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The Danes Cut Rates And Banks Recover As Oil Stocks Tank

Published 29/01/2015, 16:17
Updated 03/08/2021, 16:15

Europe

European markets flat lined on Thursday as markets digested the implications of the US Federal Reserve still aiming for a mid-year rate-hike set against accelerating deflation and a smaller than expected drop in unemployment in Germany.

The German DAX vacillated around 10,700 showing relative strength in the face of weak economic data now that German markets have the backstop of ECB bond-buying.

Greek bank shares recovered alongside other major banks including Deutsche Bank AG NA O.N. (NYSE:DB) which made a fourth quarter profit after slumping this week. The bounce in bank stocks came after Daniele Nouy, head of the European Central Bank’s Supervisory Board, said the nation’s lenders are “pretty strong” and can survive the current market turbulence.

UK

Disappointing earnings thanks to the sharp drop in oil prices from Royal Dutch Shell were a drag on the FTSE 100 as BP Plc (LONDON:BP) and other energy companies traded down in sympathy.

Earnings from Royal Dutch Shell A (LONDON:RDSa) missed expectations and shares traded lower on Thursday. There could be some scope for recovery Shell’s stock price in the days to come given earnings were higher year-over-year in the context of a 50% drop in Oil prices. The fact that Shell has seen earnings expansion is testament to CEO Ben Van Beurden’s cost-cutting regimen which appears to have served the company well in a very difficult environment.

Asos (LONDON:ASOS) shares declined after CEO and founder Nick Robertson dumped 10% of his holdings. An insider, especially the founder selling 10% of their shares is not a great sign of confidence in future company performance.

US

Facebook led US benchmarks lower on Thursday despite beating estimates as concern arose over accelerating expenditure. US benchmark indices belied the weakness in one of the biggest issues as Alibaba Group Holdings Ltd (NYSE:BABA) shares dived after missing revenue estimates.

Facebook Inc (NASDAQ:FB) beat estimates on the top and bottom line and most metrics were in line which in early 2014 would have meant a big leap in stock prices but shares are down. The market reaction to Facebook’s earnings is telling of a changed environment in which without QE from the Fed, highly valued companies are having to do that much more to impress with earnings.

McDonald's Corporation (NYSE:MCD)’s was leading the Dow Jones to a small gain by mid-morning after the restaurant chain announced the departure of its CEO Don Thompson. An image overhaul and the introduction of new menu items has not been enough to overcome the millennial generation who shun eating at McDonald’s in favour of the likes of Chipotle Mexican Grill Inc (NYSE:CMG).

FX

After a positive reaction to the hawkish Federal Reserve statement, the US dollar was mixed on Thursday.

The Danish central bank has cut its deposit rate deeper into NIRP territory to -0.5% to fight building pressures on its currency peg against the euro. EUR/DKK was flat while USD/DKK traded slightly lower on news of the rate cut.

Higher oil prices enabled the Norwegian Krone to outperform as USD/NOK dropped away again from spike high of 7.8740 formed on December 16.

Commodity currencies AUD/USD and NZD/USD were falling fast on Thursday following the monetary policy statement of the Reserve Bank of New Zealand which jawboned the currency lower and confirmed the on-hold policy for rates.

There is mounting speculation that the Reserve Bank of Australia may follow the Chinese tactic of a surprise rate-cut to tackle lower inflation and join in the game of competitive devaluation amongst central banks.

Commodities

Gold and silver declined as the dollar strengthened and the need for an inflation hedge was reduced after the Federal Reserve maintains on track to hike US interest rates by mid-year.

Copper prices again found support at the recent low of $2.45 per lb on speculation current levels will lead to lower output from miners. So far there is still no real evidence of an output cutback so copper could find itself at new lows on the next piece of data indicating slower global demand.

Oil prices pulled higher on Thursday after Royal Dutch Shell indicated a capex cut and a reduction in offshore rigs in an indication that oil majors are starting to react to lower prices by cutting production. Brent crude has held above $47 per barrel since January 14.

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.

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