Europe
European markets have endured another cautious session today ahead of tonight’s latest Federal Reserve rate decision. With concerns about Greece remaining front and centre, and with no evidence that either parties are prepared to deviate away from their current negotiating positions it would appear that investors are sitting this one out, with a slight bias to the downside.
The rhetoric between Greece and its creditors appears to be once again designed more for PR purposes and public consumption, rather than being aimed at getting the various protagonists back around the negotiating table for tomorrow’s Eurogroup meeting in Luxembourg, and suggesting a deal remains as elusive as ever.
The stakes continue to remain high though with Jack Lew, US Treasury Secretary upping the pressure on the Greek government to bend a little in order to get an agreement in time.
The best performers have been in the construction and housing sector with Barratt Developments (LONDON:BDEV) and Persimmon (LONDON:PSN) outperforming, helped in no small part by a read across from an incredibly upbeat set of numbers from sector peer Berkeley Group.
On the downside supermarkets were once again feeling the pressure after a downbeat sector note from Credit Suisse (SIX:CSGN), which painted a difficult outlook for the rest of the year.
Shares in Royal Bank of Scotland (LONDON:RBS) are bearing up well despite yet another IT shambles after 600,000 customer payments went awry. Given that the bank has just paid a fine for its last IT disaster it appears that there still remains some way to go to bring their IT systems into the 21st century.
US
US markets opened higher today ahead of the latest Fed decision with the bias leaning towards a fairly dovish decision.
The main focus is likely to be on the tone of the statement and whether or not the Fed adjusts its growth and inflation forecasts. The tone of Janet Yellen’s press conference will also be closely scrutinised to see whether the Fed still has concerns about the strength of the US dollar.
The latest Q4 earnings estimates for parcels company Fedex were a disappointment, coming in below expectations on profits and revenues with profits of $2.66c a share, below an expected $2.69c, given the weakness in the US economy over the last quarter maybe this shouldn’t really have been a surprise but there was nothing particularly upbeat from management about the outlook going forward, which suggests a certain amount of caution and a reluctance to set the bar too high.
FX
The pound has been the best performer today after the latest wages data showed that salaries rose by 2.7% in the three months to April, the biggest monthly rise for over four years. With inflation in April in negative territory this data goes some way to reversing some of the spending squeeze put on consumers in the last five years.
It also opens up the prospect of an increase in speculation about the timing of a possible rise in UK rates given that in the latest Bank of England minutes two policymakers, most likely Weale and McCafferty, stated that keeping the status quo of “no change” was a finely balanced decision.
Today’s better than expected wages data is likely to have shifted the dial on that, and if sustained at the current level in subsequent months then we can expect the divisions we saw last year on the MPC start to reassert themselves, as Weale and McCafferty start to vote for rate increases again.
Commodities
Oil prices have edged higher today ahead of the release of the latest inventory data, where we saw another decline in US inventory levels, for the seventh week in succession. Only a week ago we saw the biggest weekly draw in US inventories in several months, yet soon afterwards oil prices slid back sharply, as traders realised that the effect on stockpiles was relative small in comparison, given that supply, particularly on the OPEC side, was still rising faster than demand.
This time might be different given that some of the recent data on the US side would seem to suggest that US output has peaked in the North Dakota region, while in Africa, Angola announced it was cutting crude exports in August to an eight month low, but overall the bias remains for a continued range trade for oil prices.
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