Europe
The sell-off continued for a second day in Europe led lower by the German DAX which slipped through 11,900 having been above 12,200 on Monday.
The broader support for equities from the European Central Bank’s asset purchases remains in place but the potential turbulence caused by the signal of higher interest rates in the US has caused a bout of risk-off trading.
UK
UK shares traded higher on Monday after the Bank of England signalled lower rates for longer, backed up by weaker labour market data particularly a slowing in wage growth. The UK budget was a bit less austere than the autumn statement which could be generally construed as positive for the business environment. The budget was friendly to a number of sectors, most prominently oil and gas, housing and asset management shares.
Bank of England minutes revealed that the Monetary Policy Committee again voted 9-0 to keep rates on hold with two members feeling the decision was finely balanced.
The unemployment rate rose to 5.7% in the three months through February from 5.6% in January while average earnings dropped from 2.1% in December to 1.8% in January
The BOE minutes paint a picture unchanged from the last Bank of England meeting so markets reacted to the slight uptick in unemployment and slowdown in earnings growth. The weaker labour market data helped UK stocks to make another leg higher since it implies lower interest rates for longer.
There’s really no net takeaway from the budget for the prospects for the UK consumer, only that the OBR has revised higher its forecasts for UK growth which is a benefit to all.
The FTSE 100 cruised back above 6,900, the major price ceiling it recently cleared before forming new all-time highs as oil companies and house builders outperformed undoing some the weakness in the mining sector.
British oil majors BP (LONDON:BP) and Royal Dutch Shell (LONDON:RDSa) traded strongly for a second-day running on news of a cut to fuel duties and tax relief for North Sea Oil while the companies were awarded blocks for exploration in Indonesia.
Shares in Hargreaves Lansdown Plc (LONDON:HRGV) and St James'S Place (LONDON:SJP) rallied on the prospect of being possible alternative destinations for UK pensioner’s annuities cash.
Tax breaks for savers and a new ‘Help to Buy’ ISA that matches every £200 deposited with £50 helped shares in estate agent Foxtons (LONDON:FOXT) and homebuilders Barratt Developments Plc (LONDON:BDEV) and Taylor Wimpey Plc (LONDON:TW) trade higher.
Diageo (LONDON:DGE) jumped by 2% after the Chancellor announced a 2% cut in duties on spirits while British American Tobacco (LONDON:BATS) and Imperial Tobacco Group (LONDON:IMT) traded up on the freeze to cigarette duties.
Barclays (LONDON:BARC) is reportedly close to settling a lawsuit with private investors on FX benchmark rigging sending the UK bank’s shares higher.
Investors are acting favourably to Royal Mail (LONDON:RMG)’s new portal to help online retailers better manage returns with shares rising as much as 4% while a drop in competitor FedEx Corporation (NYSE:FDX) shares was interpreted favourably .
US
US markets sank in early trading on Wednesday ahead of the statement from the FOMC and the press conference held by Fed Chair Janet Yellen. Apprehensions are brewing over the possible removal of forward guidance from the latest statement by the Federal Reserve, possibly green-lighting the first rate-hike since 2006.
FedEx shares traded lower despite beating on quarterly profits after missing revenue estimates.
Shares in Oracle traded over 4.5% higher as the software-maker met earnings estimates and raised its quarterly dividend by 25c per share.
The stock price of Adobe Systems Incorporated (NASDAQ:ADBE) fell by as much as 4% as the company reported better than expected earnings but a slowdown in the increase in subscribers to its cloud-service.
FX
The US Dollar was flat throughout most of Asian and European trading but started to fall back at the beginning of the US session ahead of the FOMC.
The weaker UK labour market data sent the British pound lower against the US dollar and euro with GBP/USD dropping through 1.47 and EUR/GBP rising through 0.72 since it implies lower interest rates for longer.
USD/SEK jumped over 1% on the news the Swedish Riksbank cut rates deeper into negative and arguably unchartered territory.
Commodities
Coppermade a decisive move lower today, dropping through its recent base of $2.63 per lb on the back of a slowdown in Chinese house prices. The house boom in China has been the primary area of demand for copper in recent years and its slowdown is a primary cause of the slump in copper prices. The housing recovery in the US also seems to have fizzled out at the prospect of higher interest rates with building starts dropping off sharply in February.
Crude oil fell leading into another large build in US oil inventories of 9.62M widely exceeding estimates of 3.75M.
Gold closed below the key psychological level of $1,150 as the US dollar strengthened on Tuesday and was trading essentially flat leading into the FOMC. If the expected hawkish rhetoric from the Fed actually happens then gold could be set to make new five-year lows.
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