Friday, 30 June 2017
Wall Street index futures higher; inflation data eyed
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Wall Street
US stock index futures were pointing to a higher open on Friday pre-session hours, as market participants awaited key inflation data later in the day.
On Thursday, Wall Street ended lower as the technology sector again suffered strong losses, returning previous session gains. Large-cap companies such as Facebook, Amazon, Apple, Alphabet and Netflix plunged by more than one percent.
The Dow Jones industrial average dropped nearly 168 points by the closing bell, with Apple, Boeing, and 3M pushing other sectors to the downside.
The S&P 500 sank 0.9 percent, with information technology weighing heavily on the index as it fell 1.8 percent in average. The Nasdaq composite eased 1.4 percent.
Yesterday’s session was marked by strong profit taking as stock markets rallied on the back of strong performance in the banking sector.
---Dow Jones Industrial Average: -98.89 / -0.46% / 21310.66
---Standard & Poor’s 500: -19.69 / -0.81% / 2419.38
---Nasdaq Composite: -100.53 / -1.61% / 6146.62
Investors were cheered by an upgrade of the first-quarter gross domestic product. The GDP came in at 1.4 percent, outperforming a previous reading of 1.2 percent.
In other news, initial jobless claims rose by 2,000 to a total count of 244,000. Analysts had initially estimated a reduction to 240,000. However, markets didn’t react on this report.
As for today, the data front includes the core PCE price index for May and personal spending, both due for release as of 12:30 GMT, with a 1.4 percent and 0.1 percent eyed respectively.
Michigan consumer expectations and sentiment for June are scheduled to be published as of 14:00 GMT, with market analysts looking at 84.7 and 94.5 respectively. Baker Hughes will present the latest oil rig count at 17:00 GMT.
Weekly Outlook: July 3 - July 7
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weekly outlook
Monday
Asia: The Caixin manufacturing PMI for June is due for release as of 01:45 GMT, with analysts forecasting a 49.5 reading from a previous 49.6.
Europe: Markit Economics will present manufacturing PMIs for June in Germany, the Eurozone and the United Kingdom as of 07:55 GMT, 08:00 GMT and 08:30 GMT. Expectations currently stand at 59.3, 57.3 and 56.4 respectively. EU’s unemployment rate for May is expected to tick down to 9.2 percent at 09:00 GMT.
United States: Manufacturing PMI is scheduled at 13:45 GMT, while ISM manufacturing PMI will be out fifteen minutes later. Markets will close earlier than usual due to the Independence Day.
Tuesday
Asia: Japan’s auction of 10-year bonds is set for 03:45 GMT.
United States: Closed - Independence Day
Europe: The UK construction PMI for June will be published as of 08:30 GMT.
Wednesday
Asia: Caixin services PMI will be presented as of 01:45 GMT.
Europe: Services PMIs for June in Germany, the Eurozone and the United Kingdom will be out at 07:55 GMT, 08:00 GMT and 08:30 GMT. Also, euro retail sales are scheduled for release at 09:00 GMT, with a 0.3 percent eyed.
United States: Factory orders are due at 14:00 GMT, although the main focus will be at the release of last minutes from the Federal Open Market Committee at 18:00 GMT.
Thursday
Europe: Germany’s factory orders are due at 06:00 GMT, with a forecasted 1.8 percent build. The European Central Bank will publish its Account of Monetary Policy Meeting at 11:30 GMT.
United States: ADP nonfarm employment for June is scheduled at 12:15 GMT, followed by trade balance data at 12:30 GMT. Services PMI will be out at 13:45 GMT and fifteen minutes later the non-manufacturing ISM PMI will be presented. The Energy Information Administration will publish its weekly crude inventories report at 14:00 GMT.
Friday
Europe: German industrial production for May is due at 06:00 GMT, with 0.3 percent build. UK Halifax house price index will be out at 07:30 GMT. British manufacturing and industrial production are set for release at 08:30 GMT.
United States: Average hourly earnings, nonfarm payrolls, participation rate and unemployment rate are all set for release as of 12:30 GMT. Analysts predict a 183,000 jobs build and the unemployment rate to hold steady at 4.3 percent.
What’s next? – USDJPY 30.06.17
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what’s next
USDJPY
The dollar/yen was 0.07 percent lower at 112.09 as of 07:40 GMT, with the pair trading in a tight range ahead of key economic data in the United States later in the session.
