Europe
Stocks in Europe are largely lower today as investors are preparing themselves for Hurricane Irma to descend on the US. Market volatility and the trading range of indices has been low as investors unwind their positions ahead of the weekend.
The European Central Bank (ECB) revealed it was agreed upon that the stimulus package will be reduced, but we will probably have to wait until the October meeting before hearing details about it. As traders have been speculating for some time about the ECB reigning in their bond buying scheme, it may not be that big of a shock once it is confirmed.
Greene King (LON:GNK) Shares are down 14% after the company revealed a 1.2% decline in sales in the 18 weeks until early September. The same period last year saw a drop of 0.7%. There is growing concern that low wage growth in the UK is leading to a drop off in consumer spending, and the pub group is feeling the pinch. The share price has been falling since late 2015 and it has fallen to a five year low today, which sums up the lack of investor confidence in the stock.
US
The Dow Jones and S&P 500 are broadly unchanged as US investors play the wait-and-see game ahead of Hurricane Irma, this is the calm before the storm.
Dealers are battening down the hatches ahead of Irma, and in unpredictable situations like these, if we see a move in either direction, it is likely to be to the downside.
The sell-off in the US dollar is making it cheaper for international investors to buy US shares, and that is preventing a major decline in American indices.
Between the political uncertainty at home and abroad, and the lack of clarity in relation to what the Federal Reserve is going to look like in a few months, has eroded dealers’ fears of another interest rate hike this year. The possibility of borrowing costs remaining at this level for a while is also curtailing heavy selling.
FX
The EUR/USD was been pushed higher by increased speculation the European Central Bank (ECB) will discuss tapering its bond buying scheme next month. An announcement from the ECB today stated that options in relation to quantitative easing (QE) were talked about, and it was agreed that a reduction is required. The continued weakness in the US dollar as dealers are less fearful of an interest rate hike in December is helping the euro also.
The GBP/USD benefitted greatly because of the decline in the greenback. The US dollar has been under tremendous pressure lately, as a mixture of the tropical storm Harvey, the debt ceiling extension, hurricane Irma and the shock resignation of Fed member Stanley Fischer has pushed back the prospect of an interest rate hike well into next year.
The National Institute of Economic and Social Research (NIESR) estimated that the UK economy grew by 0.4% in the three months until August, and that was an improvement on the July estimate of 0.2%. The pound was at its highest level versus the US dollar in over one month and the buying momentum is rising.
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Commodities
Gold hit yet another one year high one year high today, as a combination of the decline in the US dollar and uncertainty in the equities has driven the metal higher. We have seen some profit taking in the afternoon, but the upward trend is still intact and the buying momentum is still strong. Traders believe that any fresh blood at the Federal Reserve are more likely to be at the dovish end of the spectrum, and this is lifting the price of the metal.
Brent Crude and WTI sold off heavily in the afternoon as traders fears the worst on the run up to Hurricane Irma. The prospect of more US refineries being put out of commission because of the hurricane has dampened demand.
Demand for WTI hasn’t picked up in the wake of the tropical storm Harvey, and now it has Hurricane Irma to contend with.
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