacement Setback Risk Reassessment

There was an easing of the risk-off mood sparked by the ObamaCare Replacement Bill failing to pass through Congress. While there are still some uncertainties about the “Trump Trade”, the White House and Congressional Republicans have vowed to succeed in the implementation of other items on Trump’s economic agenda. Investors are still harbouring hopes that the tax reforms will be passed.

UK’s Article 50 Triggering

The UK headed into the unknown as Article 50 of EU’s Lisbon Treaty was triggered last week by UK Prime Minister Theresa May as part of the process to formalise last year’s Brexit Referendum vote. This article gives both the UK and EU 2 years to agree on the terms of a separation agreement so, unless there is a mutual agreement to extended this time period, the UK will leave on 29 March 2019. A special EU Council will be convened on 27 April to discuss the broad framework for the negotiations. Though detailed negotiations are only likely to start in June, we should still closely monitor any latest developments or rhetoric coming out from either side. This uncertainty continues to serve as a bullish driver of gold prices.

Hawkish Fed Rhetoric

On the back of strengthening U.S economic indicators, more and more Federal Reserve Officials are toeing the hawkish line. These strengthening economic conditions, coupled with all the hawkish rhetoric that we have been hearing from the Federal Reserve officials, have raised the probability that the planned and highly anticipated U.S interest rate normalisation cycle may be accelerated.

Based on the last 3 years of historical observations, we tend to see US Dollar strengthening in anticipation of a rate hike and falling after the rate hike actually occurs. Gold prices usually behave in the opposite manner, falling in anticipation of a pending rate hike and rising again after its actual occurrence. Gold prices fell for the week in rising anticipation of another rate hike to be coming soon, the current implied probability of a 25 basis points June rate hike is priced in at 46%. This probability can change very quickly in line with Fed rhetoric.

Specultive COMEX Gold Futures Open Interest Monitoring (28 March 2017)

Based on a snapshot of the breakdown of last Tuesday’s (28 March 2017) COMEX gold futures open Interest positions, we see speculative net long positions increasing by 50% to 100K. Long positions rose by 13.39% contracts to 156K, short positions declined by 20.42% to 57K contracts.

Weekly Outlook

Following on from the positive US data we have seen, gold prices could possibly continue to feel the pressure this week, especially if we have the continued hawkish rhetoric from Fed officials. The current market sentiment seems to be very risk-on and safe-haven assets could possibly decline for this week in favour of risky assets such as equities, US Dollar and crude oil. One of the foreseeable factors that can save gold prices from falling is the further deterioration of the political situation in France to Marine Le Pen’s favour in the upcoming French Presidential Elections and the rising threat of “FrExit” (France leaving EU).

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The week ahead

Harry Thompson, PhillipCapitalUK
03/Apr/2017

We start a new quarter today and equity markets have started on a firmer note. This week is mainly filled with PMI data releases from all the major economics. It is highly likely that most of these data releases should exceed expectations given the recent trend of strong economic data. This morning we have seen Eurozone manufacturing PMI data come in line with expectations, whilst UK data disappointed, adding further support that the economy lost momentum in the first quarter of the year.

Economic Data and Central Bank Watch:
 
Do also expect another market-moving Friday afternoon when U.S Non-Farm Payroll data are released. Several more Fed officials are slated to be speaking this week, do closely monitor their comments for hawkish leanings. Strengthening U.S economic data and even more hawkish Fed rhetoric are expected to raise market anticipations of the next U.S rate hike and are likely to increase risk-on sentiments.
 
Over in Europe, two key central bankers will be speaking for the first time since UK triggered Article 50 last week; ECB President Draghi will be speaking in Frankfurt this Tuesday and Thursday and BOE Governor Carney will be speaking in London on Friday.
 
Politics and Government:
In the U.S, there will be the Senate confirmation voting of Neil Gorsuch to become a Supreme Court judge. The Supreme Court serves as the judicial branch of the government and is the highest federal court in the U.S. It has the ultimate appellate jurisdiction over all federal courts and over state court cases involving issues of federal law, such as the case involving President Trump's Immigration Restriction Executive Order. 

 

The last attempt by former President Obama to fill this position, left vacant by the death of Justice Antonin Scalia, was blocked by the Republican Senators. Currently out of the 8 existing Supreme Court Judges, there are 4 judges with Democratic political leanings and 4 judges with Republican political leanings. Should Justice Neil Gorsuch be appointed, he will tip the Supreme Court in the favour of the Republicans, given his Republican affiliations. The Democratic Senators are expected to put up some resistance against his appointment.
 
There will be a meeting of NATO Foreign Ministers in Brussels on the 5-6 Apr 2017, the first since the UK triggered Article 50. UK Prime Minister, Theresa May, has threatened to withdraw security cooperation with the EU last Wednesday as France and Germany refused to begin trade talks before UK agrees to pay a Brexit "divorce bill". Do keep a lookout on how the security and economic situation between the UK and the EU evolves during this meeting.
 
Moving onto Sino-US relations, U.S. President Donald Trump will be hosting his Chinese counterpart Xi Jinping at his Mar-A-Lago Country Club. President Trump has already warned that it could possibly be a contentious meeting as he seeks to reduce the US$310 billion trade deficit with China, as well as, get China to do more to rein in North Korea's nuclear program. He has suggested that U.S will tackle the North Korea's Nuclear Program issue unilaterally should China not be willing to assist. We will have to closely monitor the political developments at this meeting to see how the Sino-U.S. relations will turn out in the future, especially on the trade side.

