Europe
Stock markets have fallen yet again as the disinflation fear is still doing the rounds. Oil may have recouped some of its losses today but the commodity has dropped a considerable amount since the start of the year and dealers are worried that it will put downward pressure on inflation. The cost of living in the eurozone and the US is softening already, and when you factor the recent losses in the oil market, it points to a continuation of weaker inflation. Traders are anxious it could turn into weaker growth rates, and the high hopes that they had for 2017 may not be met.
It is one year on since the UK voted to leave the EU, it has certainly been a rocky ride to say the least. The home builders, like Persimmon (LON:PSN) and Redrow (LON:RDW) embody the Brexit move. The initial reaction was one of panic selling, followed by a steadying of the nerves, and when the Bank of England went down the road of additional easing the prices pushed higher to pre-Brexit levels and then record highs.
US
The Dow Jones, S&P 500 and NASDAQ 100 are all fractionally in the red. The US equity indices are holding up better than those in Europe as the US doesn’t seem to be gripped by disinflation fears. Traditional blue-chip stocks have only handed back a relatively small amount of the gains they made over the past month. The strength of the rally since Trump was elected has been too much for traders to give up on so quickly.
Two weeks ago today Goldman Sachs (NYSE:GS) issued a research note questioning the valuation of some of the tech heavyweights like, Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX) and Google’s owner Alphabet (NASDAQ:GOOGL), and the tech sector has held up relatively recently considering the initial reaction.
We had some mixed economic data from the US today. The flash manufacturing and services purchasing managers index (PMI) reports showed a slowing of growth in June, and both came in below market estimates. While the new home sales figure for May was 610,000, and traders were anticipating 599,000. The April figure was revised higher to 593,000 from 569,000.
FX
The EUR/USD is higher on the day even though we had a mixed flash manufacturing and services PMI reports out of France, Germany and the eurozone. The theme across the board was that manufacturing was robust and services slipped. All the reports were well above the 50.0 reading, indicating that they are all expanding, but the rate of growth is declining slightly. The single currency has been moving higher against the US dollar for the past two months, but since the Federal Reserve were surprisingly hawkish at their meeting this month, we have seen some euro weakness.
The GBP/USD continues to creep higher as the hawkish commentary from Bank of England (BoE) members, Andy Haldane and Kristin Forbes in the past two days helped the pound. Ms Forbes is leaving the Bank of England this month, but she used her speech at the London Business School last night as an opportunity to voice her opinions on interest rates in the UK. The BoE shouldn’t wait too late to lift off, is what Ms Forbes believes. Mr Haldane is of a similar view and he feels that keeping rates at these levels for too long will be a problem, as inflation is creeping higher.
Commodities
Gold is on the rise after it endured losses for most of the month. Throughout 2017, the metal has been in an upward trend, and it would appear that this is a continuation of the wider bullish move. The short sellers got out of the market before the metal reached the 200-day moving average - $1238. The metal has rallied for the past three sessions and it is now approaching $1260. The US central bank said they will keep tightening their monetary policy, but traders are not yet convinced that they will be as hawkish as they are letting on.
Brent Crude oil and WTI have calmed down today in terms of price action. The energy market has been exceptionally volatile lately, and now that the market is pulling back some of this week’s losses the price is certainly steadier. Oil has been in a textbook downtrend since the OPEC meeting in late May, and that fits in with the wider move lower we have seen since March. Selling the rally has proved fruitful in recent weeks and since the same old worries about over-supply persist the bearish sentiment will hang around for some time.
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