Europe to extend gains as market jitters show signs of easing
US equity indices closed the overnight higher after reversing opening losses. Wall Street added a fourth day to the winning streak, even as bond yields rose following stronger than forecast inflation data, but weaker retail sales. The Dow closed 250 points higher, after dipping 150 points lower on the open, whilst the S&P was rescued from an initial 1% selloff to close 1.3% higher.
Asia continued to run with the gains following Wall Street’s spectacular reversal. Europe looks set to follow suit with futures across the board pointing to a higher start. Banks and tech stock could be under the spotlight following the strong finish for the sectors overnight. Commodity stocks could also receive a boost thanks to commodity prices rising amid a weaker dollar. Gold jumped $22 hitting a 3-week high, whilst oil traded 1% higher as inventory concerns also eased.
US CPI beats whilst retail sales disappoint
The stronger than forecast US inflation data on Wednesday added to concerns that the Fed may look to tighten monetary policy at a more aggressive pace than had initially been expected. Meanwhile, the weaker than forecast retail sales numbers, add another layer of complexity to the picture; at the very least raising questions over the strength of the US consumer moving into 2018. There is a good chance that the mixed data could encourage a slightly more cautious tone from the Fed, who we expect are keen to carry on analysing data before committing to anything more. Three rate hikes remain the base case scenario with risks skewed towards a fourth.
With the heightened interest rate expectations, bond yields rose to a fresh four year high of 2.91% pulling stocks lower and boosting the dollar. However, the selloff in equities was short lived and the dollar quickly reversed the post data rally, dropping to a 15-month low versus the yen at 106.673
US data in focus once again today
With no high impacting data expected from the eurozone or the UK this morning, US numbers in the afternoon could once again take centre stage. Jobless claims, industrial production and manufacturing numbers will attract the market’s attention, although no doubt to a lesser extent than yesterday’s closely watched releases.
Whilst the market is showing signs of carving out a bottom and the volatility index (VIX) or fear gauge, has dropped back below 20, after peaking at over 50 just last week, it is unlikely that this is the last we have seen of the volatility as markets claw back these recent losses.
Opening calls
FTSE to open 37 points higher at 7250
DAX to open 120 points higher at 12464
CAC to open 46 points higher at 5211
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