Europe
While it’s been a somewhat mixed day for European markets the FTSE250 has continued its run of recent gains making yet another record high above 18,800.
Having seen several days of gains we’ve seen a pause for some reflection from the mainstream markets in Europe, with the DAX broadly flat, after the latest EU Q4 GDP numbers came in slightly weaker than expected. German ZEW business sentiment also slipped back sharply to its lowest levels since October last year.
It is also becoming apparent that inflationary pressure continues to rise in the global economy. In Asia this morning Chinese factory gate prices rose to their highest levels since 2011, coming in at 6.9%, and up 7.7% since last August, while headline CPI also rose more than expected, coming in at 2.5%. The latest UK inflation numbers also painted a similar story with input prices rising 20.5%, the fastest rate since 2011, while CPI came in at 1.8%, the highest since June 2014.
At some point central banks may well have to consider their options with respect to current policy, given the sharpness of the moves seen in the last nine months. Could these concerns about the potential for tighter monetary policy be giving some pause for equity markets today? Quite possibly, and judging by the reaction of bond markets today, that does appear to be playing into the narrative after Janet Yellen’s comments this afternoon saw yields move sharply higher.
Banks and financials are also playing into the prospect of a rise in rates by move to the top of the leader board as trade comes to a close for the day.
At the top of the FTSE100 TUI Travel has had a decent day after reporting that it had managed to cut its losses by much more than expected, with turnover rising 8.5%, despite concerns about terrorism, as well as industrial action hitting the holiday sector quite hard.
It’s been a turbulent year for Rolls Royce (LON:RR) as CEO Warren East looks to streamline the business, and draw a line under some of its recent difficulties. The engine maker for aircraft and ships has just settled a lengthy bribery investigation for £671m finally drawing a line under an episode that has tainted its global brand. Today’s £4.6bn loss has seen the shares drop back; however most of this eye watering number is a write-down on existing assets.
Underlying profits were actually better than expected, coming in at £831m, above expectations of just under £700m, while revenues also beat expectations.
US
US markets opened lower today ahead of Fed chief Janet Yellen’s testimony to US lawmakers, where unsurprisingly she kept all options on the table with the prospect of a US rate rise in March. It would have been unusual for her to rule March out of the Fed’s deliberations despite the weak wage numbers seen at the beginning of the month.
While she stated that waiting too long to hike would be unwise she also acknowledged that the path around fiscal policy remained unclear. Even though she was non-committal about the timing of a rate rise, bond yields spiked on her prepared comments, and pushed the US dollar higher.
General Motors (NYSE:GM) shares have been given a lift on news that France’s Peugeot is in talks to buy its Opel brand.
FX
The pound has been the worst performer after the latest CPI inflation data came in slightly below expectations at 1.8% for January. The number still represented the highest level since June 2014, but was softer than the consensus of 1.9% and to some extent reinforces the recent dovishness that we saw in the recent quarterly inflation report. The market reaction does rather ignore the fact that PPI input prices jumped more than expected, rising 20.5%, to their highest levels since 2008, and well above expectations of a rise of 18.5%.
The broader question here is how much of these rising costs will get absorbed within the supply chain and how much will eventually trickle down into consumer’s pockets. The likelihood of higher inflation still remains a clear and present concern.
The US dollar has been the best performer after this afternoons comment from Fed chief Janet Yellen to the Senate Banking Committee, where she kept the prospect of a move on rates in March on the table. US bond yields also jumped sharply across the curve with the 10 year yield hitting 2.5% for the first time since the beginning of the month, and before the weak wages data seen in the January employment report.
Commodities
Oil prices have rebounded after yesterday’s sharp selloff but still remain in their overall broad range, as the push pull effect of rising shale production and OPEC cuts keep prices hemmed in, within a fairly tight range.
Gold prices have slid back after the hawkish reaction to this afternoons comment by the US Fed chief.
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