Europe
The FTSE 100 is higher on the session as it is being helped along by natural resource stocks, as a report from China showed its manufacturing sector is still growing, albeit at a slower rate.
While the DAX and CAC 40 are slightly offside today as dealers are worried the European Central Bank could discuss the possibility of reducing the size of the stimulus package, in light of the good unemployment and core CPI data from the eurozone today.
China reported manufacturing numbers for July, and they came in at 51.4, while traders were anticipating a reading of 51.6. Keep in mind that the June reading was 51.7. The sector is still expanding - just at a slower rate. The second-largest economy in the world is on track to meet their growth target for 2017, and mineral extractors like Glencore (LON:GLEN), Rio Tinto (LON:RIO) and BHP Billiton (LON:BLT) are higher today as traders believe China is still hungry for commodities. Today, copper traded at its highest level since May 2015, and the red metal is also sensitive to Chinese economic indicators.
HSBC (LON:HSBA) reported an increase in profits for the first-six months of the year, and they managed to exceed traders’ expectations. HSBC’s financial health is improving as the bank stated its common equity tier 1 ratio is 14.7%, up from 13.6% on the year. This shows us that the bank is taking precautions to not over-stretch itself and make sure it has a strong cash buffer, should there be a downturn in the economy. The fact that the bank is spending $2 billion on a share buyback scheme tells the market how comfortable they are with their cash position.
US
The Dow Jones has notched up another record-high as the bullish sentiment surrounding the equity benchmark knows no bounds. The momentum is clearly with the bulls, and at this stage it becomes a self-fulling prophecy – the more new record highs it creates, the more it entices fresh buyers.
The S&P 500 and Nasdaq 100 have retreated slightly, and the divergence between them and the Dow Jones shows that investors are seeking the best of the best when it comes to stocks.
The Chicago business survey for July fell to 58.9 from 65.7 in June, and it came in below the expectations of 60. There was some upbeat news with the housing sector where pending home sales in June increased by 1.5% and the consensus was 0.7%. Keep in mind in May we saw a drop of 0.8%. The mixed economic updates from the US are likely to keep traders' fears of an interest rate hike in December at bay.
FX
The GBP/USD experienced low volatility today, but the currency pair held above the $1.31 mark as traders are still thinking about the US first-quarter growth being revised lower on Friday. The UK mortgage data was mixed today. The number of approved mortgages was 64,680 in June, slightly down from 65,200 in May, but in financial terms the amount that was lent out was £4.14 billion, and that was a big jump from £3.53 billion on the previous month. Average house prices in the UK are starting to cool, and if we keep seeing an increase in the size of mortgages being approved it could put pressure on the pound as dealers might be worried about the housing market overheating.
The EUR/USD is holding above the $1.17 mark as euro buyers welcomed the unemployment and CPI data from the eurozone. Unemployment in the eurozone dropped to 9.1% from 9.3% in May, and inflation remained at 1.3% in July, but the core inflation ticked up to 1.3% from 1.1%. The decline in the jobless rate and the rise in the core inflation level is additional proof that the region is improving. These stats will add to the speculation that the European Central Bank President, Mario Draghi, will talk about trimming the size of the bond buying scheme next month at the Jackson Hole symposium. The euro has been making headway versus the US dollar for several months now, and it appears the trend is set to continue.
Commodities
Gold traded at $1271 today, a level not seen since 14th of June – the date of the June Fed meeting. The metal has been in a clear uptrend for the past three weeks as more and more traders believe the US central bank will not raise interest rates again this year. The rally in gold is also helped by the declines we have seen in eurozone equity markets as traders remove their cash from the region for fear the European Central Bank will look to decrease the size of the monthly bond buying scheme in late 2016 or early 2017.
WTI and Brent oil have turned lower this afternoon as profit taking from last week’s bullish move kicked in.
A number of OPEC and non-OPEC members will meet next week in Abu Dhabi to discuss how to bring about greater compliance with the planned production cut. When the production cut was extended in May, traders didn’t take it too seriously as it was priced, and the subsequent poor adherence to it promoted traders to sell oil. This time around dealers are have more faith in OPEC’s ability influence the price of oil.
The Baker Hughes rig count on Friday showed the number of active rigs in the US increased by 2 to 766. This month we have seen three reports that showed an increase in the number of active rigs, and only one report showing a decline. The energy market has been pushing higher over the past 10 weeks, and the higher it goes the more likely we will see an increase in the rig count.
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