Europe
The FTSE 100 is sliding today as dealers are concerned about the UK general election. If you take an average of the polls conducted, it points to a Conservative win but some investors have less confidence in the polls, in the wake of Brexit and President Trump's election to the White House. The UK stock market would prefer a Tory victory as the party is more in favour of free market economics than the Labour Party. The ground lost by the Conservatives in the past couple of weeks has rattled some traders.
The DAX and CAC are outperforming their London equivalent as the European Central Bank (ECB) chief, Mario Draghi, downgraded the inflation forecast for the region over the next three years. A leak yesterday stated he would, but the lowering of the CPI forecast for next year from 1.6% to 1.3% was a particularly big cut. The central bank is also open to increasing the size of the bond buying scheme, or extending it if needed. Mr Draghi likes to keep the euro weak in order to assist the eurozone, and now he has left the door open to more quantitative easing, which could keep eurozone stocks in demand.
US
The Dow Jones and S&P 500 are largely unchanged on the day as James Comey, the former head of the FBI, has begun testifying in the Senate. Traders are paying close attention as it may reignite the Russian scandal that engulfed President Trump last month. Equity traders have high hopes for Donald Trump’s economic plan. There is a lot of money in the market waiting for the tax and banking reforms, and the infrastructure projects that Mr Trump promised, and the calls for his impeachment may arise again, pending the outcome of the next two days.
Alibaba (NYSE:BABA) shares are up 10% today after the company projected sales growth of 45-49% this year, and that exceeded analysts’ estimates by 10%.
FX
The EUR/USD is above the 1.12 mark after Mario Draghi cut inflation forecasts for the eurozone. The single currency saw a lot of volatility during the press conference but traders are now aware that the ECB’s loose monetary policy could remain loose for some time. Mr Draghi conveniently blamed weak energy prices for the cut in CPI forecasts, but some traders feel it is an easy way out for him as his preference is for a weaker euro.
The GBP/USD is under pressure as investors are nervous about the outcome of the UK general election. The pound is suffering because of the dwindling gap between the Conservatives and Labour in the polls. The currency markets are far from pricing in a Labour win but there is a small bit of fear about the possibility of a hung parliament. Given the surprise Conservative majority in 2015, and the UK’s decision to leave the EU and the election of President Trump, you can see why traders aren’t taking any chances.
Commodities
WTI and Brent Crude oil have bounced back today after yesterday’s sever sell-off. The upward move that we are seeing today is small in comparison to the collapse in price that we saw yesterday, it feels more like short covering than fresh buying.
Between the CPI forecast cut from Mario Draghi and the move higher in the US dollar, gold has had a rough ride today. This week the metal hit its highest level since April, but traders were quick to exit their long positions as soon as European equities and the US dollar moved higher.
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