Europe
European equity markets started out strong this morning as the Bank of Japan kept their policy unchanged overnight. Then the lack of change from the European Central Bank initially kept stocks in positive territory, but the sharp rally in the euro hit continental equity markets.
The FTSE 100 was assisted by the relatively weak pound, and when the single currency started to rally after the statement from Mario Draghi of the European Central Bank, it elevated the London index even more.
Eurozone equity indices experienced a lot of volatility as Mr Draghi’s stated that the bond buying scheme will not be changed for now, but it could be discussed in September. Investors took this as an indication that we are approaching the tapering of the stimulus package. The powerful rally in the euro pushed eurozone equities into the red.
EasyJet shares sold-off today despite posting a 16% rise in third-quarter revenue and increasing its full-year profit forecast. The problem was the airline’s full-year annual profits projection is still below that of last year. There are worse problems to have than your revised profit forecasts still being below last year’s, and given the strong share price performance in 2017, I suspect there was some profit taking today.
The share price of Anglo American (LON:AAL) fell into negative territory as the trading day went on. The mining company issued a satisfactory production update whereby it stated it would achieve it full-year targets. The asset stripping and restructuring has helped the company become more efficient, but some investors would like to see the dividend being reintroduced before buying into it.
US
After an impressive run recently, the Dow Jones, S&P 500 and Nasdaq 100 all retreated from record highs as traders lock in their profits. The major US equity indices were grinding out fresh record highs after fresh record highs, and traders are taking of their cash off the table.
The political problems that Donald Trump is suffering from don’t encourage traders to remain long as there are doubts over what else the Republican Party may be divided over. The weakness in the US dollar today couldn’t prop up the US equity markets as political trouble for Trump spells problems for both the greenback and stocks.
FX
The EUR/USD drove higher against Mario Draghi’s best wishes. The European Central Bank chief expressed concerns about inflation, but also stated that they would talk about the quantitative easing programme in the meeting in September. Dealers deciphered this was Mr Draghi laying the groundwork for a reduction in the size of the monthly bond buying scheme. The single currency soared on the back of this.
GBP/USD is struggling to recoup the losses it suffered this morning even though the UK posted solid retail sales. In June the UK saw increase by 0.6% and 2.9% on a month-on-month basis and on a year-on-year basis respectively. Both reports showed gains on the previous month and topped analyst’s expectations. It bodes well for the British economy that consumer spending is picking up but the pound still struggled to reclaim the $1.30 mark. In 2017 the trend of the pound versus the greenback has been pushing higher, and despite today’s minor setback the outlook is still bullish.
Commodities
Gold is in demand as the US dollar is being weakened by the strength of the single currency. The drop in the greenback has made the metal attractive for investors fleeing from falling equity markets. The mixed data from the US today in terms of positive jobless claims numbers and a disappointing Philly Fed report doesn’t really bring the US closer to increasing interest rates. The Federal Reserve wants to keep tightening monetary policy, but they are not in any rush to do it, and in the meantime gold will be attractive.
WTI and Brent crude oil hit their highest levels in over six weeks as the rally in the wake of yesterday’s oil inventory figures continues. The energy information agency (EIA) report showed that stockpiles declined by 4.7 million barrels yesterday. Oil inventories in the US have been falling for some time now, and traders are finally taking notice.
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