Europe
European markets have continued to struggle today trading down near levels last seen in February, while the FTSE100 hit its lowest levels since mid-January. While we have managed to pull away from the lowest levels of the day, we could see the FTSE post its fifth daily decline in a row, as a continued lack of progress and widespread scepticism of any form of Greece deal keep investors on the side-lines.
Comments this morning by the chief Greek negotiator Euclid Tsakalatos that Greece would not be able to pay the IMF at the end of the month, because they don’t have the money has brought the prospect of a default that much closer, given that they have stated they have no intention of submitting any new proposals.
Given that German Chancellor Angela Merkel reiterated the creditor’s position in a speech to the Bundestag earlier today that no money would be released unless Greece implemented reforms, the prospect of any sort of deal seems more remote than ever.
A weaker US Dollar has helped give commodity prices a lift today on the back of last night’s Federal Reserve rate meeting, which has translated into a push higher in commodity prices and prompted a strong performance from mining stocks with Anglo American (LONDON:AAL), Fresnillo (LONDON:FRES) and Glencore (LONDON:GLEN) all leading the way.
The performance of the mining sector has helped pull the FTSE off its lowest levels of the day and is the one bright spot, with a couple of stocks going ex-dividend taking some of the shine off as well. Severn Trent Plc (LONDON:SVT) and 3I Group (LONDON:III) are the biggest fallers.
US
US markets look set to continue their divergence from European markets in the wake of last night’s dovish Fed decision, and today’s weaker than expected May CPI numbers.
Despite assertions that the Federal Reserve remains on course to increase rates this year, the underlying data continues to disappoint. Furthermore the decision to downgrade their growth forecasts for the US economy for the second successive quarter, speaks to some concern that the Fed has about the strength of the US recovery.
While weekly jobless claims continue to be the stand out data point, rising 267k and less than expected, pointing to an improving economy, price pressures still remain constrained. The May CPI number showed that core prices declined while headline CPI came in at 0%, after spending two months in negative territory. The latest Philadelphia Fed survey did show signs of an improvement, coming in at 15.2, well above expectations of 8.
On the company front FitBit launched today as the latest in tech IPO’s hit the trading floor. Valued at $4bn and IPO’ing at $20 a share, opening 50% higher, it would appear that management are looking to tap into the wearables market at a time when Apple (NASDAQ:AAPL) is looking to harness its own Smartwatch as a fitness device or tracker.
The company posted its first trading profit in 2014, of $48m, on revenues of $745m and with margins still fairly healthy the risk is that as competition in this sector intensifies these margins could well come down, which might suggest that a $4bn valuation might be a little bit steep.
On the earnings front US retailer Kroger Company (NYSE:KR) is expected to report Q1 earnings of $1.22c a share and sales of $33.4bn.
Also in focus US tech giant Oracle Corporation (NYSE:ORCL) reported Q4 earnings that missed expectations after the bell. The company blamed the strong US dollar for the miss as it reported earnings of $0.78c a share on revenue of $10.7bn. Were it not the strength of the US Dollar the company said it would have beaten expectations.
FX
The US dollar has lost ground pretty much across the board since last night’s FOMC meeting and these losses have been reinforced by this afternoon’s disappointing US CPI number. The facts are that despite last night’s dot plots, the Federal Reserve downgraded its growth forecast below the growth levels seen in 2014 and with prices remain weak the prospect of a delay to a rise in rates could well trigger a sharper shake out of those US dollar longs.
The pound has continued to shake out short positions after this morning’s better than expected retail sales numbers for May showed a 0.2% rise in May. Given that we saw a significant pick up in wage growth in April the potential for further improvements is driving the pound to seven month highs against the US dollar.
The worst performer has been the Norwegian Kroner after the Norwegian Central Bank cut rates to another record low to 1% this morning, and warned of more to come unless Oil prices started to show signs of picking up further.
Commodities
Gold prices have started to pick up again driven by last night’s market reaction to the latest Federal Reserve statement hitting their highest levels this month as concerns about a Greek default also drive flows into the yellow metal.
Oil prices have also been buoyed by the weaker US dollar, though another big draw in inventories yesterday has also helped bolster sentiment.
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