European stocks spent most of the day just in the negative, only to turn positive in the afternoon following an unconvincing signal from Federal Reserve Chair Janet Yellen that US rates will rise sometime this year.
Thin holiday trading and nerves ahead of the highly-anticipated speech from the US central banker kept markets at bay for most of the day. The speech itself was always going to struggle to live up to the hype. In the end, Janet Yellen’s words followed a familiar path of non-committal ambiguity.
Traders spent most of the day in “wait-for-Janet” mode. With such distortions from the protracted period of low interest rates and central bank bond-buying, any chance of a major update on monetary policy brings markets to a standstill.
A reported profit drop at French media giant Vivendi (PA:VIV) coupled with its ongoing spat with Mediaset had kept European benchmarks at bay, but a strong open on Wall Street improved sentiment.
Healthcare stocks were the biggest drag on the FTSE 100 for the second-day running, with Shire (LON:SHP) and AstraZeneca (LON:AZN) falling over 1%. Investors are pulling funds from what now seems to be one of the most politically-sensitive industries in the run up to the US presidential election.
A slide in the US dollar and a broad rally in commodities including oil, gold and copper carried basic resource shares to the top of the UK benchmark.
Stocks in the US look to extend a higher open following Janet Yellen’s speech at the Jackson Hole symposium.
FX
A reference in Janet Yellen’s speech to the “possibility of purchasing a broader range of assets” caused a sharp reversal of initial gains in the US dollar. The dollar had risen when the speech was first released on the headline that the “rate-hike case has strengthened in recent months.”
The whipsaw movement in dollar currency pairs like EUR/USD was exacerbated by interviews from other Fed members which displayed a divided set of opinions.
The British pound saw a brief spike following data confirming UK GDP rose 0.6% q/q (2.2% y/y) with a 0.5% rise in business investment. Sterling had seen a slight uplift beforehand from survey data showing consumer confidence rebounded from post-Brexit jitters according to YouGov/CEBR.
A preliminary estimate of French GDP confirming second quarter stagnation (0% growth q/q), unchanged from the flash estimate had minimal impact on the euro or European indices.
Commodities
The weak dollar after Fed Chair Yellen’s Jackson Hole speech set a fire under commodities. Gold, oil and copper all rose since the likelihood of a US rate hike this year appears to have improved but the expected path of rate hikes diminished. While interest rate remain low and stock markets have high valuations, gold and silver remain attractive hedging options.
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