UK & Europe
UK stocks rose to a one-month high on Wednesday as the FTSE 100 reached above 6440, its highest since November 4. European markets were more mixed with French and Italian equity benchmarks higher while the German DAX was essentially unchanged.
Softer than expected Eurozone inflation data increased the odds of ECB stimulus being announced but German equities in particular were slow to react, weighed down by losses in Volkswagen (DE:VOWG_p) and K&S shares.
Healthcare stocks led gains on the UK benchmark with AstraZeneca PLC (L:AZN), GlaxoSmithKline PLC (L:GSK) and Shire PLC (L:SHP) three of the four biggest risers after broker upgrades. UK pharmaceutical stocks sold off in August with concerns over price gauging at US biotechs but the merger of Pfizer Inc (N:PFE) and Allergan Plc (N:AGN) has rekindled takeover talk at more attractive price levels. Shire is reportedly preparing a new takeover offer for US rival drugmaker Baxalta.
There has been a bounce back in travel and leisure shares with IAG (L:ICAG), TUI and Carnival (L:CCL) all higher after the sector was beaten down amidst fears of a slowdown in the sector following the Paris terror attacks. A 5% plunge in Sage shares after poorly-received results meant technology was the worst performing sector.
US
US stocks started flat on Wednesday ahead of testimony from Fed Chair Janet Yellen.
Shares of Facebook (O:FB) rose modestly to the news founder and CEO Mark Zuckerberg pledged to give away 99% of his shares over the course of his lifetime in a letter to his newborn baby. Mr Zuckerberg’s holdings are not expected to see any significant drawdown in the near term and he plans to be at the helm of the social network for “many, many years.” So the takeaway is that the share giveaway shouldn’t have any bearing on his commitment to the company.
FX
The US Dollar Index was stronger across the board on Wednesday after ADP employment data came in well ahead of expectations and Fed speakers maintained a hawkish tone. The ADP figures are another sign that enough slack has come out of the US labour market to satisfy the Federal Reserve’s criteria for raising rates. Atlanta Fed president Dennis Lockhart said on Wednesday that ‘deterring a rate rise would need a ‘drastic’ change in data.
The British pound slipped against the euro and the dollar on Tuesday after data showed a significant slowdown in construction activity during November. A reading of 55.3 on the construction PMI missed estimates of a slowdown to 58.4 from last month’s 58.8 and marked a seven month low. It’s the second significant UK economic miss this week after data yesterday showed manufacturing activity unexpectedly slowed.
The euro plunged after data showed Eurozone inflation was stuck at a meagre 0.1% year-over-year in November, missing estimates of a slight rise to 0.2%. The inflation miss adds to the case for stronger action from the ECB tomorrow. The data could be the difference-maker for the ECB choosing to increase the size of monthly asset purchases over just extending the end-date of the QE program.
Commodities
Crude oil was volatile on Wednesday amidst comments from Iran and Saudi Arabia as US weekly inventories saw another build ahead of Friday’s OPEC meeting. Iran’s oil minister weighed on the price of Brent crude, sending it lower for a fifth successive day after saying the country doesn’t need permission to boost production.
The oil price spiked when Iranian officials said a majority of OPEC members agree on cutting production but subsequently fell back when Saudi Arabian sources said the exact opposite. It’s already widely believed that Iran as well as Iraq, Libya and several other OPEC countries will raise output next year.
The price of gold dropped over 1% on Wednesday, erasing gains from the previous two days after stronger than expected US private payrolls data raised the chance the Fed will raise rates later this month. Gold investors are almost entirely discounting the likelihood of monetary debasement from the ECB after Eurozone inflation remained at low levels.
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