Europe
Stock markets in Europe are broadly positive ahead of the Federal Reserve’s update at 4pm (UK time). The US central bank will announce the minutes from last month’s meeting where it increased interest rates by 0.25%. Janet Yellen, the Fed chief, kept the outlook unchanged at the December meeting, and traders are pencilling in three interest rate hikes in 2018. It is worth nothing that Ms Yellen will be replaced by Jerome Powell next month. The mark-up of the Fed will change in the next few months and for now traders will be assuming a steady outlook until the new members are announced.
The eurozone indices are playing catch-up with the FTSE 100, and the soft decline in the euro versus the US dollar is assisting the Continental markets. The drop in Germany unemployment has helped the DAX drive higher too.
Shares in Next (LON:NXT) are higher on the day after the retailer posted a surprise increase in Christmas sales, which prompted the company to rise its full-year profit forecast. The company has a tough time in 2017 as it warned on profits in January, and now traders are more confident in the company.
Credit Suisse (SIX:CSGN) upgraded Ashtead (LON:AHT) to ‘outperform’ from ‘neutral’ and the investment bank raised its price target to 2240p, from 1650p. The stock is up 2.2% and is currently trading at 2006p.
US
Investor sentiment in the US is running still as the Dow Jones, S&P 500 and Nasdaq 100 have all reached new record-highs. There are no signs of this bullish move slowing down as speculators can’t wait for the changes to the US tax changes to take effect. American stocks were riding high last year as the prospect of Trump’s tax reforms being passed boosted sentiment, and since they were passed just before Christmas that momentum is still in force.
Traders are looking ahead to the release of the Fed minutes at 7pm (UK time). The update is likely to reveal a US central bank that is not in any rush to keep hiking interest rates. Dealers are forecasting three interest rate hikes for 2018, just like we had in 2017, and any suggestion that the acceleration rate of rate hikes will quicken is likely to spook traders.
US manufacturing in December climbed to a reading of 59.7, up from 58.2, and traders were expecting a reading of 58.1. Broadly speaking US economic indicators are improving and this is further proof that economy is growing at a respectable rate.
FX
GBP/USD has sold off today as the bounce back in the US dollar initially hurt the pound, and then the worse-than-expected construction data from the UK made matters worse. The latest construction PMI report from the UK came in at 52.2, and traders were expecting a reading of 52.5, and the November report was 53.1. The construction sector in the UK has largely been seeing a decline in activity since June last year, and while house prices cooling in certain regions of the country it could be a sign of what is to come.
EUR/USD has been hit by the turnaround in the US dollar. The greenback was losing ground since mid-December, but today’s bounce back has knocked the euro. The wider positive trend that has been in place for nearly two months is still intact. Germany unemployment fell to its lowest level since unification which underlines how strong the strongest economy in the eurozone is.
Commodities
Gold is in the red today as the firmer US dollar and profit taking has set in. The inverse relationship between the metal and the greenback is playing out today, as a stronger US dollar makes gold relatively more expensive. The metal has enjoyed a positive run for over two weeks and now we are seeing some traders lock in their profits ahead of the Federal Reserve minutes this evening.
WTI and Brent Crude oil hit fresh two and an half year highs as tension are still running high in Iran. The country is a major oil producer and marches from anti-government and pro-government sides has rattled the energy markets. Whenever the mood escalates in that region, dealers usually have the default view that supply could be impacted, and scramble to get long.
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