Europe
European equity markets are largely unchanged ahead of Mario Draghi’s speech at Jackson Hole at 8pm. The European Central Bank (ECB) chief is tipped not to be covering tapering of the bond buying scheme, but traders will be paying close attention to the announcement. The ECB can’t keep up this rate of buying government bonds indefinitely, so Mr Draghi must come up with an alternative solution to keep the monetary policy loose, without running out of government bonds to buy.
Provident Financial (LON:PFG) shares are continuing their bounce back as the company stated Chris Gillespie will become the managing director of consumer credit with immediate effect. Mr Gillespie headed up that department until 2013 – then he left to peruse opportunities elsewhere. As he ran that division before, he will be able to get back into the groove easily. He will be tasked with the challenge of ramping up debt collection levels and re-building client relationships. This has boosted confidence in the company, and the price is up 21% today, it is still a long way from making up the lost ground on the back of Tuesday’s profit warning.
US
The Dow Jones, S&P 500 and Nasdaq 100 have all opened higher today as investors are buying equities on the back of comments from Gary Cohn, Trump’s chief economic advisor, that the US President will launch plans to bring in tax reforms next week. Investors are in favour of Trump’s pro-business policies, but they seem to forget the US President failed to secure the reforms to the healthcare he wanted. That being said, tax reform is more of a bipartisan policy, and you could envisage cross-party cooperation.
Federal Reserve Chair, Janet Yellen, stated the US banking system is stronger now in the wake of the credit crisis, and should some of the regulation be rolled back in order to free-up capital at banks, only a minimal amount of regulation should be scrapped. Yellen used her speech to discuss financial stability, and the topic of monetary policy was avoided, so traders didn’t have much to go on.
FX
The EUR/USD jumped on the back of Jante Yellen’s speech, even though see used it as an opportunity to talk about financial stability and banking regulation. Traders dumped the US dollar after Yellen failed to discuss monetary policy. The German economy is ticking along nicely, as it grew by 0.6% in the second-quarter – meeting expectations. The IFO business sentiment index for August was 115.9, while the consensus was for a reading of 115.5, and the July report was 116. The German economy is the driving force behind the euro, and while it is in rude health the European Central Bank would be justified in altering their loose monetary policy.
The GBP/USD traded higher today as short covering kicked in. The pound has been drifting lower against the US dollar for most of August, and now we are seeing a slight rebound in sterling. There were no major economic announcements from the UK today, so the move was driven by dealers closing out short positions. The decline in the greenback post Yellen’s speech accelerated the pounds positive move. The pound has had a poor run of form recently, and the economic outlook hasn’t shifted a whole lot in the last month. The possibility of a shutdown of the US government hasn’t dented the US dollar.
Commodities
Gold, like most markets is lacking volatility as Janet Yellen failed to discuss monetary policy. This day last week the metal hit traded above $1300 – a level not seen since November 2016, and we saw a slight retreat since then. The metal is still in its upward trend, but it has lost its momentum. It feels like it could be at a turning point, a break back above $1300 could signal another leg higher, or the market turnover on itself.
Brent and WTI crude oil are creeping higher as hurricane Harvey is heading towards Texas. It could be the largest hurricane to hit the American mainland in over a decade. Some oil production platforms have been evacuated, and this has pushed up the price of the commodity. The Gulf of Mexico accounts for approximately 17% of American oil production, and until we know the severity of the hurricane, traders will be cautious about going short on oil.c
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