Europe
The FTSE 100 is in negative territory, while the FTSE 250, which is a better measure of the British economy, is up nearly 1% on the day. The sharp spike in the UK inflation rate pushed the pound higher, and all of a sudden the attractiveness of internationally exposed FTSE 100 stocks diminished.
Traders are looking forward to hearing about the talks between the Conservatives and the Democratic Unionist Party (DUP). The Northern Irish politicians arrived in Downing Street today, and the Tories are hoping to strike a deal with them in order to keep Theresa May in the top job. I would imagine that an arrangement will be reached seeing as both parties hold right of centre views. The DUP would like to keep an open boarder with the Republic of Ireland, so we could see the UK heading towards a soft-Brexit. The UK has been in political limbo for the past few days, and investors would love nothing more than for it to be cleared up.
The strength in the pound has hurt Ashtead (LON:AHT), as it derives the majority of its revenue in the US. Conversely, International Consolidated Airlines (LON:ICAG) and EasyJet (LON:EZJ) are higher due to the rally in sterling.
US
US equities are higher on the session as the Dow Jones, S&P 500 and the Nasdaq 100 are all in positive territory. Traders are treading lightly as the severe sell-off in technology stocks at the back end of last week is still on their minds. Dealers are trying to decipher whether Friday’s move was a long overdue correction or the beginning of a major decline. In these scenarios, investors are happy to pick up relatively cheaper stocks, but any sign of moving south again could see traders rushing for the exit.
Microsoft (NASDAQ:MSFT) is one of the biggest gainers on the Dow Jones, and Apple (NASDAQ:AAPL), Facebook (NASDAQ:FB), Netflix (NASDAQ:NFLX), and Alphabet (NASDAQ:GOOGL) are all up over 0.5%.
FX
The pound is up versus the US dollar and the euro for a change. The UK’s strong inflation figures gave sterling its edge on the currency markets today. The CPI announcement was timed well, as it looks likely that the Conservatives will come to an arrangement with the DUP, and the combined effect is helping the pound. UK CPI is now at 2.9%, which is well above the Bank of England’s (BoE) 2% target, and even the core figure came in at 2.6%. The weakness in the pound since Brexit is fuelling higher inflation, and the BoE can’t keep looking the other way. At the same time, the UK central bank is unlikely to act while the political outlook isn’t certain.
The EUR/USD is hanging around the 1.12 mark, and the mixed economic updates from the eurozone today kept the currency pair broadly flat on the session. The German ZEW Economic Sentiment dipped and came in under estimates, while the euozone wide ZEW Economic Sentiment rose and exceeded analysts’ expectations. The European Central Bank (ECB) would like to keep the single currency weak, and the Federal Reserve meeting tomorrow will give us an idea as to what they are going to do over the rest of the year.
Commodities
Gold is creeping lower as traders are focused on the Federal Reserve meeting tomorrow. The precious metal has been losing ground over the past week, but that is hardly surprising, seeing as the Fed funds futures markets is pointing to a high probability of an interest rate hike. If we do see an interest rate rise tomorrow it would be the second in 2017, but traders are wondering how many more will there be. US inflation cooled last month and wage growth is standing still so the US central bank may not be in a hurry to keep raising rates.
WTI and Brent Crude oil are down on the day as supply from OPEC increased by 336,000 barrels per day in May. Nigeria and Libya are exempt from cutting production, and both saw large jumps in output. Not all of the cartel’s members must abide by the coordinated production cut, and some members may not even adhere to it. Oil has been in decline since the OPEC meeting in Vienna last month, and we are yet to see any evidence of a turnaround.
Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.