Equities
UK stocks fluctuated in a small range on Monday as political uncertainty matched up against the positive impact of higher commodity prices. Prime Minister Theresa May’s speech to the CBI has been of particular import to markets given the clues it offered for future fiscal stimulus.
Telecom, financial and healthcare sectors were the biggest blue chip fallers whilst resource shares were top risers as oil and copper prices gained ground. The FTSE 100 briefly topped 6,800 before easing back. Corporate profit warnings weighed on the FTSE 250 with shares of Mitie (LON:MTO) and Essentra (LON:ESNT) down double digits after issuing profit warnings.
Of particular note in Theresa May’s speech was a statement that the Autumn Statement “will build on the Bank of England’s actions to aid the economy”. This statement simultaneously shows support for monetary policy to date and implies there will be some extra level of support fiscally. May is still taking the talk of an economy that “works for everyone.” The Autumn Statement will be the first indication of whether she walks the walk.
US stocks opened higher at the start of a shortened week ahead of the Thanksgiving holiday. Higher oil prices were the difference-naker with shares of Exxon (NYSE:XOM) and Chevron (NYSE:CVX) both up over 1%. Investors continue to hang on every word of a possible new Donald Trump cabinet appointee.
Markets are responding well to signs Donald Trump is looking to bring in a Wall Street veteran as Treasury Secretary. Reports from Sunday are that Blackstone’s Jon Gray is in the running. There were signs of a less enthusiastic response in the financial sector to a warning from Democrat Senate minority leader Charles Schumer that he can block the repeal of Dodd-Frank. Talk of cutting red tape has been one of the biggest reasons for stock market gains in the last two weeks
FX
The US dollar dipped on Monday, snapping a 10-day winning streak for the US dollar index. The source of the move was likely some strength in commodity markets as well as a natural correction from a very extended rally. The dollar weakness looks temporary for now since its at odds with markets pricing in 98% likelihood of a rate hike in December according to Feds funds futures.
The biggest move of the day came in the British pound. Sterling surged 100 pips against both the dollar and the yen in the space of a single minute. At 1.26pm GMT GBP/USD went from 1.24 to above 1.25 before pulling back, leaving the currency pair with gains of over 1% on the day. There was no apparent reason for the move. The lack of liquidity for the British currency remains a source of unease.
The euro was stronger against the greenback but much weaker against the pound following this weekend’s French Republican primaries. The French public appears to have given a thumbs down not just to Sarkozy, but the corrupt political establishment he is perceived to represent. Hollande is universally disliked and whoever wins out of Fillon and Juppe will be a political insider. The writing is already on the wall for a Marine Le Pen victory next year.
Commodities
OPEC speculation continues to drive the oil price in the countdown to the November 30 meeting. Russia’s Vladimir Putin said “To freeze oil output is not an issue for us.” Iran, Iraq and Russia have made positive utterances about a deal being done in recent days- but they are contributing the least to making it happen. Whether the deal goes ahead rests with Saudi Arabia deciding its own lost market share is a price worth paying for a policy that should- but may not - stabilise the price of oil.
The price of gold has been trading in lockstep with the US dollar as markets continue to price in a US rate hike this year. Gold was quicker to find its base and is still holding above $1200 per oz whilst the dollar index cracked 100. The demand for a hedge against equity declines means gold’s demise may not be as quick as the dollar’s rise, should the Fed raise rates as expected.
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