Europe
Shares in Europe eased back from recent highs on Wednesday as concerns re-emerged over whether the Greek bailout extension would be accepted by national parliaments.
The IMF’s Managing Director Christine Lagarde published a letter that raised the concerns many have had privately since the agreement on Greece’s bailout extension on Monday.
The list of reforms proposed by Athens as conditions for the extension of the bailout is so far just a set of empty promises. Some more solid assurances that the reforms will actually take place will be needed to give creditors some confidence that they are not throwing good money after bad.
In China, the HSBC manufacturing PMI showed activity expanded in February to a four-month high. The purchasing manager’s index rose to 50.1 from 49.7 in January, beating estimates of 49.5.
UK
UK stocks stumbled on Wednesday as issues with the Greek bailout weighed on sentiment amidst a number of corporate earnings releases.
The FTSE 100 failed to build on the record-breaking gains from the previous session. The benchmark UK index was dragged down when the Irish government failed to give the go-ahead on the International Airlines Group (LONDON:ICAG) takeover of Aer Lingus (IR:AERL), while Weir Group (LONDON:WEIR) was pummelled after giving a profit warning.
US
Stock markets in the US had a cautious open following the jump higher on Tuesday when Fed Chair Yellen knocked back expectations for the timing of the first US rate hike since the financial crisis.
More positive data from China to some degree offset another large build in US oil inventories that could have otherwise hit US energy shares a lot harder. It’s well known that there is over-supply in Oil markets but some signs of improvement in the Chinese economy could improve the demand-side.
US new home sales fell by 0.2% to 481K, a little higher than the 471K expected but generally reiterating the slow start to the year for the US housing market.
FX
The US Dollar was uniformly weaker on Wednesday, losing further ground from Tuesday when Fed Chair Janet Yellen indicated the Fed was a little less inclined to hike rates than the market had previously inferred.
There is still a divergence in monetary policy between the US and the rest of the developed world, the Fed is not looking to weaken policy like the ECB or BOJ. The divergence should put a floor under any drop in the US dollar, but perhaps a larger correction is due.
GBP/USD continued its recent strength, breaking the 1.55 resistance level after mortgage approvals improved in January more than expected.
Better than expected construction data overnight was enough to help lift AUD/USD through 0.7880, its Feb 6 peak and could set the stage for a bigger rally.
Commodities
Gold (TA:GOLD) found some new buyers at seven-week lows after Fed Chair Yellen indicated the FOMC was not looking to imminently hike rates.
A major reason to hold gold is a hedge against inflation and it appears the Fed is not yet in the business of acting against future inflation. It’s sometimes said that inflation is like opening a can of worms; once it’s out you can’t put it back in without a lot of trouble. For now deflation appears the bigger risk but if the Fed acts too late to tighten policy and inflation gets unleashed; that could be an environment very favourable to gold.
Silver also saw a strong rally alongside the yellow metal, pulling away from $16 per oz.
US oil inventories built to 8.4m, bigger than last the 7.7m seen last week and the 3.6m expected. Having been higher earlier on, crude oil dipped into the data release as traders pared long bets in case of a giant build up. The price of oil recovered slightly afterwards in a sign that the higher inventories at the current levels are starting to get priced in.
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