UK and Europe
A desire to take risk has re-emerged in global stock markets after Federal Reserve Chair Janet Yellen signalled a slow pace of US rate hikes this year. Ms Yellen has eased investor fears that the Fed might get too aggressive in the face of slowing growth.
The Fed Chair’s speech was much more in alignment with the cautious Fed statement issued in March than the more optimistic Fed speakers heard last week. The resulting drop in the dollar since Ms Yellen’s speech has erased all of its gains last week and has given oil and stock markets a firm footing with which to continue the rebound off this year’s low.
Tata Steel’s decision to sell the Port Talbot steelworks means the UK’s domestic metals output hangs in the balance. That didn’t stop UK-listed mining companies from surging higher in the wake of Janet Yellen’s speech, which prompted a weaker dollar and stronger commodity prices. The basic materials sector in the FTSE 100 jumped over 5% with Anglo American (LON:AAL) seeing double-digit gains.
More corporate financial engineering has been afoot, this time in Germany. Metro, one of Germany’s largest retailers, is splitting into two groups. There will be a new spun-off entity focusing on the wholesale and food business while the Metro brand will keep the Media-Saturn consumer electronics business. The trend of companies splitting into two has kicked into high gear since HP announced one of the highest profile splits in October 2014. The case for Metro’s differentiated businesses growing faster on their own is a strong one, though making the companies more attractive for a sale could also be a motivation for the split.
US
US markets opened higher with risk-on sentiment returning to markets after Ms Yellen signalled a slower pace of rate hikes this year.
Shares of Apple (NASDAQ:AAPL) have jumped for a second day after its court case was dropped by the US government. There is clear relief that Apple won’t be stuck in a drawn out legal battle with Uncle Sam.
FX
The US dollar saw a second day of steep losses after the Fed’s Charles Evans said he would be surprised if the US economy met conditions for a rate hike in April. The dollar’s losses came in spite of a better-than-expected ADP unemployment report that saw 200k private jobs created in March.
Today’s moves in the dollar have been accentuated by Evans but are really a follow-through on the dovish tone from Fed Chair Yellen. Ms Yellen has put the kaibosh on any talk of more than two rate hikes this year.
The euro gained after German preliminary inflation data came in significantly higher than was previously expected.
The New Zealand dollar was the top FX riser for a second day running. The kiwi broke out of its eight-month trading range against the dollar and now sits just shy of 0.7. The strength in the kiwi comes despite the Reserve Bank of New Zealand cutting interest rates in two out of its past three meetings. Resource-backed currencies were some of the worst performers when the dollar rallied because of the simultaneous drop in commodity prices. Now that commodities, especially oil, seem to have bottomed and the dollar topped, the likes of the kiwi are outperforming.
Commodities
The price of crude oil has gained more ground after the DOE reported a lower-than-forecast build in US inventories. The bounce in crude has been supported to some degree by reports that Iran will join talks in Doha without agreeing to an output freeze. Iran’s participation is a net positive for oil prices; an output freeze may take longer to happen but is more likely to have the support of all the major national producers when it does. If Iran turns up to the Doha talks, there’s a chance it could surprise with an agreement to freeze output at a higher level closer to its historical norm.
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