Europe
The FTSE 100 started out strong, but it has given up all its gains as the rally in the pound hit the main equity benchmark. The UK is still in a state of political flux, but Downing Street stated there will be no announcement about the talks between the Conservatives and the Democratic Unionist Party (DUP) as a mark of respect due to the tragedy in west London. Traders are cautiously optimistic that a deal will be struck between the two parties, as they are both right of centre. The DUP would like to maintain an open border with the Republic of Ireland, and there has been increased talk of a soft-Brexit. The Tories are aiming to form a minority government with the supply and confidence of the DUP, and whenever the political uncertainty is cleared up in the UK we will see investor confidence pick up again.
Bellway (LON:BWY) announced a positive trading statement today. The home builder revealed a double digit increase in reservations, and the value of its forward order book is higher too. The disappointing average earnings from the UK today will surely keep interest rates low, and in turn help the property market. Other house builders like, Barratt Developments (LON:BDEV), Redrow (LON:RDW), Taylor Wimpey (LON:TW) and Berkeley Group (LON:BKGH) are higher on the day.
US
We have seen yet another record high for the Dow Jones and the S&P 500 on the back of the dip in inflation and retail sales in May. The Federal Reserve will announce their interest rate decision at 7pm and the press conference will begin at 7.30pm. The market is anticipating an interest rate hike tonight, and traders will be paying close attention to Fed Chair Janet Yellen’s update.
Dealers were already uncertain about the outlook for the US economy since the economic indicators for the second quarter have not been overly impressive, and now dealers feel the Fed will have to be a bit more dovish in their forecast for the rest of 2017. It would appear that the moderate increase in wage growth is finally trickling down to the CPI and retail sales numbers, and that will force the Fed to adopt a more dovish stance.
FX
Dealers were quick to dump the US dollar in the wake of inflation and retail sales numbers that missed investors’ expectations. CPI, core CPI, retail sales and core retail sales all fell on the month, and traders took that as a sign that the Federal Reserve may not hike rates in September or December. Traders feel that an interest rate hike from the Federal Reserve tonight is inevitable, but the focus will be on the outlook for the remainder of the year.
Despite the poor average earnings numbers from the UK, the GBP/USD is higher on the day as the weakness in the greenback outweighed the decline in the pound in the morning session. The Bank of England (BoE) will meet tomorrow, and the central bankers will have a hard task ahead of themselves, as the cost of living is rising, while earnings are falling.
The EUR/USD is powering ahead as traders are exiting the US dollar. There single currency is now at its highest level versus the US dollar since President Trump was elected. The eurozone has been gradually improving, but make no mistake, today’s move is US dollar driven.
Commodities
Gold surged after the disappointing US CPI and retail sales figures. The metal usually has an inverse relation with US interest rates, and even though the US central bank are due to hike rates tonight, traders feel we could see some dovish language used to play down expectations for further hikes this year. The futures markets have been pricing in a rate hike tonight for several weeks, but the press conference will let us know what the Fed is thinking. The cooling of inflation and retail sales was welcomed by gold bulls, and the metal could rally further, if the US central bank are dovish in their outlook for the rest of the year.
WTI and Brent Crude oil fell again today as the energy can’t seem to snap out of the downtrend that it is stuck in. The latest Energy Information Administration (EIA) figures showed that stockpiles fell by 1.7 million barrels, and the expectation was for a drop of 2.3 million barrels. Last week, the inventories rose by 3.3 million barrels, and the US active rig count rose again, so stockpiles are still high.
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.