Europe
Equity markets in Europe have started the week on a positive note. The pullback in the pound and the euro made stocks more appealing as last week the UK and eurozone equity markets paid the price for having strong domestic currencies. European stock markets have been broadly moving lower over the past month, and this rally would have to be extended before traders can be more confident that the wider upward trend will continue.
The Caixin survey of Chinese manufacturing showed the sector grew at its fastest rate in three months. The second-largest economy in the world is a major importer of minerals, and Glencore (LON:GLEN), BHP Billiton (LON:BLT) and Rio Tinto (LON:RIO) are all higher on the day on the back of the news.
British banks like Royal Bank of Scotland (LON:RBS), Lloyds (LON:LLOY), Barclays (LON:BARC), HSBC (LON:HSBA) and Standard Chartered (LON:STAN) are up on the day as the hawkish comments from Bank of England members Mark Carney and Andy Haldane last week are assisting the stocks. Banks have better earning potential in a higher interest rate environment, and the talk of monetary tightening made the stocks attractive.
US
In New York, the Dow Jones and the S&P 500 are trading higher on the day. The US ISM manufacturing for June came in at 57.8, up from the May report of 54.9, and it topped analysts’ estimates of 55. The expansion of the manufacturing sector indicates the US economy is still ticking along, and you can see why the Federal Reserve are optimistic in their outlook.
Goldman Sachs (NYSE:GS), JPMorgan Chase (NYSE:JPM) are two of the biggest gainers on the Dow Jones, as all US banks passed the Fed’s second round of the stress test last week. The financial institutions are hoping the US central bank will uphold its promise and keep raising interest rates.
Exxon (NYSE:XOM) and Chevron (NYSE:CVX) are up 1.8% and 2.3% respectively as firmer oil prices have helped the companies.
Nike (NYSE:NKE) has lost a tiny amount of ground after having a stellar performance on Friday, which was driven by excellent quarterly numbers that were posted on Thursday night after the US closing bell.
FX
The GBP/USD has cooled after last week’s rally when the currency pair reached its highest level since May. The UK manufacturing report for June didn’t do the pound any favours. Traders were expecting a reading of 55.4, and it came in at 54.3 while the May figure was revised from 56.7 to 56.3. The slight cooling in the expansion rate should not be ignored, but the hawkish comments made by the Bank of England Governor Mark Carney, last week will still be on dealer’s minds.
The EUR/USD is lower on the session as profit taking kicks in. Last week the currency pair hit a one year high after an upbeat outlook for the eurozone from theEuropean Central Bank (ECB) President Mario Draghi. The ECB’s very lax monetary policy is reaping results, as unemployment remained steady and manufacturing edged higher on the month. The central bank has no intention of altering its policy in the near-term, as a weak euro is fuelling the recovery.
Commodities
Gold keeps giving up ground and the strength of the US dollar is adding to its woes. The metal has been pushing lower for nearly one month now, and today it dropped through the 200-day moving average at $1235. Gold is now trading at its lowest level since mid-May. The bounce back in global equity markets means traders have adopted a more risk on strategy, and that means weakened demand for gold.
WTI and Brent crude oil continue their push higher as the positive sentiment around the energy markets continues. The Baker Hughes rig count report showed the number of active rigs in the US dropped by 2 to 752 rigs, but compared to this time last year, the number of active rigs in the US is still up 121%. The marginal decline is US oil production last week spurred on buyers. There is a sense that the huge drop oil suffered between May and June was overdone, and the turnaround in oil is just correction within the wider downward trend.
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