Europe
The FTSE 100 is in recovery mode as the dust has settled after the Bank of England (BoE) voted five to three to keep rates on hold. Traders are slowly but surely getting used to the idea that interest rates could be rising sooner than they initially expected. Interest rate hikes usually don’t come out of nowhere, and central bankers usually lay the ground work for some time. The sharp sell-off yesterday has given traders an opportunity to acquire relatively cheap stocks, and that is precisely what they are doing.
The political landscape in the UK is starting to look more stable, and investors are looking ahead to the Queen's speech on Wednesday. There is still no agreement between the Tories and the Democratic Unionist Party (DUP), but dealers are reasonably confident that a deal will be struck. The DUP are opposed to a hard border on the island of Ireland, and there is increased talk of a soft Brexit, which the markets would prefer.
Anglo American (LON:AAL) shares are lower on the day as the South African government is increasing the black ownership requirement from 26% to 30%. Anglo American’s share price rallied 560% between January 2016 and February 2017, and since February, the share price has been in retreat, and the new laws regarding ownership requirements in South Africa will accelerate the decline.
UK supermarkets like Tesco (LON:TSCO), Sainsbury's (LON:SBRY) and WM Morrison (LON:MRW) all fell sharply on the news that Amazon (NASDAQ:AMZN) is buying Whole Foods Market Inc (NASDAQ:WFM) for $13.7 billion. The US grocery store has shops in the UK, and it will clearly eat into the British companies profits.
US
The Dow Jones, S&P 500 and Nasdaq 100 all opened lower. One hour before trading got under way, the US revealed there were 1.17 million building permits issued in May, while the expectation was for 1.25 million, and the April figure was 1.23 million. The housing starts number also disappointed, the number for May came in at 1.09 million, and dealers were anticipating 1.23 million, and the April figure was 1.17 million. The numbers underwhelmed traders, but the Fed are bullish on the US economy so this dip may provide buying opportunities.
Amazon swung from being down in pre-market trading to being in positive territory when official trading got underway. The stock drifted lower over the past week after Goldman Sachs (NYSE:GS) stated that certain heavy weight technology stocks are overvalued, but traders clearly approve of their acquisition of Whole Foods.
FX
The GBP/USD spiked above yesterday’s high after the US revealed disappointing housing data. The currency pair has been stuck within a narrow trading range today. It’s as if traders are wondering which central bank to pay more attention to. The updates from the US and UK central banks on Wednesdayand Thursday respectively both had an element of surprise, but I think the Bank of England was a bigger shock. The pound is being helped by improved political outlook in the UK, and traders are looking forward to the Queens speech next week.
The EUR/USD is creeping higher after the eurozone reported an inflation of 1.4% for May, meeting market expectations. The core inflation was 0.9%, and that also was in line with the market consensus. The single currency is making up for lost ground due to the hawkish stance by the Fed on Wednesday. The European Central Bank chief, Mario Draghi, would like to keep the euro lower, so I’m sure he was happy the Fed and the Bank of England during the week.
Commodities
Gold has witnessed a lot of volatility in the past two sessions. The announcement from the Federal Reserve that they will start to trim their balance sheet this year put pressure on the metal. The US central bank indicated that I won’t be stopped from tightening its monetary policy just because inflation is sliding. The Fed are now less concerned with CPI as they once were, and they feel some of the factors that have led to falling CPI won’t persist in the long-term. At the start of the month gold hit a new high for 2017, and it has retraced some of the upward move since then. The buy-the-dip strategy has been popular this year so far, but now the Fed are talking about further monetary tightening, we may see a change of tactics.
WTI and Brent Crude oil are higher on the day due to short covering, the energy market has been creating a series of lower lows and lower higher since late May. The usual fears about oversupply in the oil market are keeping the commodity under the cosh. Traders have not been given any fresh news to suggest that the oil market will turnaround in the near-term.
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