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US GDP expected better

Nathan Sage, PhillipCapitalUK
30/Mar/2017

Today’s US GDP figure for the fourth quarter of last year is expected to rise from a revised reading of 1.9% in February to 2.0%. The slight boost in the figure may help a flagging dollar which has come under pressure this week following Trump’s healthcare bill defeat last Friday. If the figures stack up, the overall view for the US economy will be pretty rosy compared to recent years with a labour market at near full employment, inflation rising and currently above the Fed’s 2% target.

The figures will be keenly watched by traders and the Fed as future rate hikes loom this year, a host of recent Fed speakers have been prepping the market for further rate hikes in the US. Chicago Fed president Charles Evans, who is a voting member of the FOMC, has said he will support further rate hikes this year as the Fed are on their way to achieving full employment and stable inflation. These comments were backed up from the Fed’s Rosengran and Williams, although they are not voting members. Rosengran went as far to say he would like to see another three rate hikes this year, bringing the total to 4. Rosengren said hikes in June, September and December -- a rate of once every other meeting -- would be the most appropriate responses to recent market signals.

Looking ahead into 2017 expectations of growth across the US are increasing amid post-election rhetoric from Trump proposing deregulation, sweeping corporate and personal tax cuts and revisiting of old trade agreements. One excellent bell weather, FedEx, recently said that it expects real US GDP topping 2.3% in 2017 which sets a gradual pace up from 1.6% in 2016. First quarter GDP will give the first insight as to how the year will pan out typically a slower quarter as people slow spending and temporary workers get laid off after Christmas.

Trading idea.

US GDP is an important figure and any deviation from the expectation could spark volatility in an already weak dollar which languishes around 1.0765 and 1.2435 against the EUR and GDP respectively. A struggling growth figure could also pull US equity markets of their heady highs, especially as clouds have been gathering over Trump’s ability to pass tax reforms in his next bill of reform. 

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Gold commentary

Harry Thompson, PhillipCapitalUK
30/Mar/2017

Gold extended losses overnight as the USD continued to gain on various Fed speakers who were hawkish on rates. UK PM Theresa May also formally triggered Article 50 and addressed specific issues relating to the departure from EU, however gold prices did not see much of an impact from Article 50 being triggered as prices remained relatively unchanged.

On the back of a strengthening U.S economy, the hawkish Federal Reserve rhetoric continued yesterday. John William (FOMC non-voter) mentioned that he would not rule out more than 3 rate hikes in 2017 and that general rate hikes needed to avoid overheating of the economy.

 

Eric Rosengren (FOMC nonvoter) sees a further 3 rate hikes this year and thinks there should be an increase in every other meeting. Charles Evans (FOMC voter) spoke about 3 rate hikes being a possibility and 4 would need even better fundamentals. He thinks the US could build more of an inflation buffer and sees notable upside risk to growth with an inflation goal of 2% by 2019.

 

As the dollar continues to gain strength, it is likely gold prices will lean towards the bearish side, as a stronger dollar makes the dollar denominated metal more expensive for foreign investors. If gold prices look to break the immediate support at 1250 again, there is a greater chance they will head lower towards the next support at 1240. Investors could look for a break below 1247 to signal that the 1240 support level has been opened up.


Support : 1240, 1247.50
Resistance : 1250, 1260

 

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Tags:   Gold US data Fed

GBPUSD Analysis

Harry Thompson, PhillipCapitalUK
30/Mar/2017

It was only the first day of the UK’s 2 years in which it has to negotiate it’s exit from the EU but Theresa May’s opening bid has already hit an EU roadblock. Guy Verhofstaddt, former Prime Minister of Belgium and one of the top EU negotiators, attacked May’s attempt to tie economic freedom to a continued cooperation on security saying “Security is far too important to start to bargain it against an economic agreement”. We take a short term look at GBPUSD.

p> GBP/USD managed to hold support at the 1.2400 despite formal proceedings on article 50. As mentioned, the event had been long anticipated by markets, with the result being minimal negativity and volatility during the actual process. Some may have initiated a long position at 1.2400 support, and as prices hold above currently, may continue to trail a stop loss while seeking further upside.

Fundamentally, the pair is likely to trade higher as any significant developments on Brexit are only likely to come much later in June. However, the last few days have seen sentiment push rates lower quickly, and hence a stop loss should be placed to guard against such movement.

Economic data is heavier on the US side, with GDP numbers, personal consumption expenditure and jobless claims out. The numbers should sway markets as to whether a more hawkish or dovish policy by the Fed is appropriate.

Support levels: 1.2400, 1.2300
Resistance levels: 1.2470, 1.2600, 1.2660, 1.2725

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Risk off - gold moves lower

Harry Thompson, PhillipCapitalUK
28/Mar/2017

There was an easing of the risk-off sell-off of risky assets that was initially sparked by the ObamaCare Replacement Bill failing to pass through Congress. While there are still some uncertainties about the “Trump Trade”, the White House and Republicans have vowed to succeed in the implementation of other items on Trump’s economic agenda. Investors are still harbouring hopes that the tax reforms will be passed. Gold prices fell slightly as the U.S dollar stabilised.

