Europe
The spike in volatility following a surprisingly dovish Federal Reserve has shown the euro is not quite the one-way bet some thought it was and has prompted a bout of profit-taking in European shares.
The German DAX has rallied for nine weeks surrounding the beginning of the ECB’s QE program and the resulting euro weakness that should help the country’s exporters. Having risen above 12,000, the DAX was a due a pullback and yesterday’s euro recovery offered the backdrop to do so.
UK
Britain’s benchmark stock index hit new record highs on Thursday enthused by a business friendly, less austere budget and dovish commentary from central bankers in the UK and the US. The FTSE100 fell just short of the 7,000 level early on but dropped back on profit-taking as European markets turned lower.
Miners Fresnillo (LONDON:FRES), Antofagasta (LONDON:ANTO) and Randgold Resources (LONDON:RRS) followed the price of precious and industrial metals higher which got a boost when the more dovish than expected Federal Reserve collapsed the US dollar in which they are denominated.
High dividend-paying REITS British Land and Land Securities performed well on Thursday after the Bank of England and Federal Reserve confirmed that we are still in a low rates environment. REITS could also be a destination for the soon-to-be accessible annuities cash after the announced pension reform in yesterday’s budget.
British American Tobacco (LONDON:BATS), Imperial tobacco, Diageo (LONDON:DGE) and Hargreaves Lansdown Plc (LONDON:HRGV) were top fallers, giving back budget-induced gains.
Next Plc (LONDON:NXT) traded lower despite meeting earnings estimates as the company offered weak guidance based on the strength of current clothing collections.
Shares in Ted Baker (LONDON:TED) opened higher after reporting higher profits and giving a strong 2015 outlook but traded down over 3% in sympathy with Next on profit-taking.
Shares in Auto Trader jumped over 10% on high demand on its IPO under conditional trading with unconditional trading set to begin next Tuesday.
US
The volatility in FX markets has sparked caution in stocks on Thursday leading to generally risk-averse sentiment as investors digest the implications of the latest Fed meeting.
The sell-off in the dollar was welcomed by stocks in the immediate aftermath of the Fed’s statement and press conference. Equally, the dollars rampage back on Thursday to levels seen before the Fed has been unnerving and sent US shares lower.
Apple (NASDAQ:AAPL) began its first day of trading in the Dow Jones Industrial Average.
FX
The US Dollar returned to strength following its biggest sell-off since 2009 in the previous session as traders bought the dip. There is still a belief in the market that even if the Fed delays its rate hike by a month or two, there is still a Grand Canyon-sized gap between US monetary policy and the rest of the world.
Dovish comments from the Bank of England’s Andy Haldane sent the British pound right back to its lows with GBP/USD back down to 1.4750 having reached almost 1.52 yesterday.
The euro dropped back again against the US dollar, yen and British pound with EUR/USD down as low as 1.0630 having been at 1.10 yesterday.
Commodities
The moves in commodities seen in the past twenty-four hours have been quite instructive as to how much of the decline has been driven by the strength of the US dollar. While there are certainly weak fundamentals for the likes of oil and copper involving higher supply than demand, the sharp rally yesterday implies the declines would not have been nearly so heavy were it not for USD-strength.
Gold and Silver consolidated around gains made after the Fed with silver re-taking $16 per oz.
Crude oil slumped back as weak fundamental remain and the US dollar gained.
Copper outperformed gaining close to 2% following the sharp reversal seen yesterday. Having sold off on weak Chinese and US housing data, the industrial metal about-turned on the US dollar weakness.
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