UK & Europe
European equities are on track for a strong finish to a big week. Federal Reserve minutes that displayed caution amongst board members over raising rates has prompted one of the biggest weekly gains in European shares since January.
Investors adore these Fed minutes because they signal a strong economy and low rates. If the decision was “a close call” then the message is that the Fed feels good about the US but is just being cautious over emerging markets.
There’s been some respite for stocks tied to emerging markets thanks to hesitancy from the Fed over raising rates. Lower borrowing rates for loans in US dollars takes a little bit of the strain off indebted emerging market economies, especially commodity exporters who are benefitting from a corresponding rise in commodity prices. Shares of Standard Chartered (L:STAN), Rolls Royce (L:RR) and Aberdeen Asset Management were all top risers.
The basic materials sector was well ahead of the pack and drove gains on the FTSE 100. A zinc output cut from Glencore (L:GLEN) sent metal prices higher while dovish Fed minutes caused a drop in the dollar, increasing the value of commodities.
The drop in global zinc supply that will result from Glencore’s production-cut caused a spike in zinc prices which spread to other precious and industrial metals on the possibility other miners may choose to follow suit.
The zinc output-cut means less revenue for Glencore but was seen as a positive step by the company to reduce its worryingly high debt pile. The record 29% daily drop last Monday is now firmly in the rear-view mirror with Glencore shares now up over 90% from the lows.
Admiral Group (L:ADML) shares were top risers after a survey revealed car insurance premiums rose by 4.8% in the last quarter, the biggest rise since 2010.
Sports Direct (L:SPD) was bottom of the index with the company’s intended acquisition of Irish department stores Heatons seen as a misuse of cash and a step in the wrong direction by markets.
US
US stocks rose on Friday with the Dow Jones over 17,000 and the S&P 500 back above 2000 as well as its 50 day moving average in a sign that the market correction could have ended.
The traditional earnings season kick-off didn’t have the best start after Alcoa (N:AA) results missed expectations by a mile. Expectations were for earnings of 13c per share in the third quarter and they came in at 7c. The earnings miss adds more pressure on CEO Klaus Klienfeld to make the recently announced split into two separate companies a success when lower aluminium prices continue to hammer the upstream side of the business.
FX
The US Dollar was down across the board on Friday as a follow-through on weakness that began on Thursday when Federal Reserve showed reluctance amongst Fed members to hike interest rates. The minutes, on top of the weak US jobs report reduce the odds of a rate hike in 2015 which had been baked into the price of the dollar, so that’s coming out now.
The pound was a notable laggard because markets have taken it that the BOE will go after the Fed. So if the US rate hike is shifted back by that logic, so is a hike in the UK.
Commodity-backed currencies again out-performed. The Aussie dollar gained over 1% against the dollar on Friday. The RBA has gone from expectations of cuts to on hold while the Fed has gone from expectations of a hike to on hold; that translates to AUD/USD strength.
Commodities
Commodities surged across the board on Friday with copper rising over 3%. A zinc output cut from commodity-trader/miner Glencore drove metal prices higher while dovish Fed minutes caused a drop in the dollar, increasing the value of most commodities.
Oil prices have looked through the surprise rise in DOE inventories on Wednesday. The price of crude is set for its biggest weekly rise in six weeks as the IEA forecasts lower US output and Russia looks to communicate more with other oil producing nations.
Gold brushed off its safe-haven status on Friday rising alongside equities and other commodities. The dovish Fed minutes improve the appeal on non-yielding assets like the precious metal.
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