The Federal Reserve’s intention to start shrinking its balance sheet in October and hike interest rates in December was positive for the US dollar. The glacially slow pace of the intended unwind of QE meant there were no ruffled feathers in stock markets. The prospect of QT (quantitative tightening) could mean markets are in the last gasps of a two week rally, but there is no sign of sentiment souring yet.
Equities
Not in a in a bind over Fed unwind
European markets took their lead from a positive finish on Wall Street where investors took a blasé view on the implications of the start of QT. US markets look set to open slightly lower.
The flight cancellations and fraught negotiations with pilots have overshadowed what would otherwise be a run-of-the-mill AGM for Ryanair (LON:RYA). Ryanair shares dipped as Chief Executive Michael O’Leary apologised to shareholders for the management failure. It’s difficult timing for Ryanair, which had been making reputation gains against rival EasyJet (LON:EZJ) at a time of uncertainty surrounding the Open Skies agreement. The setback could cost precious summer bookings next season.
Johnson Matthey (LON:JMAT) kept its opening position as top riser on the FTSE 100 after confirming earnings guidance and promising an expansion in its battery material business. Thematic investors are diving into any sub-sector of the stock market that could benefit from electric vehicles (EVs). Johnson Matthey has now positioned itself within the EV space through lithium batteries.
Alphabet (NASDAQ:GOOGL) will purchase the HTC Pixel smartphone division for $1.1bn. The risk of greater competition from Google armed with HTC phones could send Apple (NASDAQ:AAPL) shares lower again on Thursday. That’s following losses on Wednesday thanks to the poor reception of its Apple Watch. This is a big step by Google to take on Apple’s smartphone dominance via hardware. Google’s urgency for hardware acquisitions partially stems from its desire to compete with Apple in the new frontier of Augmented Reality (AR). A uniform product and operating system both contribute to the reliability of AR user experience.
Forex
USDJPY over 112 on Fed/BOJ divergence
It’s quite incredible that BoJ is holding strong on its on QE policy when every other central bank is trying to go into reverse. The yen held its post-FOMC losses, with USDJPY above 112 after the Bank of Japan kept policy unchanged, maintaining its annual target of purchases of 80 trillion yen per year and keeping its 10yr bond yield at 0%. The yield target is destined to fail if long term rates in US and Europe head higher.
The euro edged up against the pound and the dollar, showing no evidence of concern over protests taking place in France. One of the three big unions are protesting, the CGT while the CFDT and FO have declined to join for a second week. Macron would probably take a ratio of one out three big unions given the extent of the reforms he has proposed and French worker’s propensity for a strike.
Commodities
Gold goes sub-1300 after FOMC
Gold extended its decline through European trading, even as the US dollar gave up some gains following the Fed meeting. Gold failed to stay above he big 1300 level that many saw as a line in the sand to higher prices. If the Fed’s plan for QT has kicked off a rebound in the US dollar, it might be only geopolitics that can save the yellow metal.
Oil prices rose, taking WTI crude above $50 per barrel after an EIA report said refiners continue to get back online following Hurricanes Harvey and Irma.