UK and Europe
A short-squeeze in crude oil has dragged markets out of the doldrums. Oil prices continue to be the dominating driver of stock market direction. The price of oil reversed an early decline during Asian trading hours before gaining as much as 3% as US markets came online.
While oil prices remain volatile, stock markets appear to have lost control of their own destiny. This could change after the latest US interest rate decision is announced on Wednesday. Since the Fed raised rates and the ECB underwhelmed in December, investor’s belief in the ‘central bank put’ has been shaken. However, should the Fed choose to reel back its own hawkish stance, any resulting drop in the dollar could support commodity markets and help put a floor under equities.
The FTSE 100 leaped back over 5900 led higher by basic resource and oil & gas sectors as oil and metal prices pulled away from multi-year lows. A slide in BT Group (L:BT) and EasyJet (L:EZJ) shares meant consumer services and telecoms were at the bottom of the UK benchmark.
Easyjet shares were grounded after the airline blamed a fall in quarterly revenue on lower bookings resulting from the terror attacks in Paris and Egypt. Paris and Egypt are particularly sensitive to Easyjet as top flight destinations. Major rival Ryanair (L:RYA) does not fly to Sharm el-Sheikh and cited the terrorist event as reason for a jump in passenger numbers to other destinations in December. Ryanair’s results demonstrate there are still strong industry trends. Easyjet have warned the current quarter’s revenue could decline further but the drop in Easyjet revenues has been relatively small and the tailwind of lower fuel costs should serve to support the bottom line over the medium term.
US
US stocks opened higher yesterday alongside the price of oil with positive consumer confidence and house price data going some way to offset concerns of a possible slowdown in iPhone sales in Apple's (O:AAPL) quarterly earnings report after the close.
FX
The US dollar was mostly lower on Tuesday with commodity currencies the best performers thanks to a rally in oil, gold, silver and copper prices.
The British pound traded slightly higher following Andrew Bailey’s appointment as FCA chief and a speech from Bank of England governor Mark Carney in which he gave a clear hint he would stay on for the full eight-year term.
The Canadian dollar was top riser as oil prices rebounded from early losses, reigniting hopes of at least an interim bottom.
Commodities
Oil traders have taken yesterday’s drop as an opportunity to cover shorts and buy into a possible interim bottom following the massive two-day surge last week. Vague talk of a possible joint production cut with Russia and OPEC is doing the rounds again. Any joint action seems unlikely since US shale producers would just use the resulting higher prices as an opportunity to ramp up their own again.
Interestingly even as equities rebounded, the price of gold broke out above its $1110 per oz recent ceiling to its highest since November. The reasoning for buying gold this time appears to be more as a function of dollar-selling before a potentially dovish Fed meeting rather than any flight to safety.
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