Europe
Equity indices in Europe are in the red, but at least they are off the lows of the day, as oil makes a late surge. The turbulence in the energy market is weighing on investor sentiment. Oil has dropped a substantial amount since March and dealers are worried it could diminish inflation and growth prospects. Disinflation is the last thing traders want to see, and while oil remains relatively low it will chip away at investor confidence. A high level of inflation is a problem for an economy, but so is low inflation and that is where we could be heading if the oil market doesn’t pick up.
Randgold Resources (LON:RRS) and Fresnillo (LON:FRES) are in positive territory as the gold and silver markets have rallied. Like the underlying metals, both stocks had been sliding since early June.
Provident Financial (LON:PFG) has seen some short covering after the stock collapsed yesterday because of a profit warning. The gains today are minimal in comparison with the losses that were suffered yesterday. The stock is still trading below its 200-week moving average, which will make it less attractive to technical traders.
US
The Dow Jones, S&P 500 and Nasdaq 100 are all broadly unchanged as the volatility index (VIX) is subdued. The US equity markets are holding up better than their European equivalents. The recent record highs that were registered on some US indices are still fresh in traders’ minds, and they seem unfazed by the turmoil in the oil market.
The US posted some positive house prices data at lunchtime, the house price index (HPI) for April showed an increase of 0.7%, and traders were expecting a rise of 0.4%.
Oracle (NYSE:ORCL) shares are up 9% after the company posted excellent results. The stock hit a record high today after the company revealed fourth-quarter earnings per share (EPS) of 89 cents, and that was well ahead of the market estimate of 78 cents.
FX
The GBP/USD has turned lower this afternoon despite impressive industrial order expectation figures from the UK, the June report came in at 16, and the consensus was 7. On a positive note, the pound has managed to hang onto most of the gains it made versus the US dollar yesterday. The comments from Andy Haldane, of the Bank of England, about the possibility of an interest rate rise in the UK later this year are still ringing in traders ears. The problem for the pound though, is that the Federal Reserve are aiming to keep tightening their monetary policy too.
The EUR/USD has fallen throughout the session. The volatility in the currency pair has been quiet low. The greenback has been the more dominant of the two over the past couple of weeks, as the US central bank is keen to start reducing the size of its balance sheet this year. While the European Central Bank is doing all it can to keep its currency soft, even though there have been calls to tighten the very loose monetary policy.
Commodities
Gold has gained some ground today after it rebounded from yesterday’s five week low. The metal has been pushing lower since the start of the month, and traders started selling in advance of the Federal Reserve’s update, and then the selling pressure intensified as the US central bank was more hawkish than traders anticipated. The move higher in gold could be more of a relief rally rather than bargain hunting. Given the decline we have seen in equity markets around the world, we haven’t seen a major demand for the safe haven asset.
WTI and Brent crude oil are higher on the day as the energy markets bounced back. Yesterday we saw prices fall to a level not seen since November 2016. The oil market hasn’t been able to hold onto a rally recently, and traders are wondering how long will it last. The market has been losing ground at a fast pace ever since the OPEC meeting in late May, and traders are questioning how effective the coordinated production cut will be. Demand for the commodity is dipping, and that is also feeding into the overall bearish sentiment.
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