Equities
Speculation that the Bank of England will extend monetary stimulus has seen government bond markets go haywire. For the second time (the first being after the Brexit vote), the yields on some UK government debt turned negative. The two-year gilt yield hit a record low of 0.08% on Wednesday.
The UK joining the space race towards negative interest rates has focused attention on bond markets and left investors disinterested in equities.
The FTSE 100 was flat by late afternoon trading as gains in bank and insurance shares offset weakness in the oil and gas sector. Germany’s DAX index pulled back moderately after entering a “bull market”.
Spurned takeover offers have taken some of the gleam off stock markets. Peppa Pig-owner Entertainment One (LON:ETO) has snorted at ITV’s £1bn bid. The rejection comes not long after bookmaker William Hill (LON:WMH) turned down a £3.6bn offer from 888 (LON:888) and Rank Group (LON:RNK).
Speculation that ITV (LON:ITV) will mount another offer for Entertainment One but that Rank Group may give up on its joint purchase of William Hill with 888 Holdings has sent both shares to the top of the FTSE 250, helping mid-caps outperform blue chips.
US stocks were mixed in early trading after Walt Disney (NYSE:DIS) beat earnings and revenue expectations thanks to a strong performance from its film studio while also announcing an investment in BAMTech, a video streaming service.
FX
Weakness in the US dollar helped GBP/USD higher on Wednesday, but sterling was lower against most major currencies as investors speculate the Bank of England will go further on cutting rates and government bond purchases.
The pound had briefly rallied on the belief that the QE program had been undermined by the inability of the Bank of England to buy its full quota of bonds on Tuesday. The Bank of England released a statement on Wednesday saying it will make up the shortfall in the second-half of the program, easing concerns and sending the pound back down.
Strong economic data had helped the dollar rally for four days straight. Dollar declines in the last two days are close to wiping out the rally on the realisation that the Fed will struggle to hike rates while the policy is in such stark divergence with the rest of the world.
Commodities
Oil prices wobbled on Wednesday with the recent rally in jeopardy after Saudi Arabia was said to have told OPEC that its output hit a new record high in July whilst US inventories saw another surprise build, adding to concerns of over-supply.
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