With the G20 finance ministers meeting in Shanghai currently underway today, European stock markets have continued their recent strong performance on the back of this morning’s assurance from Chinese central bank governor Zhou, that another sharp devaluation of the yuan is not currently imminent.
While markets have been robust the prospect of any significant announcement remains remote after German finance minister Schaeuble poured cold water on the prospect of an agreement of a fiscal stimulus package, saying it could be “counterproductive”.
The rebound seen in the last two weeks has helped pull the FTSE100 back to its closing levels of last month, which is an astonishing turnaround in the absence of any significant positive factors, given that we were trading at the 5,500 level just over a fortnight ago.
While the FTSE100 has managed to roundtrip its way back to its monthly opening levels broader European markets have underperformed, and remain underwater, despite the prospect of a second consecutive positive weekly close.
There still remains one full trading day to go in February and while it does appear that the rebound in commodity prices has helped assuage concerns about further negative strains on the balance sheets of the major commodity players, however the prospect of even lower rates when the ECB meets next month could well see some of those old worries resurface again in the coming weeks.
The worst performer today has been Royal Bank of Scotland (L:RBS) after the bank announced yet another big loss, as the shares once again hit levels last seen in mid-2012.
British Airways owner IAG (L:ICAG) also slumped sharply despite posting a 68% rise in profits for the year, and announcing plans to make a dividend payment for the first time since the BA-Iberia merger completed four years ago.
China exposed stocks have led the rebound higher led by the mining sector with Anglo American (L:AAL), Glencore (L:GLEN) and Rio Tinto (L:RIO) all rising strongly. Burberry (L:BRBY) and Standard Chartered (L:STAN) Bank have also seen a decent tail wind as well.
US
US markets look set to complete three successive days of gains opening at six week highs today as a continued rebound in commodity prices helped push basic resource and oil and gas stocks further away from their recent lows.
On the data front US Q4 GDP came in at 1%, well above expectations of 0.4%, though personal consumption was slightly down on what had been expected. It would appear that this surprise jump in headline GDP was down to a lower than expected decline in inventories. While on the face of it this would suggest that the possibility of a move on US rates next month may have increased, the likelihood is it has done no such thing.
What changed things slightly was the latest inflation and spending data for January which showed some signs of a pick up when they were released earlier this afternoon. First of all the Fed’s preferred inflation measure of PCE jumped to its highest level since November 2012 at 1.7%, while personal spending and income both rose by 0.5%. While these numbers will reinforce the narrative for the Fed hawks, the more conservative members of the FOMC are likely to want to see a more sustained rebound before jumping to any conclusions.
The strength of these numbers helped pull US stocks off their highest levels of the day, and while on their own they do point to a pickup in price pressures March still remains an outlier for any sort of Fed action.
FX
The US dollar has once again been amongst the best performers today helped along the way by better than expected US economic numbers with the biggest fallers being the commodity currencies of the Australian dollar, while the recent risk on mentality of the past couple of days has seen the Swiss franc and Japanese yen also drop sharply.
The euro has also come under renewed pressure after German CPI for February showed a surprise drop into negative territory at -0.2%, increasing the prospect of more aggressive policy measures from the ECB at next month’s policy meeting.
As for the pound it continues to get a flogging as it looks to post its worst weekly performance since early November last year, with the prospect that we remain on course for the lowest monthly close for over 30 years.
Commodities
Oil prices have continued their recent gains with Brent prices hitting their highest levels since early January, earlier today, though the rebound in the US dollar has taken some of the edge off today’s gains.
A stronger US dollar has weighed on gold prices today but the yellow metal still remains on course to post its best monthly performance since January last year.
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