The pair is currently depending almost entirely on monetary policy expectations. Investors await the PCE price index as of 12:30 GMT to reassess chances for a rate hike in the coming months.
According to Fed funds tracked by CME Group’s FedWatch tool, market participants are now pricing in more than a 47 percent chance of a rate adjustment in December. In such scenario, the short term rate will move to a range between 1.25 and 1.50 percent.
Yesterday, a fresh reading on the first-quarter gross domestic product cheered markets and boosted the US dollar across the board. The Q1 GDP was updated upwards to 1.4 percent from a prior 1.2 percent, which serves as evidence that the economy is still growing healthy.
In Japan, household spending increased 0.7 percent in May, while the core CPI came in line with market analysts’ expectations at 0.4 percent. Industrial production weighed on the yen, as it fell a tick more than the expected 3.2 percent.
From a technical perspective, the 113.00 mark remains as a reachable target in the short term, with a possible extension to 114.00. The pair should build bullish momentum around the 112.00, which currently serves as a key support for the pair.
The pair is likely to move in the direction of Wall Street in the session, as the dollar and stocks remain closely correlated in terms of policy expectations.
What’s next? – DAX 30.06.17
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what’s next
DAX
The DAX index futures were 1.94 percent lower by 06:00 GMT to trade at 12,397.00 points, remaining under heavy pressure as traders reacted to hawkish comments from central bankers regarding a possible reduction of monetary policy stimulus programs.
On Thursday, the index ended 1.83 percent higher in Frankfurt, marking a one-month low at 12,416.19 points, with Technology and Utilities pushing other sectors to the downside.
Among best performers of Thursday’s session, Commerzbank AG O.N. adding 1.32 percent to 10.395, followed by Deutsche Bank AG NA O.N. up 0.54 percent to 15.825.
On the loser's side, Infineon Technologies AG NA O.N. sinking 3.65 percent to 18.355, RWE AG ST O.N. down 3.23 percent to 17.385 and Beiersdorf AG O.N. plunging 3.22 percent to 92.020.
In economic news, Germany’s consumer climate for July came in above expectations at 10.6, against 10.4 seen. Also, consumer price index for June was up 0.2 percent, outperforming expectations for an unchanged result and a previous minus 0.2 percent.
The extension of the downward movement could be attributed to several factors. From a fundamental perspective, hints on reducing stimulus. From a technical view, breaking down a key support at 12,500 was certainly incentivizing bearish positions in the prior session.
As the index continued to break the 12,400 and 12,300 levels, bears felt progressively more confident about the correction, which served as an excuse to increase their short positioning.
Ahead in the session, traders will be looking at further economic reports, such as the German unemployment rate, EU’s consumer price index and US PCE index and consumer spending.
What’s next? – GOLD, OIL 30.06.17
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GOLD
Gold prices soared in early trading hours on Friday, with market players looking ahead of key economic data in Europe and the United States later in the session.
A new reading on the first-quarter UK gross domestic product is expected to catch all attention as of 08:30 GMT. EU’s consumer price index will be published at 09:00 GMT. As for the US, eyes will be placed at the core PCE price index and personal spending for May at 12:30 GMT.
On the Comex division of the New York Mercantile Exchange, gold futures for August delivery were up by 0.10 percent to trade at $1,247.00 a troy ounce as of 04:45 GMT.
Inflation data in the US is key for investors as they try to figure whether the Federal Reserve will move forward with a third interest rate hike later this year. Inflation growth remains one of the main concerns for policymakers.
According to Fed funds tracked by CME Group’s FedWatch tool, market participants are currently pricing in a 47.5 percent probability of a rate move in December.
On Thursday, the yellow metal traded downwards as a batch of central bankers hinted on a possible reduction of their massive stimulus packages in the near future.
Higher interest rates promote high-yielding assets and put under pressure safe-haven such as gold as the opportunity cost of holding non-yielding assets increases considerably.
Also, rate hikes supports the dollar, in which gold is denominated, turning it into a more expensive investment alternative for traders holding foreign currency.
OIL
Oil futures were higher in Asian hours on Friday, heading for the largest weekly gain since mid-May on the back of an output reduction in the United States and as market players looked ahead of the latest oil rig count later in the day.
