Europe
European markets have been positive today though the FTSE100 has underperformed due to weakness in the basic resource sector, as gold and silver miners show sharp losses after the US Federal Reserve surprisingly adopted a much more hawkish outlook than many had expected.
A sharp slide in other metals prices is also acting as a drag on the sector, probably as a result of the strong US dollar, which has hit its highest levels against a basket of currencies since 2003.
Randgold Resources (LON:RRS), Fresnillo (LON:FRES) and Antofagasta (LON:ANTO) are all down on the day, while the broader European markets including the DAX and CAC40 are doing better as a result of the weaker euro, which has made new multi-year lows, against the US dollar.
On the plus side Centrica (LON:CNA) is sharply higher after raising expectations for its full year results, saying that it expected to exceed its guidance for 2016, as a result of cost savings and efficiencies.
Banks are also higher as a result of a sharp rise in yields in the wake of last nights Fed rate decision, with RBS (LON:RBS) and Barclays (LON:BARC) leading the way. UK 10 year yields have jumped 14 basis points on the back of last nights Fed decision on the basis that the next move in UK bank rate is likely to be up and not down.
On the M&A front Sky has agreed to terms on the £11bn takeover bid from 21st Century Fox, though whether it will get past some of the more sceptical shareholders remains to be seen, and not forgetting the political legacy that surrounded the first attempt at a deal five years ago that caused that deal to fall through.
US
After sliding back sharply on the back of an unexpectedly hawkish Fed yesterday, US stocks could well find further upside fairly limited today as US treasury yields push to multi year highs.
While on the one hand higher yields are a net positive for banks and financials, a stronger US dollar for exporters is likely to be a drag on future profitability, and could well start to act as a break on profits growth.
Companies in focus include Yahoo after the company announced that it had been the target of another hack back in August 2013 which it said could involve one billion accounts.
In M&A news 21st Century Fox has also had its bid for UK based TV provider Sky accepted by the board, while Mondelez is also in the spotlight on unconfirmed reports that Kraft-Heinz was planning to acquire it.
On the data front the latest US CPI numbers for November came in at 1.7%, in line with expectations while December Empire manufacturing rose to 9, from 1.5, and the latest Philadelphia Fed manufacturing index also performed well in December rising from 7.6 to 21.5.
FX
It’s been all about the Federal Reserve today on currency markets with the US dollar index moving back to levels last seen in 2003, putting downward pressure on the euro and the Japanese yen in particular as yield differentials widen out to multi year highs.
If anything the euro should be much lower, if yield differentials are any guide given that 10 year differentials are at levels in favour of the US dollar last seen in 1989, when the Berlin Wall came down. As a result the euro hit its lowest level against the US dollar since the end of 2002, and looks as if it could well go much lower. The yield differential to Japanese 10 year yields is also back at levels last seen in 2009.
The Swiss National Bank as well as the Norwegian central bank both left their own headline rates unchanged.
The pound has had a fairly decent day gaining against the euro, after the latest retail sales numbers for November came in slightly better than expected, though it has struggled against the US dollar, after the Bank of England also left rates on hold, and suggested that the recent rebound in the pound could well mitigate some of the recent rise in inflation pressures.
Another plus on these higher yields is that they will offer some respite to pension funds that have been clobbered by low yields for quite some time now.
Commodities
Gold prices have slipped back further, so much so that we could well be on course to see the entire gains for this year wiped out. At one point this year gold was one of the best performing assets, up over 26% in the first half of this year. Since the 1st July prices have slid back 14% as the strong US dollar reduces the attraction of the yellow metal. Silver prices have also dropped sharply as well.
Copper prices have also slid back from their recent highs, weighed down by the recent strength of the greenback.
Crude oil prices have slipped back despite Nigerian oil minister Barkindo visiting Washington in an attempt to get US shale producers on board with respect to an output cut. Good luck with that as they say on social media. It's interesting to note that recent shipping documents show that Iraq has raised its oil exports, while Libyan is set to come back on line. It would appear that the strength of the US dollar is also weighing here too.
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