Europe
European stock markets took heart from a big turnaround in German investor confidence on Tuesday with bullish sentiment remaining over the prospect raised on Monday of government bond purchases by the ECB.
Stocks were on the up in the UK as the economy showed resilience during October borne out by rising consumer, retail and house prices as Prudential (LONDON:PRU) and easyJet Plc (LONDON:EZJ) reported strong earnings.
The German ZEW index for investor expectations jumped to 11.5 in November from -3.6 the prior month. German economic data has improved since the deterioration that caused stocks to drop over 10% before the previous ZEW reading while German unemployment has remained low and company earnings have been solid.
Following last week’s dovish outlook from the Bank of England projecting sub 1% inflation within 6 months, UK CPI increased slightly to 1.3% yoy from 1.2% in September. The increase in October inflation was partially explained by rising computer games prices in the lead up to Christmas in what might be dubbed some ‘Call of Duty inflation’.
Easyjet reported profits had risen over 21.5% on a 6.3% rise in revenue in the year up until September 30. Passenger numbers rose 6.6% thanks to the more polished customer service offered by Easyjet which has since been copied by Ryanair Hldgs (LONDON:RYA). Strikes at European flagship airlines were a great opportunity for Easyjet to attract regular users that might not have otherwise have considered a discount airline.
Shares in Prudential hit new all-time highs after profits were reported to have risen 17% in the first 9 months of 2014 thanks to a rise in new business particularly in its life insurance arm.
US
Stocks in the US trundled higher again in early trading on Tuesday boosted by hopes of sovereign QE in Europe despite rising political risk in Japan with Prime Minister Abe calling snap elections and delaying the much maligned tax-hike for eighteen months.
Wholesale prices rose unexpectedly in October as increased food costs and statistical readjustments outweighed falling energy prices.
Bullish sentiment has helped US markets drift higher so far this week but apprehension over the Fed’s minutes tomorrow have left volatility way below normal ranges.
Japanese Prime Minister Abe has said he will resign if the coalition doesn’t retain majority in the snap elections. Were Abe to step down there is a prospect for a complete change in strategy in Japan however should he be re-elected he could accelerate his plans.
One of Abe’s three arrows is the country’s quantitative easing program which was expanded last month, a new leader could potentially cancel the program. Cancelling Japanese QE would significantly undo the level of global stimulus and would be a threat to equities in Japan and abroad. Should Abe be re-elected his mandate would be confirmed and that could give scope for additional stimulus efforts.
Home Depot Inc (NYSE:HD) still reeling from its stolen customer data scandal reported earnings that slightly missed estimates but were still higher on the year ago period. The company maintained its full year targets but suggested fourth quarter results could be impacted by diminished consumer confidence in using the stores after the breach.
FX
The US Dollar was lower against most major currencies on Tuesday leading into Wednesday’s FOMC minutes as data improved in the UK and Europe.
The British pound rebounded of its lows over the prospect of a sooner rate hike thanks to the higher inflation numbers, but the relatively small increase and the likely temporary nature of gains in computer games prices before Christmas meant gains soon gave way to losses.
GBP/USD had bounced off 1.56 on Oct 14 but couldn’t hold even one handle above at 1.57 and dropped right back again.
EUR/GBP breached the topside of the 0.80 psychological level for the 5th test since June having potentially formed a double bottom at 0.78.
Commodities
Gold broke through the $1,200 per oz round number having gained back $70 since making its low on Fri Oct 7. A huge short squeeze amongst a pullback in the US dollar has lifted the precious metal.
Two central banks helped put a floor under gold prices with ECB member Mersch suggesting the ECB could buy the metal as part of its asset purchase program while the upcoming gold referendum in Switzerland could mandate the SNB to dramatically increase its gold holdings.
Crude Oil prices saw a late sell-off as speculation mounted that OPEC producing counties would not cut production in it November meeting as Saudi Arabia looks to sell more oil in Asia to offset declining demand for imported oil from the US.
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