UK & Europe
Relief that the Federal Reserve has finally removed the uncertainty over the timing of the first US rate hike has catapulted European stocks higher on Thursday. The gains in European shares track those made in US markets during Janet Yellen’s press conference in which she emphasised the gradual and data-dependent pace of future rate rises.
Even gradually raising US interest rates stand in stark contrast with recently enlarged monetary stimulus in the Eurozone. The euro is lower versus the dollar, further supporting European stocks which can gain from the export advantage of a lower exchange rate.
With a relatively stronger currency, a possible rate hike in the pipeline and a stock market laden with commodity companies UK markets weren’t faring quite as well as Europe.
Another drop in the price of oil, taking WTI crude back below $35 per barrel coupled with a sharp drop in copper and other industrial metal prices weighed on mining and energy sectors within the FTSE 100. The universal theme throughout the commodities sector is the rising value of the US dollar following the rise in US interest rates when other economies are more focused on cutting.
Old Mutual PLC (L:OML), Standard Chartered (L:STAN) and Mondi (L:MNDI) shares continue this week’s strong form. AstraZeneca’s acquisition of Acerta renewed takeover speculation within the healthcare sector sending shares of Smith & Nephew (L:SN) and Hikma Pharmaceuticals (L:HIK) higher.
US
There were signs of a bit of a hangover after yesterday’s party in US stocks. The Dow Jones and S&P 500 started in a much less certain fashion on Thursday hampered by a rising dollar and falling commodity prices.
Shares of music streaming site Pandora Media Inc (N:P) jumped 17% after a ruling set new higher music royalty rates that the company described as “balanced.” There had been fears of a dramatic rise in royalties which are the biggest cost for Pandora and other internet radio streaming sites. Actually 100 plays will now cost 17c instead of 14c.
FX
The US Dollar followed through with strength on the day after the rate hike amidst mixed US economic data that saw a surprise drop in the Philly Fed index to -5.9, its lowest since 2013 while weekly jobless claims fell 11k to 271k.
The British pound looked very soft in the face of surprisingly strong November retail sales data that took the annual gain to 5%. The pound’s softness is not just attributable to strength in the dollar since it was flat versus the euro and weaker versus the yen. The idea that the Bank of England will be hot on the heels of the Fed to hike rates is not getting much traction in markets.
The Norwegian krone was top riser away from the dollar after the Norges bank chose to keep rates on hold despite tumbling oil prices which stand to weaken the economy further.
The euro was relatively unmoved by slightly weaker than expected German business confidence in December according to the IFO.
Commodities
Oil prices diverged further on Thursday with Brent crude recovering early losses while WTI remained in the red. The announcement of US exports had seen prices begin to converge but then diverged again when both prices fell in unison following the much larger than expected build in weekly inventories.
The Fed rate hike has brought about a collapse in the price of gold. The price has fallen 2% to near fresh five-year lows. The huge gold rally after the December non-farm payrolls that signalled a rate hike has turned into a total red herring as it gets crushed on the rate hike itself.
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