Europe
After a relatively subdued morning session, equity markets in Europe drifted further and further into the red, as the strong euro took its toll on the continent's markets. The FTSE 100 isn’t fairing too badly in comparison with its eurozone equivalents, as the strength of the single currency is crippling them.
The fear the European Central Bank will discuss the possibility of trimming its bond buying scheme later this year has driven investors to dump their eurozone equities. To make matters worse, the relative strength of the euro is making eurozone stocks more expensive. Stock markets in Europe have been flooded with money over the past few years because of the extremely aggressive monetary policy of the European Central Bank, and now the cash is making its way out of the region, and dragging the London market lower with it.
US
The Dow Jones, S&P 500 and Nasdaq 100 are all lower by approximately 0.2% as the severe sell-off in Europe has dampened the mood in the US. The recent record-high for US equities has given traders an excuse to lock in their profits in light of what is going on this side the pond.
Microsoft (NASDAQ:MSFT) shares are lower on the day even though the company posted solid quarterly numbers after the close last night. Earnings per share (EPS) were nearly 40% above expectations and the cloud business continues to be a strong point for the firm. The Azure product nearly doubled its revenue, so it is keeping in step with its first-quarter performance.
Shares General Electric (NYSE:GE) are offside after it posted a 60% decline in second-quarter profits, and revenue fell by 12%. The company’s full-year figures will be at the lower end of previous guidance, and this does not project a positive image.
FX
The EUR/USD has been hanging around the $1.1650 region for most of the afternoon, and even though the currency pair has handed back some of the gains in made yesterday. It is will well up from when the European Central Bank (ECB) press conference started yesterday. Ultimately, traders suspect the central bank is prepping the market for a tapering of the bond buying scheme later this year. Mario Draghi, the European Central Bank President, has a history of saying one thing and doing another. So, when he tried to be deliver a dovish update yesterday, dealers just don’t believe him, and they feel he will talk about the stimulus programme being trimmed in autumn.
The GBP/USD is still finding it difficult to hold onto the $1.30 mark. Neither the pound nor the US dollar has had a good week this week but traders have focused on the softer than expected CPI data from the UK. Sterling had a good run in the past few weeks when a couple of UK central bankers expressed hawkish views, but the wind has been taken out of the hawks' sails due to the cooler than anticipated inflation data.
Commodities
Gold pushes higher again as the uncertainty in global equities has prompted traders to purchase the safe haven asset. The slight softness in the US dollar is a factor too, but the move is largely down to the slump in European stocks. Gold has been gaining ground since the 10th of July, and this current upward move is not showing any signs of slowing down, and the momentum is clearly will the bulls.
Brent Crude oil and WTI have drifted lower today as traders await the Baker Hughes active rig count report at 6pm. Last week, there were 765 active rigs in the US. Compared with this time last year, the number of active rigs in the US has more than doubled, but growth rate of rigs is slowing down.
Even though OPEC have pledged to cut oil production, the consultancy group Petro-Logistics predicts that oil production from OPEC members will increase by 145,000 barrels per day this month, and that is putting pressure on energy prices. OPEC talk about a united front but in reality, the members put their individual interests first, and traders have less confidence in the group’s ability to influence the price. That being said, dealers will be keeping an eye Monday’s meeting of OPEC and non-OPEC members.
Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.