Europe
Stock markets in Europe were seemingly just playing catch up with US markets all day; first falling but then rallying again as investors don’t know where to turn in the face of an improving US economy but without the stimulus.
As an investor, knowing that the Federal Reserve is there buying assets alongside you each month adds considerable comfort; needless to say markets are getting a bit uncomfortable at going it alone from now onwards.
German unemployment dropped by -22k against expectations of a rise of 4k while consumer prices dropped -0.3% in October. The fall in prices is not all together surprising given the fall in oil prices over the month and the German labour market has remained fairly resilient from the downturn anyway.
The increase in employment is an indication that Germany is perhaps not quite as weak as some had feared. A strong German labour market may just be enough for the Bundesbank to keep resisting full blown QE from the ECB.
In the UK poor results from Barclays (LONDON:BARC) and BT Group (LONDON:BT) alongside a fall in commodity stocks were a drag on the FTSE 100 which traded from negative to positive territory. Gold, copper and crude oil were all falling thanks to the rising dollar as a result of the hawkish statement from the Federal Reserve so mining and oil stocks fell in sympathy.
US
Strong results from Visa Inc (NYSE:V) pulled the Dow Jones Industrial Average higher in US trading and matching results from rival Mastercard (NYSE:MA) helped lift the S&P 500 aided by a surprise leap in GDP growth in the third quarter.
The Fed may well have had an inkling about today’s surprise leap above expectations in GDP growth to 3.5% in the third quarter when it demonstrated confidence in its outlook for the US economy in its monetary policy statement yesterday.
The rate of growth can clearly be shown to be on the up from the first half which averaged 2.5%. It was an increase in investment, exports and government expenditure that drove the growth, of some concern was a slowdown in personal consumption.
The slowdown in personal expenditure indicates some weakness in the part of the consumer and doesn’t bode well for the upcoming holiday season when a large chunk of the year’s consumption takes place.
FX
The US dollar was back in vogue today in early trading though it did fall significantly from its highs against some of the major FX currencies including the euro and British pound with the Australian and New Zealand dollars moving into positive territory on the day.
EUR/USD dropped to just below 1.2550 but reversed in the space of half an hour to back above 1.26. The Federal Reserve clearly had a more hawkish outlook on rates than some had expected but the outlook for the first rate hike was already strongly in favour of the US dollar so the next leg down in EUR/USD may need come from euro weakness at the hands of the ECB.
Not for the first time this month, GBP/USD dropped below 1.60 but subsequently pulled back above it later in the day.
Commodities
Silver was one of the day’s biggest movers, down as much as 4% as the US dollar strengthens despite record silver coin buying at the US mint as store-of-wealth buyers step in while speculators step aside looking for higher-yielding investments. Gold fell alongside silver over 1%.
Oil prices were also lower despite the evidence of stronger US growth in the third quarter; the slowdown in Europe and China hasn’t changed and global demand is still expected to be weak.
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