UK and Europe
Some positivity has burst through the cloud of worry in markets.
European banks were the centre of market turmoil two weeks ago so Lloyds (L:LLOY) paying a special dividend has helped confidence in a sector plagued by worries over bad loans amidst slowing economic growth.
The rebound in Europe comes in spite of a hefty sell-off in China where the Shanghai Composite tanked over 6%. The dissociation with Asian shares was made possible by the PBOC setting a flat fix for the Chinese yuan after a run of declines to stem capital outflows. It’s likely the Chinese authorities are trying to depress volatility in the exchange rate before the G20.
The FTSE 100 was looking a lot perkier thanks to well-received earnings from Lloyds (L:LLOY) and RSA Insurance (L:RSA) and relief that regulators won’t force BT (L:BT) to split up.
Shares of Lloyds gained over 9% after the British bank announced a special dividend while also raising its full-year dividend payment. The rise in underlying profits is encouraging and helps underpin the dividend. Still, the fall in pre-tax profits because of another PPI provision in the fourth quarter is a reminder that Lloyds is still wading through past problems.
RSA Insurance shares gained after reporting a 43% rise in operating profit over the year.
Relief that telecoms regulator Ofcom will not force BT to split from its Openreach division, at least until the next review, helped shares higher by as much as 5%. It will, however be forced to open up its cable network further to competitors which could be damaging to its dominant position in the market.
US
US markets were flat in early trading with surprisingly strong durable goods orders in January easing concerns of an impending recession in the US economy. Earnings from retailers including Sears (O:SHLD), Kohl's (N:KSS) and Best Buy (N:BBY) were also in focus.
FX
The US dollar was mixed with the currencies of oil-dependent countries faring better than the rest which fell after positive US economic data. Durable goods orders excluding transportation jumped by 1.8% in January when a rise of 0.2% was expected.
The British pound stabilised on Thursday but remains under pressure after a second revision to fourth quarter GDP confirmed growth of 0.5% q/q. Sterling is dropping on political risk so unchanged economic conditions are not any help.
The Japanese yen lost some of its safe-haven lustre as stocks in Japan rose.
Commodities
Gold traded higher on Thursday, despite generally positive equity markets. Gold has been well underpinned, fluctuating between $1200 and $1250 per oz over the past few days. It would appear that it is not just safe-haven flows that has triggered the rise in gold. At its lows, gold was pricing in several rate hikes from the Federal Reserve so gold has risen in value as those hikes begin to look less likely.
Oil prices have been relatively stable in the face news from the both the US and OPEC that suggests the supply glut is far from over. A rule of thumb in markets is if something doesn’t go down on bad news, it could up a lot on the next bit of good news.
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