Europe
European equity markets are largely unchanged and are experiencing low volatility as traders are waiting for the minutes from the latest Federal Reserve meeting to be reported at 7pm. While US investors were on holiday yesterday, dealers in Europe chose to wait it out, and today is similar. Traders will be trying to figure out how hawkish the Fed actually are.
Persimmon (LON:PSN) had an ‘excellent’ first-half, as revenue jumped 12% and the average selling price was up 3.5%. The forward order book is up 18% and the homebuilder said it is still reaping the benefits from the low interest rate environment. Others in the same sector like Bellway (LON:BWY), Barratt Developments (LON:BDEV) and Taylor Wimpey (LON:TW) are also higher on the day.
Miners have had a mixed day, BHP Billiton (LON:BLT) and Glencore (LON:GLEN) are in positive territory, but Rio Tinto (LON:RIO) and Anglo American (LON:AAL) are in the red. Copper has a big impact on mining company’s share prices, and the metal is down today after it enjoyed a rally in late June.
BP (LON:BP) and Royal Dutch Shell (LON:RDSa) are both down over 1% as the underlying oil market has been hit by profit taking, and Russia’s remarks about not willing to implement further production cuts.
US
The Dow Jones and the S&P 500 are lower as US traders square up their position ahead of the Fed releasing the minutes from the June meeting – when rates were hiked for the second time this year. The 0.25% interest rate hike increase last month was expected, but the announcement that the US central bank will begin trimming its balance sheet later this year came as a surprise. Investors will be trying to work out what the Fed’s next move will be.
US factory orders in May declined by 0.8%, and the consensus was for a drop of only 0.5%. The number for April was revised lower to -0.3% from -0.2%. If the US central bank wants to keep tightening its monetary policy, policymakers would want to see firmer economic indicators.
FX
A slightly firmer services purchasing managers’ report (PMI) from the eurozone for June couldn’t prevent the EUR/USD from losing ground. The reading was 55.4, and analysts were anticipating it to remain unchanged from May’s reading of 54.7. A number of eurozone countries had their individual numbers released today, Spain, France and Germany all showed increases on the month. The dominance of the US dollar was the overriding factor today, so traders are awaiting the minutes from the Federal Reserve’s June meeting.
GBP/USD was also hit by the strong greenback. Traders will try and decipher what the Fed’s next move will be after the minutes from the June meeting are reported. Fed Chair Janet Yellen recently talked about the importance of economic growth, and it seemed that Ms Yellen would press ahead with monetary tightening even if inflation is a touch on the soft side. In June, the British services sector expanded at a slower rate than the market expected, and this will be bad news for the hawks at the Bank of England.
Commodities
Gold is now trading at its lowest level since the 11th of May as the metal continues to drive lower. Gold couldn’t catch a break when the US dollar was soft and global equities were selling off, so now when the greenback is firmer and stocks are edging higher it is being punished at both ends.
The update from the Fed will provide us with the thought process behind the June rate hike. Looking at the US dollar and the yields on US government bonds, you would think that traders are not expecting much more monetary tightening from the Fed this year, but the gold market does seem to be pricing in more hawkish behaviour.
WTI and Brent crude oil finally broke its winning streak. The commodity powered ahead for nine straight sessions but profit taking prevented it from making it ten in a row. There was a reduced trading session yesterday as it was the fourth of July holiday in the US, and volumes were thin, so gave it dealers the perfect excuse to cash in their positions. Russia announced it is not in favour of additional cuts to output, and this added to oil’s woes, as over-supply is already a problem for the energy.
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