Europe
The FTSE 100 is rallying into the close after having a very volatile day. The weak pound makes the FTSE 100 attractive as many of the companies that are included in the index have overseas exposure, and that translates into higher profits as they are denominated in sterling. Some traders are wondering will we see a repeat of the post-EU referendum rally. The Bank of England (BoE) interest rate decision next week will be closely watched, as the voting pattern will provide a clue as to what they are thinking. Since the BoE have loosened their monetary policy so much in the past year, it is hard to image a rerun of that, but we could see Kristin Forbes change her mind about hiking rates.
The FTSE 250 is a better barometer of the UK economy, and that market has pulled back all of the losses it suffered first thing in the morning. The political uncertainty has cleared up a small bit as we could see the Conservatives do a deal with the Democratic Unionist Party (DUP) from Northern Ireland to keep Mrs May in the top job. The DUP are eurosceptic and conservative by nature so the two would make comfortable bed bedfellows.
UK homebuilders have taken a hit today, as the political uncertainty surrounding the UK has prompted traders to lock in their profits as the sector has performed well over the past few months. Barratt Developments (LON:BDEV) and Berkeley Group (LON:BKGH) both gapped lower today, which from a technical analysis point of view is something to be concerned about.
US
The Dow Jones and S&P 500 hit record highs today as traders are clearly not worried about accusations made by the former head of the FBI, James Comey, about President Trump. Yesterday Mr Comey was before the Senate and he revealed his concerns about President Trump in relation to the alleged Russian involvement in the US election. Mr Trump described the testimony as ‘false statements and lies’. Last month traders were fearful that Mr Trump may not last long in the White House as the scandal appeared to be big enough to bring him down. One Congressman even called for his impeachment. But, traders are content to buy into Trump’s economic plan again.
Wall Street heavyweights such as Goldman Sachs (NYSE:GS), JPMorgan Chase (NYSE:JPM) and Caterpillar are higher on the day, as dealers are awaiting Trump’s banking reforms and infrastructure projects to get underway.
FX
The GBP/USD has suffered severely as Theresa May was unsuccessful in gaining a majority. Going into the general election traders were undecided over how much of a majority the Conservatives would have over Labour but the pound fell off a cliff after the exit poll pointed to a hung parliament. The pound traded below $1.27 this morning, a level not seen since mid-April, but the talk of Mrs May staying on as Prime Minister with help from the DUP has assisted sterling a little.
The EUR/USD has fallen to its lowest level this month as a broad strengthening of the US dollar is hurting the single currency. The Federal Reserve are tipped to increase rates next week, and when you combine that with the European Central Bank (ECB) cutting their inflation forecast yesterday, it is no wonder the currency pair is sub $1.12. Looking beyond the Fed’s update, dealers are questioning if there will be any more interest rate hikes from the US this year because the economic indicators haven’t been amazing.
Commodities
Gold is at a one week low as the upward move in the US dollar is hurting the precious metal. Gold momentarily enjoyed a rally overnight when the news came out that the UK could be looking at a hung parliament, but as money flowed back into equities, and the advance of the greenback, the metal turned lower. Gold will have a tough time on the run up to the Fed’s interest rate decision on Wednesday, but we may well see another move higher if the US central bank have a dovish outlook for the remainder of the year.
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