Fresh 2016 highs for the Dow Jones and S&P 500 following a speech by Fed Chair Janet Yellen have fostered positive trading in Europe on Wednesday. Ms Yellen’s speech was in alignment with the cautious Fed statement issued in March rather than the more optimistic Fed speakers heard last week.
Yellen has just killed April and probably June as “live” meetings. The resulting drop in the dollar since Ms Yellen’s speech has erased all of its gains last week and has given oil and stock markets a firm footing with which to continue the rebound that began in February.
The bounce in crude has been supported to some degree by reports that Iran will join talks in Doha without agreeing to an output Freeze. Iran’s participation is a net positive for oil prices; an output freeze may take longer to happen but is more likely to have the support of all the major national producers when it does. If Iran turns up to the Doha talks, there’s a chance it surprises with an agreement to freeze output at a higher level closer to its historical norm.
Tata Steel's (NS:TISC) decision to sell the Port Talbot steelworks means the UK’s domestic metals output hangs in the balance. That didn’t stop UK-listed mining companies from surging higher in the wake of Janet Yellen’s speech which prompted a weaker dollar and stronger commodity prices. The basic materials sector in the FTSE 100 jumped over 5% with Anglo American (LON:AAL) seeing double-digit gains.
More corporate financial engineering has been afoot, this time in Germany. Metro, one of Germany’s largest retailers is splitting into two groups. There will be a new spun-off entity focusing on the wholesale and food business while the Metro brand will keep the Media-Saturn consumer electronics business. The trend of companies splitting into two has kicked into high gear since HP announced one of the highest profile splits in October 2014. The case for Metro’s differentiated business growing faster on their own is a strong one, though making the companies more attractive for a sale could also be a motivation for the split.
US markets look set for a stronger open with risk-on sentiment returning to markets after Ms Yellen signalled a slower pace of rate hikes this year.
USA pre-opening levels
S&P 500: 12 points higher at 2,067
Dow Jones: 93 points higher at 17,726
Nasdaq 100: 24 points higher at 4,491
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