It is hard to see gold prices falling much further if this afternoon’s US data releases are stronger than expected. Much of the focus of late has been on Trump and the geopolitical uncertainties that lay ahead. As a result we could see a muted reaction wholesale inventories and consumer confidence are released.

Another major event that is expected to take place sometime tomorrow is the UK’s Brexit process of triggering Article 50. The major Brexit concerns for the UK are whether they are able to negotiate a good trade deal with the EU bloc, and conclude over whether there are any monetary costs when they leave. Any monetary disputes between them may lead to a lengthy litigation process which creates even more uncertainty for financial markets and businesses.

An unfavourable trade deal and a lengthy litigation process will serve as a bullish driver for gold prices. If the UK are able to negotiate a good trade deal with the Eurozone and are able to avoid a lengthy litigation process, this will put more downward pressure on gold prices in the longer run.

On a shorter term outlook (for the week), look for when prices reach Fibonacci retracement levels which could act as resistance for possible price entry.

Support: 1250, 1245, and 1240
Resistance: 1260, 1270

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Tags:   Gold Trump Brexit

HKG50 focus

Harry Thompson, PhillipCapitalUK
28/Mar/2017

The Hang Seng Index saw a slow downward crawl yesterday as pessimism seeped through from both the US and China equity space. US President Trump’s health care bill defeated coupled with a fresh slew of property curbs in Beijing led to dampened price action for the index.

Await technical cues to ascertain price trends. At present, the index has just tested its immediate support level of 24,217, breaching which may spell downward price action towards its 1-hour 100 SMA (green line) as a next level of support. Alternatively, price rebounds from 24,217 with a meaningful breach above its 1-hour 20 SMA (red line) may signal index price recovery towards at least 24,450 for today. Earnings are a prime focus this week, await Banking sector releases.

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Tags:   HKG50

Gold commentary

Harry Thompson, PhillipCapitalUK
27/Mar/2017

Gold’s up on doubts over President Trump’s policy implementation, whilst investors keep a close eye on Theresa May who will soon be triggering Article 50.

Previous Week’s Market Summary

Gold prices rallied last week after one of President Donald Trump’s key policies, an ambitious bill to replace ObamaCare failed to pass through Congress’ House of Representatives. This failure has raised doubts over his ability to push through the rest of the economic agenda that he has promised during last year’s U.S Presidential Election campaign. The only consolation is that the White House has said that President Trump will move on to other priorities.

However, investors are coming to the realisation that President Trump’s great tax reform and massive fiscal spending may face more hurdles in Congress. This may delay, or in the worst case scenario even block these great policies from being implemented. In light of these concerns, investors went into risk-off mode, repositioning into safe haven assets such as gold and treasury bonds, while selling off risky assets such as the U.S dollar and equities. Gold prices ended the week up by 1.15%, while the U.S Dollar ended the week down by 0.5%.

Speculative COMEX Gold Futures Open Interest Monitoring (21 March 2017)

Based on a snapshot of the breakdown of last Tuesday’s (21 March 2017) COMEX gold futures open Interest positions, we see speculative net long positions increasing after the March FOMC rate hike and the risk-off positioning in anticipation that the ObamaCare Replacement bill will fail to pass in Congress. This bill eventually did fail to pass a few days later, in line with market expectations. Long positions rose by 14.7% contracts to 138K, short positions rose by 2.2% to 72K contracts. Speculative net-long position rose upward by 32.38% to 66K and this caused gold price to be up for the week.

Weekly Outlook

Gold prices will likely be further supported this week as investors continue to be in risk-off mood as markets continue to taper down their expectations on the speed and scale of President’s Trump’s Tax Reform and Fiscal stimulus. There is also the uncertainty of the UK’s Brexit process after triggering Article 50 that is slated to take place this coming Wednesday. Any significant announcements, especially if it is negative, will create greater market volatility which will be a bullish driver for gold prices. Gold prices may retest the US$1,265/Oz level and even break upwards if the risk off mood continues. 

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Tags:   Gold Trump May Brexit

Energy outlook: Oil under pressure

Harry Thompson, PhillipCapitalUK
23/Mar/2017

Oil prices have come under renewed pressure following the announcement yesterday that US inventories rose by 4.85 million barrels. We take a look at the fundamentals that are driving the market lower.

Rising U.S Production

U.S production has risen significantly since September last year’s trough, having risen by 8.14% or 684,000 Barrels Per Day (BpD). This meteoric rise in U.S production is keeping crude oil prices suppressed and may further drive crude oil prices down if the global output reduction deal breaks down.

Mixed Comments from Russia and Saudi Arabia

Russia’s Energy Minister, Alexander Novak, had said that it is still too early to discuss extending an output-reduction deal. This is in contrast to Saudi Arabia position, where its Energy Minister Khalid Al-Falih has said that they are ready to extend the cuts if supplies stay above the five-year average.

EIA Inventory Analysis

Yesterday EIA crude oil inventory figures showed a gain of 4.85 million barrels last week, almost three times the figure that was expected by markets. Absolute inventory levels have risen above 530 million barrels mark. There were greater than expected drawdowns for distillates and gasoline inventories which stabilised the freefall in crude oil prices. The drop in gasoline inventories was 2.8 million versus a consensus of 2.5 million. There was a similar story on the distillate side, where there was an actual drawdown of 1.9 million versus consensus of 1.8 million.

