Europe
Stocks are offside today as traders undo the positive move from yesterday. Investors remain unconvinced that panic has disappeared from the markets. The aftermath of a major decline usually leaves traders in limbo as the fear another leg lower is around the corner, and stocks are selling off as we approach the close.
The jump in sterling on the back of the Bank of England (BoE) update, whereby the Governor, Mark Carney, stated rates could move higher than anticipated is holding down the British market. A firmer pound has a track record of weighing on the FTSE 100, and we are seeing history repeating itself. Traders are now pricing in a 100% probability of an interest rate rise from the BoE in August, and the UK home builders like -Berkeley (LON:BKGH) and Persimmon (LON:PSN) are feeling the pinch.
Bellway (LON:BWY) issued a positive trading update but the talk of potentially higher interest rates from the UK has put pressure on the stock. The firm is expecting first-half sales to jump by 14%, as the average selling price rose by 7.2% and completions ticked up by 6.2%. The stock was higher during the morning, but once the BoE hinted at higher interest rates the stock slide, and it is now down 5.7%. The share price may be sliding, but if it can hold above the 3000p mark its outlook could stay positive.
Compass Group (LON:CPG) shares are in demand after the firm predicted that full-year sales will be at the higher end of their 4-6% growth target. The North American and European divisions saw sales jump by 8.2% and 2.1% respectively. The company warned that costs in the UK are rising, but they hope to offset that through improved efficiency.
US
After a volatile start the Dow Jones and S&P 500 are lower on the day. Traders remain tetchy about the outlook for US stocks as the volatility index (VIX) is creeping up. It is not uncommon for markets to be topsy-turvy after a recent severe sell-off. Traders are still testing the water and they are half expecting another sudden sell-off. Investor loves to pick up cheap stocks, but when they fear another sharp decline is on the horizon their default position can be to look to so-called safe haven assets like gold and bonds.
The yield on US government bonds has ticked up again, and given the level of uncertainty in stock markets, dealers are exiting equities and jumping into bonds. The moves we witnessed on Wall Street earlier this week are still playing on traders’ minds, and at the moment investors are in risk-off mode.
FX
GBP/USD has surged after the BoE stated rates could rise at a faster pace than traders thought. High inflation has been an issue for the UK central bank and now dealers are looking are acting as if an interest rate rise in August is a done deal. The update from the BoE today, was well timed as the dominant US dollar this week made the pound relatively cheap. The jolt higher today could be the beginning of a retest of the 1.4300 area.
EUR/USD is largely unchanged on the day as it hasn’t been a busy day for economic updates from the eurozone. Spanish industrial production jumped by 6.1%, which easily topped the expectations of economists of 3.9%. The jump in production is encouraging to see, but it had little impact on the currency pair. The greenback has enjoyed a positive run this week, but the buyers have run out of steam.
Commodities
Gold slipped to a one-month low this morning and has bounced back a small bit. The positive in the US dollar this week has weighed on gold, and if this negative moves continues it could target 1300. Gold have been in a difficult position this week, as the assets would normally attract the flight-to-quality money, but the higher US dollar deterred some investors.
WTI and Brent Crude are lower again as traders are concerned about over-supply. The energy information administration (EIA) report yesterday showed that US oil inventories increased, and production hit an all-time high. Overnight, Chian imports surged and oil imports hit a record high, but it wasn’t enough to balance out the concerns about excess supply.
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