Europe
European equity markets are broadly lower on the day after the markets endured an increased rate of selling in the afternoon. It’s the same old story for stock markets in Europe, where by the FTSE 100 is range bound and the continental benchmarks like the DAX and CAC 40 are still in the downward trends they have been in since June and May respectively. Indices on this side of the pond don’t have the same enthusiasm as the US ones do - it is a bit concerning when European markets can’t be spurred on by the record highs in America.
In Europe, investors will happily use disappointing corporate results as an excuse to exit the equity markets, but the opposite isn’t true when companies post positive figures.
The sharp decline in AstraZeneca (LON:AZN) and the fall in Lloyds (LON:LLOY) despite the bank increasing higher profits is a good example of how dealers are behaving.
US
In the US, it’s another day another set of record highs for the Dow Jones, S&P 500 and the Nasdaq 100. Solid corporate earnings, combined with a not too hawkish Federal Reserve, has created the perfect environment for buyers.
On top of that, the economic indicators from the US are plodding along nicely, but are not doing so well that traders are cautious of any monetary tightening in the short-term. Firmer commodity prices has helped natural resources stocks too.
The bullish sentiment is going from strength to strength regardless of what is going on in the Trump administration.
FX
The GBP/USD has held onto most of the gains it made on the back of the Federal Reserve announcement last night. The Fed maintained their monetary policy as expected and they talked about winding down the number of assets on the balance sheet this year. The US central bank said it would begin the process of asset reduction ‘relatively soon’, as long as the economic data warranted it. Traders took this as nothing to be overly concerned about. The Confederation of British industry (CBI) retail sales volume index jumped to 22 this month, from 12 in June, and traders were expecting a reading of 10. The impressive figures gave sterling a much need shot in the arm.
The EUR/USD overnight hit its highest level since January 2015, but has retreated slightly since. The single currency also benefited from weakness in the US dollar on the back of the Fed last night. The euro has been in a solid upward trend versus the greenback throughout 2017, and the pullback could entice fresh buyers to enter the fold. The US revealed an increase in jobless claims, and the durable goods report for June that excluded transport, only showed a small increase on a month-on-month basis. With economic updates like this, traders won’t be afraid of monetary policy tightening from the Fed in the near-term.
Commodities
Gold has gained ground since the Fed’s update last night. The US central bank kept interest rates on hold as expected, and stated they would start to unwind the number of assets on their balance sheet ‘relatively soon’. The Fed have raised interest rates three times since December 2016, and they haven’t been too hawkish lately, and traders aren’t convinced there will be another rate hike this year. Even the start date of the balance sheet reduction is dependent on how the data plays out in the next few months, and dealers are too worried about that for the time being.
WTI and Brent crude both hit eight week highs today as yesterday’s oil stockpile report showed that inventories in the US have been falling steadily over the past month. On top of that, US oil production fell slightly too. The jump in profits from industrial companies in China suggests that the second-largest economy in the world is hungry for natural resources. Oil has been rising for the past five weeks, and it looks like it could continue.
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