European stocks were trading higher on Thursday after markets interpreted a cautious and slightly divided set of Federal Reserve meeting minutes to mean there would be no rush to raise US interest rates. Oil prices aiming for a third successive day of gains after a surprise drawdown in US inventories is supportive of market sentiment.
Volatility has shifted out of equities into FX markets as the euro and Japanese yen appreciate in the face of ineffective domestic monetary policy and a dovish Fed. The market is now calling the Bank of Japan’s bluff on further intervention. “Checking rates” may cause the occasional short-covering rally in USD/JPY but is likely to just provide a better price for short sellers. With 110 having given way, FX traders have their sights set on 100.
The euro has rallied six of the last seven days against the pound, taking the currency pair above 0.81 for the first time since June 2014. Prime Minister David Cameron’s family tax affairs coupled with upset over the budget risk turning the Brexit referendum into a vote of no confidence in the government. Concurrent Brexit risk and lost faith in the ECB’s ability to weaken the euro has sent EUR/GBP one big handle higher in just over four months. ECB minutes are released later.
Gains on the FTSE 100 were led for a second day by healthcare stocks as investors position for new areas of consolidation after the collapse of the Pfizer (NYSE:PFE)-Allergan (NYSE:AGN) merger. The return of strength in oil markets is supporting energy and basic resource sectors.
M&S (LON:MKS) shares were amongst the high risers after a well-received trading update. M&S clothing sales remain a drag but expectations of margin improvement helped by growth in online sales could mean there is light at the end of the tunnel.
Arm Holdings (LON:ARM) shares gained ground after positive Samsung (LON:0593xq) results lifted hopes for the smartphone market in which ARM is the dominating chip-maker.
Pearson (LON:PSON) shares slumped 6% to the bottom of the UK benchmark as it went ex-dividend but losses were exacerbated by rising concern over its US textbooks business after rival Apollo Education Group withdrew its full-year guidance.
US stocks look set for a lower open as the US government crackdown on mergers, Fed minutes, higher oil prices and a weak dollar all play on investors’ minds before earnings season kicks off next week.
USA pre-opening levels
S&P 500: 10 points lower at 2,056
Dow Jones: 76 points lower at 17,640
Nasdaq 100: 22 points lower at 4,521
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