UK and Europe
European stocks snapped a two-day decline to edge out modest gains on Thursday. Markets breathed a collective sigh of relief that minutes from the Federal Reserve’s July meeting gave no clear indication the Fed is ready to raise interest rates.
With central bank support, equities have been able to navigate thin summer trading and corporate reporting season with minimal volatility. As volumes pick up again in the autumn and attention switches to the slowing macro environment, downside risk becomes greater.
A drop in the dollar which has bolstered commodity prices was a positive force over the resource-sensitive FTSE 100, though financial shares which benefit from higher interest rates were a drag. As such, mining companies topped the UK benchmark index with Antofagasta (LON:ANTO) the top riser following recently well-received results.
Results from US retailer Wal-Mart (NYSE:WMT) that showed Asda had its worst quarterly sales decline on record sent the shares of supermarket competitor Sainsbury's (LON:SBRY) to near the top of the FTSE 100. The poor results confirm industry data from Kantar that Asda is coming out worst in the supermarket price war brought about by competition from discounters Aldi and Lidl.
Shares of Kingfisher (LON:KGF) recovered from an early loss after reporting half-year results. The cautionary tone towards the possible effects of Brexit tempered the rise in like-for-like sales and notably good performance from the Screwfix business.
US
US stocks were flat on Thursday as investors deliberated FOMC minutes, a bigger-than-expected drop in weekly employment claims and well-received results from the world’s biggest retailer and Asda-owner Wal-Mart.
Shares of Cisco (NASDAQ:CSCO) rebounded from early losses after it reported a smaller-than-expected fall in profit and announced 5,500 job cuts. Reports that the tech firm would slash up to 20% of its workforce drove the stock down on Wednesday. There is clearly some relief the firm is acting to reduce costs, but not so much that it would become a sign of desperation.
Shares of Wal-Mart rose after the retail giant reported its strongest rise in like-for-like sales in two years as well as earnings and revenues above expectations for the second quarter.
FX
The British pound was the biggest riser amongst major currencies. GBP/USD crossed the 1.31 threshold and EUR/GBP is now lower for the week, having passed 0.87, a near-3 year high on Tuesday.
Another piece of post-referendum UK economic data has shown that the vote for Brexit has had little immediate impact on the economy. UK retail sales (ex. Autos) rose 1.5% m/m in July, higher than the 0.4% rise expected and a -0.9% fall last month.
If economic activity continues at the same pace over the next month or two, the only conclusion should be that the Bank of England has over-egged its stimulus and probably jumped the gun by acting so soon.
The US dollar was lower across the board on Thursday in the wake of a more dovish-than-expected set of Federal Reserve minutes. The minutes said "some" members thought that the labour market was strong enough to hike rates "soon". But "many" wanted to wait longer to see if inflation picks up.
It would appear the reality is that a strong US dollar combined with weakening inflation gauges are preventing the Fed from pulling the trigger.
The Australian dollar rose after a fall in unemployment.
Commodities
A weak US dollar meant higher energy and metals prices on Thursday.
The price of gold benefited from the lower likelihood of a US rate rise this year after the Fed minutes, since it improves the attractiveness of non-yielding assets. The corresponding rise in stock prices could keep gold within its current range of 1330 to 1360 on a reduced need for a haven.
The price of oil extended its huge two-week rally. Brent crude has rallied over 20% from its low at the start of the month. The market is pricing in the chance of an agreement on output at next month’s unofficial OPEC meeting. Bullish bets on oil have been supported by a rise across most commodities, with the CRB index up 5% and a drop in the US dollar.