Europe
The FTSE 100 was given a boost by the Deputy Governor of the Bank of England, Ben Broadbent, when he stated the UK should not raise interest rates. The central banker is content with the state of the British economy but feels there are a few unknowns, and in turn would prefer to keep rates where they are. The comments struck me as a very much wait-and-see attitude. Investors quickly jumped on the buying bandwagon, and the decline in the London market over the past five weeks made it a good time for bargain hunting.
The drop in UK unemployment and increase in average wages pushed up the value of the pound but it didn’t prevent the FTSE 100 from moving higher throughout the day. The news proves that the loose monetary policy by the Bank of England is working.
Burberry (LON:BRBY) is in positive territory after the fashion house reported a 4% rise in like-for-like sales in the first-quarter. The company had a stellar performance in China, and it is on track with its cost cutting plan.
Antofagasta (LON:ANTO) is one of the biggest gainers on the FTSE 100 today as the miner is helped by higher copper prices – the red metal is trading at its highest level in over one week. Randgold Resources (LON:RRS) and Fresnillo (LON:FRES) have been helped by the jump in gold and silver prices
US
The Dow Jones has set a new record high after Federal Reserve Chair, Janet Yellen, announced plans to keep increasing interest rates and to begin the process of reducing the assets on the Fed’s balance sheet this year.
On the face of it, the update sounds hawkish, but Ms Yellen added that rate hikes will be gradual and expected, and that inflation is below their goal.
The takeaway message is that the US economy is strong enough to keep increasing the interest rate, but not so strong that rate hikes need to hurried or done in quick succession. Traders took the view that more rate hikes are in the pipeline, but we may not see them for some time.
FX
The GBP/USD saw a high amount of volatility today. The dovish comments from Ben Broadbent of the Bank of England, pushed the currency pair lower, but better than anticipated UK unemployment and average earnings numbers turned its fortunes around. Then, Fed Chair Janet Yellen reiterated her stance that monetary policy will keep tightening, and that put pressure on the pound again. Ms Yellen doesn’t seem to be rushing into further rate hikes, so the downward move may not last long.
The EUR/USD traded at its highest level since May 2016 in the morning, profit taking had already set in before Janet Yellen talked about additional interest rates increases and winding down the Fed’s balance sheet. The update from Ms Yellen was dovish considering she discussed monetary tightening, and the strong upward move in the euro for the past year could entice fresh buyers.
The USD/CAD sold-off heavily after the Bank of Canada raised interest rates to 0.75% from 0.5%. The move was widely expected. It was the first rate hike since 2010.
Commodities
Gold jolted higher after Janet Yellen stated that interest rate hikes in the US will be gradual, and they won’t be that many hikes needed to get the economy to neutral. It was a clear message that monetary policy is going to continue to tighten, but it was also cautious and dovish, and that prompted traders to pick up gold. The metal has suffered a lot recently, and the remarks encouraged dealers to buy gold at a relatively discounted price.
WTI and Brent crude oil initially jumped on the news that US stockpiles of oil fell by more than expected, but the move higher was short lived.
The Energy Information Agency (EIA) report showed that US oil inventories dropped by 7.56 million barrels, and that well exceeded the drop of 3 million barrels that the market was expecting. US oil production rose by 59,000 barrel per day, admittedly it’s not a major amount but it will contribute to the over-supply concerns.
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