Oilfield services provider Baker Hughes is due to release its weekly oil rig count as of 17:00 GMT. Last week, the company said US drillers added 11 platforms, marking the 23th consecutive week, to leave the total count at 758 units.
The US benchmark West Texas Intermediate oil futures traded at $45.20 a barrel, up 0.60 percent from its prior close. Meanwhile, the London-based Brent crude oil futures fell 0.67 percent to trade at $47.74 a barrel as of 04:05 GMT.
This has been a bullish week for oil benchmarks. Wednesday’s data from the US Energy Information Administration created positive momentum and drove prices higher. But not only a decrease in US output supported crude contracts, a weaker dollar also came into play.
The US dollar index, which tracks the greenback against a basket of six major rivals, was 0.09 percent lower by the time of this writing, to trade at 95.28, its weakest level since October 2016.
According to the EIA’s report, US production dropped by 100,000 barrels per day in the week ended June 23 to 9.3 million barrels per day.
While in recent weeks we’ve seen traders unloading long positions, analysts are now pointing out that the pessimism that has pushed benchmarks lower could actually be unjustified.
Thursday, 29 June 2017
What’s next? – USDJPY 29.06.17
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what’s next
USDJPY
The dollar/yen was 0.42 percent higher at 112.80 as of 01:40 GMT, rising on the back of upbeat economic data from the United States.
A fresh reading on the first-quarter gross domestic product came in at 1.4 percent, outperforming an expected 1.2 percent. This report was widely watched by investors as they try to figure out next steps in terms of monetary policy.
According to Fed funds tracked by CME Group’s FedWatch tool, traders are currently pricing in more than a 47 percent probability of a rate hike in December.
Upbeat data will certainly have a positive impact on expectations for further monetary policy tightening in the world’s first economy.
Earlier this week, Fed Chairwoman Janet Yellen reassured that a gradual normalization process is still on its way and it requires improving economic conditions in order to move forward.
Comments from ECB President Mario Draghi on an eventual adjustment of the bank’s massive stimulus program has also been boosting the USDJPY.
There is no doubt that focus is now on interest rates. The differential between US and Japanese bonds is having strong effects on the pair. Most likely, the dollar will continue to strengthen across the market in the long term.
Ahead in the week, Japan’s Household Spending, Jobs/Applications ratio, Consumer Price Index, Unemployment rate and industrial production will be published.
Wall Street futures mixed as investors awaited Q1 GDP
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Wall Street
Wall Street stock index futures pointed mostly higher, with investors looking ahead of key economic reports later in the session to reassess their expectations on monetary policy.
On Wednesday, the Dow Jones industrial average ended 140 points to the upside as Goldman Sachs and Caterpillar stocks rallying during the session.
The S&P 500 soared by 0.88 percent, with financial components adding 1.54 percent to lead other sectors higher. The Nasdaq composite also closed in green territory by 1.4 percent.
The technology index has been under heavy pressure lately. Earlier this week, Google was fined by EU regulators due to illegal practices to promote their sales platform.
Stocks of tech large-cap companies such as Facebook, Apple, Amazon and Netflix rebounded in the previous session, proving sufficient support to shift the Nasdaq into a positive path.
Dow Jones Industrial Average: -98.89 / -0.46% / 21310.66
Standard & Poor’s 500: -19.69 / -0.81% / 2419.38
Nasdaq Composite: -100.53 / -1.61% / 6146.62
In economic news, pending home sales fell 0.8 percent in May, against expectations for a 0.8 percent increase. Retail sales rose by 2.0 percent, also falling short from an initially estimated 2.6 percent build.
Traders were also paying attention to the oil market. The US Energy Information Administration reported a 118,000 barrels addition to crude inventories in the week ended June 23. Analysts had predicted a 2.5 million barrel reduction.
These figures increased concerns that OPEC-led efforts won’t be enough to counteract the ongoing supply overhang, which could lead into an even deeper fall in crude prices.
Ahead in the session, a new reading of the first-quarter gross domestic product is due for release as of 12:30 GMT, with 1.2 percent eyed. Initial jobless claims are set for the same moment. FOMC Bullard will speak as of 17:00 GMT.
Recap: The Most Relevant Remarks From Central Bankers This Week
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politics
Wow… what a week, right? With so many remarks from central bankers, it’s hard to follow up on everything. We’ve compiled the most relevant quotes from each of them and put them together so you can easily understand where monetary policy is heading.
