Europe
Markets in Europe have again struggled to keep track of record breaking US markets, rolling over into the afternoon session on the back of a selloff in bond markets and a sharp rise in the US dollar.
The weakness in the banking sector continues to act as a drag on European share markets despite improving economic data from France and Germany.
It could be that European markets are starting to suffer on the basis that European governments remain unwilling to act in a manner to support their own economy’s in the same way that the US government and now the UK government appear willing to do so to theirs, as central bank policy continues to run out of road.
So while the FTSE100 and FTSE250 are still lower on the day, they are still outperforming the wider European benchmarks which are down quite sharply on the day.
The selloff in bond markets gained traction in the afternoon session in the wake of the Autumn Statement by UK Chancellor Philip Hammond. It would appear that bond investors are starting to price in the prospect of higher inflation expectations as he announced extra spending on rail, telecoms and housing as he pushed back plans to balance the books by the end of the parliament. UK gilt yields jumped 10 basis points in the aftermath of the speech as investors absorbed the prospect of another £122bn of spending over the next five years.
A huge beat on US durable goods for November of 4.8% may well have also contributed to the sharp selloff in bond prices as US 10 year yields also jumped sharply to 2.38% their highest levels since the summer of 2015.
The biggest losers today have been in the real estate sector with Foxtons (LON:FOXT) and Countrywide sharply lower after the Chancellor banned the levying of letting agents fees on new tenants, while house builders have also struggled despite the announcement of a new £2.3bn housing infrastructure fund to improve infrastructure for 100k new homes, and a £23bn productivity innovation fund to invest in infrastructure, road, rail and broadband projects.
US
US markets have slipped back into the red after the records of yesterday as weekly jobless claims slightly increased to 251k, while durable goods for October jumped sharply higher, indicating that the economy got off to a decent start in Q4.
Deere and Co also posted Q4 profits well in excess of expectations, coming in at $0.90c a share.
FX
The US dollar surged sharply across the board in the wake of this afternoon’s October durable goods numbers, which showed a sharp jump of 1% excluding transportation and a 4.8% jump in the headline number. This sent the US dollar index to a new 14 year high and US 10 year yields to their highest levels since the summer of 2015, as markets start to price in more rate rises for 2017.
The pound enjoyed a modest boost against the yen and the euro on the back of Mr Hammond’s economic update, as markets also priced in slightly higher inflationary effects of the new fiscal measures announced this afternoon.
Commodities
Gold prices dropped sharply through the $1,200 level in the wake of this afternoons US data to its lowest levels since February as the attractiveness of the yellow metal continues to lose its shine against a higher yielding US dollar.
Oil prices have also struggled to gain any further traction as doubts grow about the ability of OPEC members to come to an agreement that will keep Iran and Iraq happy at a time when both want to keep the revenues from higher production intact.
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