Europe
Global stock markets continue to seesaw in all directions. European stocks recovered the previous day’s losses and in some cases are now higher on the week. That seemed like it would be a tall order on Monday. Confidence in the bull market is shaken but the readiness of central banks to act is fuelling a belief the worst is behind us.
On Thursday the PBOC are reported to have directly intervened in equity and swap markets which helped the Shanghai Composite turn a daily loss into a 5.3% gain. This was preceded on Wednesday by promise of a 140bn yuan injection into the Chinese economy and a concurrent cut to interest rates and bank reserve ratios on Tuesday.
The actions from the PBOC coupled with accommodative statements from the Fed’s Dudley and the ECB’s Praet have so far proven enough. The risk is that investors are too rattled to take markets much higher and this ends up being a dead-cat bounce before another sharp decline.
A strong finish for US and Chinese stock markets alongside firmer commodity prices are bolstering the FTSE 100 to its highest this week. The basic resource sector including the likes of Anglo American (LONDON:AAL), Antofagasta (LONDON:ANTO) and BP (LONDON:BP) led the advance with Barclays (LONDON:BARC) also a top riser after a US court dismissed a case brought against its dark pool.
Outside of the main index challenger bank Aldermore (LONDON:ALD) saw its share prices rise after reporting a doubling in first half profits over the same period last year thanks to a rise in mortgage and business lending.
US
US stocks opened comfortably higher on Thursday’s open following the biggest rise in four years on Wednesday, taking the Dow and Nasdaq out of ‘correction territory’. Investor nerves were calmed by reported stock market intervention from Chinese authorities and second quarter US growth getting revised significantly higher.
All ten sectors of the S&P 500 were in the green as US second quarter GDP was revised higher to 3.7% from the first reading of 2.3%. The GDP jump came as a big surprise; it was above all economist forecasts.
The higher revision came from an increase in government consumption, private inventories and a reduction in imports. The Q2 GDP figures puts a September rate hike back on the table but the inventory build could take away from forecasts for Q3, giving the Fed another possible out if markets still look unstable.
FX
Better than expected US GDP growth in the second quarter and a bigger fall than expected in weekly jobless claims bolstered the dollar, helping it extend to a three day rally against major counterparts.
The euro has now declined for three days, retracing its huge breakout during the market turbulence from China’s currency devaluation. Talk of an extension to QE from the ECB’s Praet has added to the euro’s woes. EUR/USD has now fallen almost 500 pips in just four days and is hovering in the vicinity of 1.12.
A recovery in stock markets has helped risk appetite drive the Japanese yen lower. USD/JPY has now recovered the psychological 120 handle, the same level as the neckline of the completed double top pattern.
Commodities
Crude oil saw a big jump on Thursday as global growth fears receded. The global growth outlook has been aided by rosier prospects in the two largest global economies with US GDP stronger than previously forecasted and monetary stimulus improving the economic prospects for China. This comes following a surprise draw in US inventories reported on Wednesday.
Silver recovered from the fresh six year lows reached on Wednesday but the reversal in safe-haven flows has reduced the appeal of precious metals including gold.
The cut to Chinese interest rates has prompted short-covering in copper given its implications for stronger mortgage and Chinese housing demand, a major source of demand for the industrial metal.
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