The week began with European Central Bank President Mario Draghi speaking with students of the University of Lisbon on growing income inequality within the bloc.
“Is this a seriously destabilising factor that we should cope with? Yes it is [...] We have to fight against inequality,” explained Draghi, arguing that education, innovation and investment in human capital, especially for young generations, are the right way to do it.
A day later, the ECB leader kicked off the annual ECB Forum in Sintra, with an unexpected change in his rhetoric on monetary policy tightening, one of today’s hot topics. Draghi, a loyal defender of quantitative easing and low interest rates, seemed to have opened up doors for a future adjustment on the bank’s policy if economic growth continued to be strong.
“As the economy continues to recover, a constant policy stance will become more accommodative, and the central bank can accompany the recovery by adjusting the parameters of its policy instruments -- not in order to tighten the policy stance, but to keep it broadly unchanged.”
While some analysts said the ECB could be on track for a tapering announcement in the following months, the 60-billion bond buying program is likely to remain in place for some time.
Also on Tuesday, Federal Reserve Chairwoman Janet Yellen participated at a meeting in London. However, she didn’t provide with relevant statements on monetary policy and reiterated that "the system is much safer and much sounder," while assuring that:
"After the financial crisis, those who see the damage in that type of thinking have played a major role in ensuring that we have a more appropriate system of supervision and regulation, hopefully for a good long time."
Bank of England Governor Mark Carney was another central banker talking the microphone this week at the ECB Forum. His comments on a possible rate adjustment boosted the pound vs the dollar to the 1.2915 level.
“Some removal of monetary stimulus is likely to become necessary if the trade-off facing the MPC continues to lessen and the policy decision accordingly becomes more conventional. [The decision] will depend on the extent to which weaker consumption growth is offset by other components of demand including business investment, whether wages and unit labour costs begin to firm, and more generally, how the economy reacts to both tighter financial conditions and the reality of Brexit negotiations. These are some of the issues that the MPC will debate in the coming months.”
What’s next? – DAX 29.06.17
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what’s next
DAX
The DAX index futures were 0.53 percent higher by 06:55 GMT to trade at 12,709 points. Market players kept an eye on incoming data from Germany and awaited key reports in the United States later in the session.
Earlier today, July’s consumer climate in Germany came in at 10.6, above an expected and previous reading of 10.4 points. Ahead in the session, the preliminary consumer price index for June is due for release as of 12:00 GMT, with analysts forecasting no changes from last month.
In the US session, attention will be directed to a fresh reading on the first-quarter gross domestic product at 12:30 GMT, with 1.2 percent seen. Initial jobless claims will also be published at that time. Analysts are seeing a 1,000 decline to 240,000.
St. Louis Federal Reserve President James Bullard is set to speak at 17:00 GMT, with investors continuing to follow Fed speakers in search for hints on the timing for the next rate hike.
On Wednesday, the index ended 0.19 percent lower in Frankfurt. Software, utilities and basic resources weighed on German stocks.
Dragging the index downwards, RWE AG ST O.N. falling 2.36 percent to 17.965, followed by E.ON down 1.28 percent to 8.574 and Henkel & Co KGaA dropping 1.20 percent to 124.00.
Contributing to gains, we saw Lufthansa AG VNA O.N. soaring 3.57 percent to 20.030, Commerzbank AG O.N. moving up 3.21 percent to 10.260 and Deutsche Bank AG NA O.N. earning 1.42 percent to 15.740 by the end of the session.
As we predicted yesterday, the index found strong support at the lower band of the current 12,550 - 12,950 range and retreated to the middle, where it’s gradually recovering bullish momentum to try once again the 12,900 resistance.
We expect further consolidation ahead of Friday’s consumer inflation in the US, a report that could certainly modify market expectations regarding next Federal Reserve steps.
What’s next? – GOLD, OIL 29.06.17
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GOLD
Gold prices were higher in Asian trade on Thursday, as investors looked ahead of key economic reports in the United States, while uncertainty concerning the future of monetary policy continued to weigh on market sentiment.
On the Comex division of the New York Mercantile Exchange, gold futures for August delivery were trading up by 0.30 percent at $1,252.80 a troy ounce as of 06:30 GMT.