Oil traders had already been selling-down in anticipation for an EIA crude oil inventory surplus after the release of a larger than expected inventory build-up in the API figures released on Tuesday. Oil traders usually open positions on the release of API data and profit-take or cut-loss on the release of EIA figures.

CFTC Speculative Positions (14 March 2017)

Based on last Friday’s CFTC Commitment of Traders (COT) data release for the previous Tuesday (14 March 2017), speculative net longs have continued to slip towards 288.774K. Speculative short positions have almost doubled from 48k to 98K, intensifying the downward pressure on crude oil prices.

Weekly Outlook

While OPEC and the 11 non-OPEC participants would not decide until May whether to prolong the curbs, their officials will meet this weekend (25-26 March 2017) in Kuwait to discuss the deal’s progress. Hence, it will be wise to keep a lookout for the developments and announcements at this meeting. Based on the facts, data and analysis, it is likely crude oil will remain under pressure, and there could a break below the critical support level of US$47.38/barrel unless there is any significant positive developments. 

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Gold to be supported by Trump's struggle

Harry Thompson, PhillipCapitalUK
23/Mar/2017

Investors will be focused today on the United States congress as Donald Trump looks to gather support behind his healthcare bill which will replace ObamaCare. Trump faces great opposition from the bill, mainly from the centrists within the party who worry that it may leave millions of Americans without adequate health insurance coverage.

The possibility of this replacement bill not gaining sufficient support has been a concern for quite some time already, but it can be argued that it has not been fully priced in.

Stocks have taken a hit over the last few days as concerns grow over whether Trump will deliver on his stimulus policies. As a result, safe haven demand has risen, giving a boost to gold prices. They reached a new high of 1250 before seeing some retracement.  
 
In addition, political tensions in Europe, the attack earlier in UK and the decline of the dollar are also pushing demand for gold higher as investors reduce their appetite for risk-on products.
 
Due to the recent rise in price investors may look to take profit, as a result, it may be wise not to add further long trades as gold is possibly in an overbought position. We could see a short term correction before finding support between 1240 ~ 1245. 
 
Support : 1245, 1240
Resistance : 1250, 1255

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Rationalisation of Trump euphoria

Harry Thompson, PhillipCapitalUK
22/Mar/2017

For the first time since President Donald Trump’s euphoric election to the Oval Office, investors are starting to doubt the implementation of pro-growth policies of tax reform and stimulus promised by him.

Currently the Obamacare repeal seems to have hit a snag even among President Trump’s own Republicans, ahead of tomorrow evening’s House of Representative vote. There have been claims by the House’s conservative Freedom Caucus that it does not have enough votes to pass in the chamber and the group has even threatened formal opposition to the bill unless significant changes are made.

As can be seen from the reactions in the financial markets, investors did not take this too well. The possibility of this repeal act being caught in a quagmire has been a concern for quite some time already, but has not been priced in. This ObamaCare repeal legislation seems to be a key priority of the Trump Administration, so should it be delayed, other legislative reforms, such as tax reform, will also be pushed back and this would further disappoint financial markets that have inflated expectations.

There was a switch in market sentiment to risk-off as we saw a sell-down across equities and the US dollar in favour of safe haven assets such as gold and Treasury bonds. Gold prices are likely to continue to go up higher on this market rationalisation and the possible further escalation of North Korean missile tension.

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Tags:   Trump US

Chinese Focus – CN50

Harry Thompson, PhillipCapitalUK
21/Mar/2017

China’s CN50 extended its descent yesterday, largely dampened by a fresh slew of property cooling measures. What's up next for the index?

China’s property market once again came into focus as Beijing’s municipal government announced a new series of measures to try to cool its property market. The Real Estate sector slumped on the news, dragging index prices. 
 
Protectionism risk, potential banking profit squeezes may add further dampeners on the index. Global equity markets met with serious stalls following the G20 summit, as world leaders only gave a token nod to free and open trade, a significant breakaway from tradition. Comments by China’s former commerce minister on retaliatory action against possible United States trade protectionism escalated trade war risks. 
 
In the Chinese banking space, worries of interest margin squeezes are swelling as banks are faced with higher costs and dwindling lending opportunities. This may prove to be a large drag on the CN50, as banks make up approximately 40% of the index. Watch for earnings releases from the FTSE CN50’s parallel constituents in the ‘H’ Share space from Hong Kong’s current earnings season. 
 
The Chinese Oil & Gas sector may help to slightly offset dampened price action today. Crude oil futures rallied last night on talks that OPEC’s current output production cut may be extended beyond H1 2017 in an attempt to get global oversupply under control. This slight bump in oil prices may bode well for the Oil & Gas industry, which in turn may help buoy the index’s prices. 
 
Technically speaking, watch for the index’s critical support level. The 10,292 level seems to have lent rather robust price support for the index since early February this year. It is imperative to watch if this level holds against the backdrop of the index price drivers discussed earlier. A sideways play between 10,292 and 10,416 may pan out on steady support, but earnings upsets may well push prices below immediate support.

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Tags:   China CN50 Property Oil

A look at the week ahead

Harry Thompson, PhillipCapitalUK
20/Mar/2017

Last week markets were on full alert as the Fed looked to hike interest rates, the Netherlands had a hotly contested general election and Donald trump announced his proposal for the 2017 budget. Expect markets to take more of a breather from large scale risk events as data points and scheduled releases revert to normalised levels which includes various preliminary Markit PMI readings.

