UK & Europe
UK and European shares rallied to an eight day high on Thursday. The Euro Stoxx 50 jumped above 3475 while the FTSE 100 rose above 6360, the highest since November 11.
The day’s gains were all captured in the first hour when European stock prices caught up with gains seen in US markets on Wednesday after the Federal Reserve offered their strongest hint yet that rates will rise in December. Higher interest rates are not in the long-run best interest of stock markets but for now there’s just a sense of relief that uncertainty over the first hike is close to being over.
Gains petered out throughout the day after caveated European central minutes showed officials deliberated increasing stimulus in October but decided that low inflation lasting longer does not necessitate cutting rates or expanding the level of quantitative easing.
Shares of Johnson Matthey (L:JMAT) shot up 10% to the top of the FTSE 100 following an announcement that it will have a special payout of 150p pare share on top of the interim dividend after selling two business lines.
Poorly received results from Bovis Homes (L:BVS) coupled with a report suggesting a slowdown in the prime London property market weighed on homebuilders.
Royal Mail (L:RMG) shares jumped after well-received first half results. Royal Mail is fighting back against the competition with a 4% rise in parcel delivery volumes that helped revenues from parcel delivery rise 1% during the first half. Still, revenues declined 1% across the whole domestic and international letter and parcel business. Royal Mail currently trades on a forward P/E of 12 and supports a healthy dividend yield of 4.6% that the company hopes to increase to 5.1% by 2017. To achieve the forecasted rise in dividend in the context of falling pre-tax profits and revenues, more cost-cutting is needed.
US
Stocks in the US flat-lined on Thursday. US investors have paused to contemplate Wednesday’s positive initial reaction to the hawkish Fed minutes. Cleveland Fed president Mester muddied the waters a little saying that policymakers are “not boxed in on rates.”
Shares of Twitter (N:TWTR) CEO Jack Dorsey’s second company Square (N:SQ) surged on the digital payment company’s IPO, jumping from $9 to over $14.
FX
The US Dollar was down across the board on Thursday; having barely budged followed a very hawkish set of Fed minutes. Mixed economic data including a slight rise in jobless claims and a better than expected Philly Fed survey had little impact.
The pound fell against the euro after a weaker than expected retail sales report for October. There was likely some element of a lull in spending before Christmas but it was really just back to trend growth after an unusually large rise in retail sales during September.
The euro rose in the face of ECB minutes that didn’t bring too much more to the table.
Commodities
Having finished well off its lows on Wednesday despite a very hawkish set of Fed minutes, Gold jumped as much as 1% on Thursday. The short term technical explanation for gold’s bounce is profit-taking after traders front-ran what was expected to a fairly hawkish set of minutes. If the rally in gold takes hold, it could become a flight to safety. If the Fed raises rates in December when economic data is slowing and corporate profits are falling, having some gold as portfolio-protection might be wise.
Another bearish price forecast from Goldman Sachs (N:GS) weighed on crude prices after weekly inventories showed another build. $40 per barrel has supported the price of WTI crude for the past five days, a close below could open up a path to new multi-year lows.
"DISCLAIMER: CMC Markets is an execution only provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed.
No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. "