In the light of weaker-than-expected economic data, the dollar continued to lose ground across the board. The US dollar index, which tracks the greenback against a basket of currencies, was trading at 95.57, down 0.18 percent by the time of this writing.
A weaker dollar boosted greenback-denominated gold and other commodities as it makes the metal less expensive for investors holding foreign currencies.
Despite this situation, Fed funds CME Group’s FedWatch tool show that market players are pricing in a 47.5 percent probability of a rate move in December.
The US Senate recently decided to postpone voting on a bill to repeal and replace the so-called Obamacare. The American Health Care Act is one of President Trump’s key campaign promises but he has been facing strong resistance within his own party to pass it.
Analysts have pointed out that expectations for a third rate this year will move depending on the result of Friday’s inflation report, which will also affect strength of the dollar and gold.
OIL
Oil prices moved higher on Thursday, marking a 6th consecutive session of increases despite official data confirmed that crude inventories rose last week.
The US benchmark West Texas Intermediate oil futures traded at $44.92 a barrel, up 0.40 percent from its prior close. Meanwhile, the London-based Brent crude oil futures fell 0.34 percent to trade at $47.47 a barrel as of 06:50 GMT.
The Energy Information Administration said crude stockpiles grew 118,000 barrels in the week ended June 23, against expectations for a 2.585 million barrels decline.
A day earlier, the American Petroleum Institute (API) anticipated an addition of 851,000 barrels in crude inventories. Although this figure is much higher, it shows positive correlation in data.
The EIA’s report also showed that weekly production decreased by 100,000 barrels per day to 9.3 million barrels per day, which is the largest weekly output reduction since mid-2016.
Gasoline supplies, on the contrary, fell by 900,000 barrels, which contradicts API’s data. The industry report said 1.4 million barrels were added in the previous week.
Market analysts noted that the Tropical Storm Cindy affecting operations in the Gulf of Mexico and some maintenance work in Alaska could be the reason for this week’s output decline.
Doubts still remain in place concerning the OPEC-led efforts to counteract the ongoing supply overhang. The organization insists that rather soon the effects of its output agreement will be evident, but so far nothing has really happened and that worries investors.
OPEC and non-OPEC producers agreed to extend production cuts of 1.8 million barrels per day for a nine-month period until March 2018. The oil cartel also said it would not rush into taking further steps to support oil prices.
Wednesday, 28 June 2017
IS IT TIME FOR THE ECB TO TIGHTEN MONETARY POLICY?
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politics
It is of common knowledge that the European Central Bank President Mario Draghi is a strong defender of monetary policy stimulus. In his opinion, the recent spike in inflation is only a result of temporary oil price dynamics, which doesn’t justify a rate move at this stage.
“Nothing substantial has happened to inflation other than [changes in] the oil price and the food price, [...] It’s because of quantitative easing. We are here because of that. Quantitative easing has supported the economy throughout.”
However, Draghi surprised markets with an unexpected hawkish rhetoric on Tuesday. In his opening statement at the European Central Bank Forum in Sintra, Portugal, he hinted that the regulator might be considering scaling down its stimulus in the near term.
While the word “gradual” played a key role in his statement, market participants were shocked by the sudden change in his approach to the matter, which sent key European stock indexes to the downside and support demand for safe-haven assets such as gold.
Draghi stated: "The current context where global uncertainties remain elevated, there are strong grounds for prudence in the adjustment of monetary policy parameters, even when accompanying the recovery. Any adjustments to our stance have to be made gradually, and only when the improving dynamics that justify them appear sufficiently secure."
He also reiterated that confidence in the current quantitative easing program is very high and its positive effects on the economy are evident.
"We can be confident that our policy is working and its full effects on inflation will gradually materialize. [...] All the signs now point to a strengthening and broadening recovery in the euro area," the ECB president said in the event.
But… is it really the time to start tightening its policy? Don’t know what you think but key analysts from the banking sector believe so.
"Right now consumers are confused, they don't understand negative interest rates, they don't understand a zero interest rate and the system becomes volatile as a result. We shouldn't have that," said Wiebe Draijer, chairman at Rabobank, in an interview with CNBC on Monday.
The news network also interview Carlos Torres Vila, chief executive of Spanish bank BBVA. In his view: "It should be a progressive unwinding… definitely not to spook markets too much but as (the regulator) sees inflation coming back with stronger growth rates then they should progressively start cutting back on their purchases and then raise rates."
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