Expect various comments this week from EU officials as Eurozone finance ministers meet in Brussels. Japanese Prime Minister Shinzo Abe will also be in the focus as he meets with German Chancellor Angela Merkel, as well as the European Union’s Juncker.

The United Kingdom

Investors are now looking ahead to the end of March when Theresa May will likely trigger Article 50 and start the UK’s formal withdrawal from the European Union. Besides this, there are important data points to watch this week, including the release of CPI and retails sales.

The CPI data release may be of particular importance as it is expected to overshoot the Bank of England's target of 2%. This may put the Bank of England in a fix as it is faced with both rising consumer prices and the uncertainty of upcoming Brexit negotiations.

We heard from the Bank of England last week who voted to keep interest rates at their record lows; however a split has emerged about how to tackle rising inflation. Kristin Forbes was the only dissenter who voted for an immediate rate hike and we could see other members join her at future meetings if they feel inflation is rising too quickly.

The United States

Much of the focus this week will be on the numerous Fed speakers which is kicked started tonight by Chicago's Charles Evans who will also speak later on in the week. Fed Chair Janet Yellen will speak on Thursday, Dallas's Robert Kaplan and Minneapolis's Neel Kashkari on Friday and New York's William Dudley on Saturday.

The weekly Initial Jobless Claims release is expected to be watched as investors eye a probable broader continuation of the data series' down trend. Also, watch for further developments in the US President Trump space as his budget and policies will be the hot topics for the week.

Central bank’s

This week we will receive the minutes from the Bank of Japan’s monetary policy meeting on 30-31 January as well as the Reserve Bank of Australia’s March rate meeting.

The BoJ’s minutes are unlikely to shed any more light on the current situation, as we learnt only last week that the Bank has a vigilant but positive outlook on the economy. They suggested that no increase on the monetary stimulus is to be expected any time soon. 

On top of this, the RBNZ is scheduled to release a decision on interest rates on Wednesday. Markets are expecting rates to remain on hold at 1.75%.  

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Gold weekly outlook

Harry Thompson, PhillipCapitalUK
20/Mar/2017

Gold prices benefited from short covering following the FOMC’s decision to hike rates by 25 basis points. As a result we could see prices consolidate this week following a positive end to last week. Political uncertainty will continue to act as a support.

March FOMC Rate Hike

Gold prices started the previous week slightly down by 0.7% in anticipation of a FOMC March rate hike. As what is advocated by behavioural finance, market participants had been selling gold for an entire fortnight before the meeting, with prices dropping by 5.5% or $67.50Oz.

On announcement of a 25 bps rate hike, we started to see some short covering as investors began to take profit, helping to push gold up by 3% or US$35.50/Oz.

Trump’s Proposed 2017 Budget

President Donald Trump released the blue prints for his proposed 2017 budget, and there was a greater emphasis on Defence and National Security whilst a proposed reduction in social spending and environmental conservation.

The proposed expenditure by the government was below market expectations and has been described by some as ‘tough’, as it would have huge implications of millions of the poorest people. The budget is expected to face a lot of opposition and scrutiny in Congress due to the massive cutbacks in social spending initiatives. This aided the rise in gold prices last week.

Weekly Outlook

Prices currently seem to be consolidating below resistance at 1235, with profit taking reducing the rise slightly as prices begin to look overbought. As a result, on a shorter-term outlook we could see a retracement from immediate resistance.

However, beyond this it is possible that prices may continue to rise as geopolitical uncertainty remains at the forefront. President Trump’s economic policies continue to fall below market’s expectation and could face congressional delays. The looming French Presidential elections and growing tensions between the west and North Korea will also add support to gold prices.

Support: 1225, 1220
Resistance: 1235, 1240

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Tags:   Gold Trump FOMC Fed

Netherland’s Pivotal Elections

Harry Thompson, PhillipCapitalUK
15/Mar/2017

Europe’s first test of the anti-establishment mood begins today as the Dutch go to the polls. In recent weeks, Geert Wilders’ far-right Eurosceptic party has lost the lead in opinion polls. Despite this, there is uncertainty that surrounds the results of the election.

The Eurosceptic Party for Freedom (PVV), led by Geert Wilders is expected to increase their number of parliamentary seats and become the second largest party in the Dutch Parliament. Fortunately, the Dutch political scene is very diverse and decentralized, with no party expected to hold more than 20% of parliamentary seats. It is likely that the other parties may string together a 5-6 party ruling coalition that may exclude the PVV and hence the PVV is currently viewed to have little chance of coming into power.

The greater worry is that the populistic contagion may spread from the Netherlands to the French Presidential elections, where France’s euro-sceptic Marine Le Pen is expected to go head-on with her closest rival, Emmanuel Macron in a tightly contested race. Ms Le Pen still currently stands a very good chance of winning the French Presidency.

The financial markets might see the Dutch Elections as a bellwether for the French Presidential race and might start pricing in a Marine Le Pen Victory in the French Presidential race should the PVV come out strong in the Dutch Election. 

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Brexit and Gold

Harry Thompson, PhillipCapitalUK
14/Mar/2017

The latest Brexit development has now cleared the way for Theresa May to trigger Article 50 and start the formal withdrawal from the EU. As sterling moves lower, has gold benefited from the increased uncertainty?

