Europe
The FTSE 100 started out strong after the Bank of England Governor Mark Carney assured investors that interest rates will not be rising in the near term. The pledge to keep the cost of borrowing low was welcomed by equity traders, especially those outside the UK, as the drop in the pound made British stocks more attractive. The rally in stocks was short lived as the overall sentiment turned negative, when the oil price declined severely. In was reminiscent of late 2105 and early 2016 when weak oil prices dragged equity markets lower as fear of falling inflation took over.
BP (LON:BP) and Royal Dutch Shell (LON:RDSa) are both down over 2% due to the fall in the energy market.
Basic metal companies like Glencore (LON:GLEN), Antofagasta (LON:ANTO) and BHP Billiton (LON:BLT) are leading the FTSE 100 lower as copper has fallen 1% today.
US
The Dow Jones and S&P 500 are offside as the severe sell-off in the price of oil has hit the wider market. The old fear of falling oil prices has gripped investors, and inflation in the US is slipping already, and if oil keeps tumbling, it could be a problem for the economy. A certain amount of inflation is needed in an economy, and if it starts to decline by a lot, it sends out the wrong message about the economic health of a country. Last week, the Federal Reserve lowered their forecast for CPI and raised their growth outlook, if the oil slump persists, they may have to lower both in the coming months.
As expected, Chevron (NYSE:CVX) and Exxon (NYSE:XOM) are some of the biggest fallers in the Dow Jones.
Considering it hasn’t been a good day for stock markets in Europe or North America, it is impressive that tech stocks like Amazon (NASDAQ:AMZN), Facebook (NASDAQ:FB) and Alphabet (NASDAQ:GOOGL) are keeping their heads above water.
FX
The GBP/USD has tumbled after the Bank of England chief, Mark Carney, stated the interest rates in the UK won’t be increasing anytime soon. Even though inflation in the UK is 2.9%, Mr Carney described it as subdued. The high CPI number is partially because of the weak pound, but I suspect Mr Carney is ignoring CPI figure so he can keep monetary policy loose, just in case Brexit talks turn sour. Mr Carney doesn’t want to flip flop on interest rates, and he would rather avoid hiking them now, just in case he needs to cut them again down the line.
The EUR/USD is lower today as the US dollar powers ahead. The words of Federal Reserve member William Dudley still ring out from yesterday. Mr Dudley stated that he isn’t paying too much attention to what is going on in the US government bond market. The Fed member signalled that the US central bank will press ahead with their monetary tightening plan, even if the US government bonds market doesn’t think they will be as aggressive in their hiking as they are letting on.
Commodities
Gold traded higher this morning but now it has fallen back into the downtrend that it has been in since early June. The precious metal is under pressure from the US dollar, which is on the rise, as the Federal Reserve have taken a much more hawkish stance than traders were expecting. The metal has pushed higher since the start of the year, but that was when the Fed were not particularly hawkish, and now that changed.
WTI and Brent Crude Oil are enduring heavy losses as traders are concerned above over-supply of oil. Countries like Libya and Nigeria are exempt from the OPEC production cut, and we are seeing signs that production from those countries is on the rise. Stockpiles in the US remain stubbornly high and the number of active rigs keeps creeping higher, and that is fuelling the sell-off. The energy has fallen below the level it was at when the production cut was announced by OPEC in late November 2016.
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