Europe
The FTSE 100 is narrowly in the red but it is still holding above the 7400 mark. The hawkish remarks from Ian McCafferty gave sterling a shot in the arm but it held the FTSE 100 back in comparison with the FTSE 250 – which is up 0.7%. The UK central banker said the stimulus package should be wound down sooner rather than later.
Mining companies like Anglo American (LON:AAL), BHP Billiton (LON:BLT), Rio Tinto (LON:RIO) and Glencore (LON:GLEN) were trading higher on the session as Chinese imports topped analyst’s estimates. The move to the upside was short lived as copper prices tumbled, and in turn the basic material companies were dragged lower with it. The Trump administration is looking to cut regulation when it comes to mining in the US, and that would open up mineral supplies that previously couldn’t be accessed.
US
The Dow Jones and S&P 500 are broadly flat as Janet Yellen, the Federal Reserve Chair is testifying in front of the Senate Banking Committee at the moment. This is the second day in a row that Ms Yellen is speaking in the Washington DC, and the commentary isn’t too different from yesterday. The US central banker feels that interest rates should rise but not in the near term, and whenever rates do move higher the process will be gradual.
The economic updates from the US were mediocre. Jobless claims fell from 248,000 to 247,000 but missed the expectation of 245,000. The year-on-year headline PPI for June was 2%, and the market expected 1.9%, but the May report was 2.4%. While the core PPI for June in a year-on-year basis was 1.9%, and dealers were expecting 2%, and that was a drop from 2.1% I May. The two PPI reports suggest that demand is slightly slipping, and the marginal dip in jobless claims is good to see but traders weren’t thrilled by it. These figures warrant Janet Yellen’s policy plans, whereby the US will continue down the path of monetary tightening but there is no rush to the finish line.
FX
The GBP/USD is pushing higher after Ian McCafferty, of the Bank of England, called for an early unwinding of the quantitative easing programme. Mr McCafferty has a track record of being a hawk, and he hinted he would be voting in favour of increasing interest rates at the August meeting. The UK central bank appears to be divided over its monetary policy, and while there is division the pound will remain volatile. The hawks are in a minority at Britain's central bank, but the toing and froing will keep traders on their toes.
The EUR/USD has been moving higher since it was revealed that Mario Draghi, the European Central Bank President, will address the Jackson Hole symposium next month. Mr Draghi last addressed the conference in 2014, where he laid the ground work for the European Central Bank’s stimulus package. Mario Draghi is tipped to discuss reining in the very loose monetary policy and that is helping the single currency.
Commodities
Gold is grinding lower again as the Fed Chief Janet Yellen testifies in front of the Senate Banking Committee. Ms Yellen hasn’t said anything to really rattle the gold market but she has talked about gradual interest rate hikes and the metal is coming under pressure for it. Ms Yellen is in favour a starting to reduce the size of the Fed’s balance sheet this year, and calls for interest rate hikes, but doesn’t want to rush into hiking. The move lower in gold fits in with the wider negative move over the past month.
WTI and Brent crude oil rebounded from the weak morning session. The energy market has been very volatile recently and that is unlikely to change anytime soon. The international energy agency (IEA) said OPEC compliance in relation to the production cut fell to its lowest level in six months. This lack of compliance is why traders have less faith in the organisation’s ability to influence the price of oil. The cartel talk about a united front, but really they put their own interests first. Demand for oil from Germany and the US is healthy but the wider fear about over-supply still dominates.
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