Brexit Developments

U.K. Prime Minister Theresa May is preparing to trigger Brexit within two weeks after securing the permission of lawmakers to begin two years of talks with the European Union. The House of Commons overturned amendments from the House of Lords that seek to restrict PM May’s flexibility to embark on the Article 50 triggering process.

Also announced yesterday, Scottish First Minister, Nicola Sturgeon, will be proceeding to start a Scottish Referendum to cede from the U.K as the Scottish want to remain in the E.U. She said that PM May’s determination to take Britain out of the single market is against Scotland’s wishes and thus makes it a plebiscite necessity to address a “democratic deficit.” This referendum is expected to be scheduled at some point between the fall of 2018 and the spring of 2019, by which time the terms of the Brexit deal should be clear and finalised. This would leave PM May battling to keep Scotland in Britain just as she tries to finalize the European divorce with a government team that is already stretched by the demands of Brexit.

These Brexit developments continue to shore up gold prices even in light of an almost imminent rate hike decision this Thursday from the Federal Reserve. After a drastic drop for the last two weeks, gold has finally been supported above the key psychological support of 1200. Gold prices are expected to be range-bound between US$1,195/Oz and US$1,212/Oz for today, short of any major unexpected developments.
 
Support levels:  1200, 1190, 1175
Resistance levels: 1225, 1240

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Chinese bulls return

Harry Thompson, PhillipCapitalUK
14/Mar/2017

We take a look at the Chinese market and the potential that lies in Chinese equities after positive comments from senior government officials regarding China’s economic stabilisation.

The Chinese bulls returned on Monday, largely lifted by comments from senior government officials. Li Wei, the director of the Development Research Centre of the State Council reconfirmed China’s economic stabilisation story on Sunday when he affirmed that the Chinese economy is transitioning to a period of “horizontal” growth.

Chinese equity indices rallied on the news. Prospective People’s Bank of China (PBOC) tightening coupled with diminished fears of credit risk makes a sweet spot for the Financials sector. While there were initial concerns surrounding the PBOC shift away from accommodative monetary policy towards a more neutral stance given high corporate debt levels, affirmation of the economy’s debt landscape from government officials like Finance Minister Xiao Jie gave the Financials sector a green light for the resumption of buying activity.

 This is of particular significance to Chinese equity indices as banks alone make up around 40% of the index. Higher interest rates generally bode well for banks, as it means prospectively higher revenues. However, rates which are deemed to be excessively high may result in a backlash of the credit events (e.g. defaults, delinquency) which usually follow. 

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The week ahead

Harry Thompson, PhillipCapitalUK
13/Mar/2017

Much of the focus in the latter part of last week was on the slide in the price of oil and Draghi’s comments following the ECB’s monetary policy meeting. Central Bank meetings and politics are expected to dominate the week ahead. Expect a heightened state of cautiousness and volatility as key events occur within a short time span.

Central Bank Meetings
This week, watch for interest rate and policy decisions from the US Federal Reserve, the Bank of Japan, the Bank of England, the Swiss national Bank and the Bank of Korea.

While it is already expected for the US Federal Reserve to hike interest rates this Wednesday, the press statement and summary of economic projections following the interest rate decision will still be keenly watched as investors digest the US Fed's policy direction from there. Watch for the Fed's "dot plot" for any potential increase in its hawkishness.

The Bank of Japan's meeting will also be keenly eyed as investors would like to hear Chief Kuroda's comments on the direction of yield curve control and bond buying programs, in case there are any sure signs of tapering in the future.

The Bank of England, the Swiss National Bank and the Bank of Korea are not expected to make any drastic changes to policy, especially when political uncertainty still looms with regards to the triggering of Article 50 and President Park's impeachment.  

Dutch General Elections
The first of many elections in the Eurozone space is finally set to occur this Wednesday, as the Netherlands will go through their 2017 General Elections. Whilst there has been a lot of uncertainty stoked by the possibility of right-wing Populist Party for Freedom (headed by Geert Wilders) winning the elections, there may be a few mitigating factors to disarm initial investor concerns.

First, Geert Wilders has been rapidly declining in terms of opinion polls, especially during the last days leading up to the election. Second, even with strong opinion polling support, Wilders may find his support failing to turn out due to the disenchantment of his support base in recent weeks. Lastly, Wilders may find himself unable to form a coalition government due to his rival parties all expressing their desire not to work with the PVV. 

Looking ahead to a volatile week.

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Gold outlook - uncertainty ahead

Harry Thompson, PhillipCapitalUK
13/Mar/2017

This week we will see the result of four central bank’s monetary policy decisions as well as the results from the Dutch general election. We take a look at how this uncertainty will affect the price of gold.

The BOJ, Fed, SNB and BOE will be having their monetary policy announcements within hours of one another, but only the Fed is expected to hike rates with all the rest expected to maintain status quo.

Based on the historical price action that we have seen over the last 2 recent Fed rate hikes, gold prices usually fall in anticipation of a rate hike and rise after it has been announced by the Fed. It is likely to repeat the same pattern once again. Gold prices should continue to rise after Thursday FOMC announcement, regardless of whether there is a hike or not, as there is the possibility that financial markets have already priced in rate hike effects, paring down gold positions and short-selling spot gold or gold futures in some cases.

On the event of a rate hike, traders might proceed to take profit and short-covering might cause gold prices to correct upwards. If there is no rate hike announced on Thursday, traders will be disappointed and could potentially look to close their short positions, which will cause gold prices to rise.

