Europe
Shares in Europe moved between gains and losses on Wednesday as positive corporate results from the likes of France’s Peugeot SA (LONDON:0NQ9)and Total SA (PARIS:TOTF) were offset by apprehension on the last day of the Federal Reserve’s July policy meeting.
European stock market gains have hinged on the euro currency devaluation that has taken place because of the divergence of monetary policy between the Fed and the ECB. As long as the Fed signals it’s still eyeing a rate hike in its statement; the euro should remain weak versus the dollar and keep European equities buoyant.
Chinese markets finished the day in the green, which is a big turn of events given the 8.5% plunge seen on Monday. Even if the higher finish was driven by a short-term fear of being caught on the wrong side of direct government buying, it was enough to redirect Western market attention domestically.
A sign of the economic slowdown in China spilling over into Western stock markets was Volkswagen (XETRA:VOWG) lowering its guidance for the year thanks to lower expected demand in the country. Otherwise, strong demand driven by low financing rates in Europe and the US helped VW surpass Toyota Motor Corp Ltd Ord (LONDON:TYT)as the leader in global auto sales.
It’s a sign of a major turnaround in the auto-industry when even France’s Peugeot Citroen could turn out its first semi-annual profits in four years.
Well-received corporate results from Barclays (LONDON:BARC), British American Tobacco (LONDON:BATS) and GlaxoSmithKline as well as more strength from Hikma Pharmaceuticals (LONDON:HIK) after its acquisition of Roxanne yesterday helped drive gains in the FTSE 100 on Wednesday.
US
US markets opened higher on Wednesday following a spell of decent corporate results including Gilead Sciences (NASDAQ:GILD) and Twitter (NYSE:TWTR). Twitter shares reversed early fortunes by dropping over 10% to a new 52-week low as investors worried over the social media platform’s slow user growth.
Bullishness in the US was capped by an unwillingness to go all-in ahead of the conclusion of the latest Federal Reserve policy meeting on Wednesday.
General consensus is that there will be no rate hike in July but the statement will imply it could happen at any of the next meetings without giving any clues as to which one. Fed Chair Janet Yellen took a more hawkish bias at her Humphrey Hawkins testimony, choosing to downplay the multiple reasons the Fed could hold off on a hike. A similar tone is likely to be struck in the Fed’s July statement.
FX
Currencies were broadly unmoved ahead of the July statement from the Federal Reserve. The statement is unlikely to contain anything game-changing but traders are sitting on their hands given the huge event risk.
There has been a hint of dollar-weakness feeding through ahead of the latest Fed meeting with a couple of the most oversold commodity currencies showing signs of demand.
The Canadian dollar saw a decisive break higher on Tuesday with USD/CAD dropping back through 1.30 after having made new decade highs.
The kiwi has also seen some interest coming in off five year lows in NZD/USD. Today the pair traded back above 0.66 for the third time in five days.
Commodities
A positive close in Chinese stocks helped reduce the volatility in commodities on Wednesday ahead of the latest Fed meeting which could have a significant impact on the US dollar in which most commodities are priced.
Crude oil got a boost after the DOE announced a crude oil drawdown of 4.2M when a small build of 850K was expected. The news came just after Brent crude oil reached new six month lows on Tuesday so could trigger a larger bout of short-covering.
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