Europe
Equity markets in Europe are extending yesterday’s rally as the nervousness surrounding North Korea has waned for now. Make no mistake, the standoff between Pyongyang and Washington DC is still ongoing, but while tempers are somewhat at a standstill, the bullish sentiment will continue. Traders are using the halt in hostilities as an opportunity to pick up stocks, but how long will the buying momentum last?
The FTSE 100, DAX and CAC 40 all fell to multi-month lows on Tuesday, but the subsequent rebound hasn’t taken out the respective recent highs for those markets. The major indices are still in the downward trend that they have been in for a few months. Some traders are sceptical the positive move we are seeing may only be a bounce back in the wider negative move.
The stronger than expected manufacturing figures from China overnight triggered buying in mining companies like BHP Billiton (LON:BLT), Anglo American (LON:AAL), Rio Tinto (LON:RIO) and Glencore (LON:GLEN). In August, China’s PMI manufacturing reading was 51.7, while the consensus was for 51.3 – the July figure was 51.4.
US
The Dow Jones, S&P 500 and Nasdaq 100 are all in positive territory as the positive sentiment still lingers on from yesterday. US traders appears to be focusing more on the positive run of economic data from the US rather than what is going on with the tropical storm Harvey, the debt ceiling or North Korea.
US personal consumption and income came in at 0.2% and 0.4% respectively, and topped their expectations. The jobless rate ticked fractionally higher to 236,000, but still undershot the expectation of 237,000.
The feel good factor from yesterday’s strong ADP employment report and the revision higher of the second-quarter growth rate to 3% is still with traders today. Investors are looking ahead to tomorrow’s non-farm payroll report, and the consensus is for 185,000 jobs to have been added in August.
FX
The EUR/USD is lower on the day as traders continue to take profit on the euro versus the US dollar. We have seen a turnaround in the currency pair since Tuesday, and even though we had encouraging economic data from the eurozone today, it couldn’t hold back the wave of selling. Unemployment in the eurozone held steady at 9.1% and inflation ticked up to 1.5%, from 1.3%.
The GBP/USD is offside today as the US dollar continues to rebound. Bank of England member, Michael Saunders, issued a positive outlook for the UK economy, and called for an interest rate hike, but traders shrugged it off. When the comments from a central banker can’t prop up a currency, it is an indication the market has already made up its mind which it is moving.
Commodities
Gold was given a boost by the slight drop in US core personal consumption expenditures (PCE). The indicator is the preferred method of gauging inflation by the Federal Reserve and it dropped to 1.4% in July, from 1.5% in June. While inflation moves in the opposite direction from the Federal Reserves’ target, it will assist the gold market. The non-farm payroll report tomorrow will be closely watched by gold traders, as it will give us a clue as to what the Fed’s next move will be.
Brent crude oil and WTI prices jumped on the news that OPEC members had a 96% compliance rate with the coordinated production cut in August. We are now finally seeing proper adherence to the production cut among oil producers. Until recently, there were a number of countries that were not observing the production freeze for their own gains, but now it appears they are falling into line.
Gasoline price surged today after it was announced the largest oil refinery in the US will be offline for two weeks. The supply of gasoline is being squeezed because refineries are out of commission, and can’t refine the oil.
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