In the Netherland’s election space, Geert Wilders’ far-right Eurosceptic party has lost the lead in opinion polls. Despite this, the lesson that we have learnt from last year’s Brexit Referendum vote and U.S Presidential Election is that actual voting results may differ from opinion polls and therefore the race can still be considered to be wide open. This geo-political uncertainty should continue to serve as a bullish driver for gold prices. 

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Sterling and Oil lower - Euro firm

Harry Thompson, PhillipCapitalUK
13/Mar/2017

Sterling has come under pressure as we move into the final stages of triggering Article 50, whilst the Euro has been boosted on the possibility of an interest rate hike before the year is out. Meanwhile oil hits a three and half month low on over supply fears.

As we enter the final stages of preparation for the triggering of Article 50 the pound continues to slip in value as concerns rise over what lies ahead. Talk from David Davis and Boris Johnson yesterday that the UK may end up with no negotiated exit deal with Europe which has done nothing to bolster confidence. Also going against the pound was the strong US employment report on Friday which all but guarantees a rate rise this week in the States - now the market is guessing when the next one will be.

The euro has moved to a one month high against the US dollar as investors latch onto the possibility that the ECB may raise interest rates before their bond purchasing programme finishes. Some members of the ECB’s governing council discussed the possibility of higher interest rates, however it has been reported that this was a brief discussion as support for this was limited.

The price of oil has continued to move lower overnight following on from its four days of consecutive losses last week. The move lower follows a rise in US inventories to record levels, whilst the Baker Hughes US rig count, showed drillers added rigs for the eighth consecutive week as energy companies take advantage of a recovery in crude prices. 

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Scotland independence vote in autumn.

Harry Thompson, PhillipCapitalUK
10/Mar/2017

Nicola Sturgeon is looking to announce a second Scottish independence referendum in 2018. Recent polls show the Scottish public is split 50/50; it looks like another headache for Theresa May.

Scottish first minister, Nicola Sturgeon, has told the BBC that a second poll on Scottish independence could come as soon as autumn 2018. This would roughly coincide with when the UK is set to leave the European Union. This raises the pressure for Theresa May and her government who will try and negotiate the UK’s exit from the EU, whilst at the same time dealing with Scotland independence vote that could potentially rip the UK apart. Polls have previously shown that support for Scottish independence has barely changed since 2014, however a recent Ipsos MORI poll on Thursday showed that those surveyed (1,029) were split 50/50.

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Looking ahead to Nonfarm payrolls

Harry Thompson, PhillipCapitalUK
10/Mar/2017

Nonfarm payrolls will likely confirm a Fed rate hike next week. Markets are expecting 180,000 jobs to have been added in February, a drop below the 227,000 added in January.

Nonfarm Payrolls

This week’s nonfarm payrolls holds significant importance as it comes ahead of the March FOMC meeting, where Bloomberg’s World Interest Rate Probability Calculator suggests there is a 100% chance of a rate hike. The jobs report will show us how many jobs were created in the US economy over the course of the month of February, a primary indicator of US economic health. Although markets are already pricing in a rate hike next week following on from the strong hawkish rhetoric from Fed speakers last week, nonfarm payrolls data is still expected to be keenly watched.

Markets are expecting 180,000 jobs to have been added in February, a drop below the 227,000 added the prior month. However, if ADP employment figures are anything to go by, we could be in for a big shock to the upside. ADP employment figures out yesterday showed there was a massive 298,000 jobs added in February, drastically higher than the 187,000 jobs that was expected to be added.

There would be no surprise, given the positive economic data to see firms ramping up their number of employees. Donald Trump has promised millions more jobs as he looks to boost infrastructure spending, so nonfarm payrolls will likely be a key figure throughout his presidency.

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ECB on hold

Harry Thompson, PhillipCapitalUK
09/Mar/2017

The European Central Bank has left its interest rate flat at zero percent, whilstMario Draghi' press conference put some life into the Euro - the single currency is ‘irrevocable’

The European Central Bank has left its interest rate flat at zero percent, whilst committing to continue its ultra-loose asset buying programme until at least the end of the year.


Markets were looking for any change in language over the future path of monetary policy and Draghi delivered this by removing the comment that the ECB will use ‘all the instruments available within its mandate’. Draghi went onto explain that the language had been altered to ‘signal that there is no longer that sense of urgency in taking further actions ... that was prompted by the risks of deflation’.


Draghi confirmed that stimulus from the central bank was still required to allow underlying inflationary pressures to build up. He went onto increase Inflation and growth forecasts, but he reiterated this was only achievable with the full implantation of the central bank’s policies.


When pressed about the future of the Eurozone, he was keen to bat away the idea that there was any risk to its future given the upcoming European elections. He commented that he would pay close attention but without a worry, confirming that the euro is here to stay.   
 

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Five Investment Themes for China

Harry Thompson, PhillipCapitalUK
09/Mar/2017

Much of the focus recently has been on how markets are impacted by events in the West, namely Donald Trump's presidency, upcoming elections in France, Germany and Holland. However we want to go back to our roots and see how things are looking in the east ahead of China's National People's congress this week.

Economic Stabilisation
The Chinese economy has shown repeated signs of stabilisation. GDP growth has finally picked up to 6.8% after 3 quarters of flat growth at 6.7%. Manufacturing PMI (both NBS and Caixin) has shown expansion by staying consistently above 50.0 since August 2016 and Retail Sales and Industrial Output have also been stable. Expect the CN50 to lift with signs of economic stabilisation.

Peoples Bank of China Tightening, Debt Deleveraging
Central bank tightening is expected to accompany China’s increasingly stable economy. This is also a move by the government to try to deleverage the economy as debt levels start to worry investors. Tightening moves or hints of tightening may dampen the CN50 index as sentiment drops.

One Belt, One Road
The infrastructure-heavy government initiative to link up Eurasia is expected to fuel demand in the construction and materials sector of the Chinese index (CN50). Government reforms encouraging developments and growth in this initiative is expected to benefit the CN50. 

Regulatory Clampdowns
Regulatory clampdowns in the finance industry are expected to go on as the Chinese government continues to shape securities markets to meet higher quality standards. The CN50 will likely exhibit fear when these clampdowns occur, but also these initial dampeners are likely temporary.

Capital Outflows and the Yuan
With the US Federal Reserve on a policy tightening stance, it is largely expected for US Dollar's strength to be a key theme for 2017. Strength in the US Dollar does not bode well for the Yuan as excessive weakening may spark capital outflows or fears of capital controls, leading to a dampened mood in the CN50 Index. Investors need to watch for continued draw downs on China’s foreign reserves, and how the PBOC manages a dwindling Yuan amid a strengthening US Dollar.

Find out how you can capitalise on these opportunities
There will likely be much movement in the China CN50 equity index. Much upside still exists as China’s economic stabilisation story continues against the backdrop of its One Belt, One Road initiative. However potential regulatory shakeups, coupled with central bank tightening and movements in the Yuan may cause some temporary upsets. The year ahead is full of investment opportunities in Chinese equities, and the CN50 offers an excellent avenue for access and exposure to the exciting developments in the region.

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Oil Outlook

Harry Thompson, PhillipCapitalUK
09/Mar/2017

The Energy Information Administration showed that US oil inventories climbed a staggering 8.2 million barrels last week, a ninth straight week of gains. We take a closer look at the oil market outlook and the International Energy Agency's (IEA) latest report.

Fundamental Drivers

OPEC is trying to widen the participation of its current oil supply reduction initiative, where they have stated their intention to bring on-board hedge funds and U.S shale producers. They have been holding informal and preliminary discussions with these groups. Hedge funds have become major financiers of new U.S. oil firms and owners of production assets in some major oil regions in the U.S.

OPEC Secretary General Mohammed Barkindo has stated that “any decision to extend the OPEC-led production cuts beyond June would have to include the continued participation by the non-OPEC countries”. He further mentioned that OPEC plans to hold an event to consider the impact of oil futures on physical crude markets.

Saudi Arabia’s Energy Minister, Khalid Al-Falih, has acknowledged that global oil inventories have not declined as quickly as expected and that an extension in the production cut deal may be needed. The minister however mentioned that the Kingdom currently remains undecided on whether to join the extension if proposed and will only decide when the current deal is up for extension negotiations in May 2017. This represents a subtle yet significant shift from his previous comments that an extension probably wouldn’t be needed, Kuwait will be hosting a ministerial level compliance review meeting on March 26 to be attended by both OPEC and non-OPEC participants of the previously agreed deal.

IEA Under-Investment Warnings

The International Energy Agency (IEA) in its latest report has warned of a possible oil shortage beyond 2020 given the current situation of under-investment in the oil production space. The latest 5-year oil market forecast, previously known as the medium-term oil market report, projected a relatively upbeat outlook until 2020 where supply growth is expected to plummet thereafter. Oil demand is forecast to rise over the next 5 years, on track to exceed the symbolic 100 Million Barrels per Day (MBpD) threshold by the end of 2019. Projected global oil demand growth will average 1.2 MBpD (1.2%) annually over the next five years. India's oil demand growth is also predicted to overtake China's.

As today's overhang of surplus stocks is eroded, the main issue is whether or not investment recovers, and whether governments and companies take the current confidence that there is a floor under oil prices and bring forward new projects. You could argue that this report looks to the worse possible scenario, as a five year forecast is a lengthy period, meaning should global oil demand pick up strongly, there will likely be an increase in investment in oil production. As a result, the long-term forecast deficit may not be as severe as the report makes it out to be as it is possible that investments in global oil and gas exploration and production might reverse from the current 2 year slump.

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Gold Trading levels

Harry Thompson, PhillipCapitalUK
09/Mar/2017

Gold continues to be under pressure as markets gear up for a Fed rate hike next week.

Gold continues to be under pressure as markets gear up for a Fed rate hike next week. The move lower continued yesterday after ADP employment numbers came out extraordinarily strong, at 298K versus consensus of 185K. ADP employment change figures are historically correlated with the Nonfarm Payroll (NFP) figures, and they have given us a good indication of what is to come on tomorrow.

While the precious metal is nearing its psychological support level of 1200, it may not be wise to use this as an entry point as the downward trend is strong. As a result, investors could look to play a safer game and wait for a break in the downward trend line instead of trying to catch a bottom.

US jobless claims are scheduled for later today. With ADP employment yesterday making a strong showing, its likely there won’t be much interest in the safe haven even if numbers marginally disappoint.  

Support levels:  1200, 1175
Resistance levels: 1225, 1240

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