Europe
For several years now we’ve become accustomed to the sight of equity markets rising on the back of a central bank easing monetary policy expectations, not tightening them. As far as the Federal Reserve is concerned that particular play book is starting to change after the market reaction to last night’s speech by Federal Reserve chair Janet Yellen where she gave strong indications that a rate rise in 2015 remained very much a consideration for a lot of members on the FOMC.
Today’s strong rally on the back of a more hawkish statement from the Fed chief would appear to suggest that markets are starting to get used to the idea of a nominal move higher in US rates, interpreting it as a vote of confidence in the US economic recovery.
That perception still has some way to go before being met, given the various speed humps between now and the December meeting. While she pointedly refused to rule out an October move it remains highly unlikely the Fed would move then given how little the data is likely to change between now and then, as well as the possibility of a US government shutdown, which means there remains a good deal of water that could flow under the bridge, and derail a rate move, between now and December.
These uncertainties were thrown into sharp relief this afternoon with the announcement that US House Speaker John Boehner would be leaving Congress at the end of October. Give his role in navigating the politics surrounding previous US government shutdowns the impending spat over another debt limit fight and government shutdown may have become a little bit more complicated in the next few weeks.
So while we’ve had a strong move higher today the move has still come within the broader range we’ve been in for the last four weeks. If anything this week's moves in financial markets have been more akin to a game of ping pong, as the bulls and bears exchange rallies across the net, each one looking to despatch the killer pass as investors look to determine the next key directional move.
Today’s big movers have come from across the board but it is notable that basic resource stocks have lagged behind the wider rebound with Glencore’s woes continuing as its share price hits new all-time lows at 95p, before bouncing back again.
Gold miners have lagged behind on weaker gold prices with Randgold Resources (LONDON:RRS) and Fresnillo (LONDON:FRES) both lower.
On the plus side auto parts provider Johnson Matthey (LONDON:JMAT) has rebounded strongly after being caught up in the tsunami of selling that hit the auto sector in the wake of the Volkswagen (XETRA:VOWG) emissions fallout.
It’s also been an altogether better day for auto makers across the euro area with strong gains for BMW, Daimler, Renault (PARIS:RENA) and Peugeot, though Volkswagen shares have remained under pressure on reports that the company manipulated emissions results on 2.8m cars in Germany.
With the iPhone 6s set to go on sale in the UK today, Apple (NASDAQ:AAPL) supplier ARM Holdings (LONDON:ARM) is one of the big risers on expectations that the new iPhone will outsell previous incarnations.
US
A strong rebound today for US markets on the back of Yellen’s comments last night sets us up for a positive end to the week, with the prospect that we could finish the week more or less where we started it. Last week the S&P500 pushed above the 2,000 level briefly before succumbing to gravity and sliding back, and this week we’ve pushed down close to the 1,900 level before coming back in a similar fashion.
Given the inability to break conclusively in either direction speaks to a market that lacks conviction, as investors mull the uncertainties of the global growth outlook, and a central bank that could be set to tighten monetary policy.
Stocks in focus today are set to include Blackberry (TO:BB) which posted another quarterly loss for its Q2, as it continued its restructuring program.
Nike (NYSE:NKE) shares are also in focus after the company reported better than expected Q1 numbers, with strong growth across all its key regions.
Google (NASDAQ:GOOGL) shares have come under pressure on reports that it is under investigation by US anti-trust regulators over its Android operating system.
On the data front the final revision for US Q2 GDP was revised up to 3.9%, with personal consumption showing a big jump from 3.1% to 3.6%, but given these numbers are nearly three months old they tell us nothing about how the US economy is doing now, which initial projections suggest could be significantly weaker.
FX
The US dollar has been the best performer today unsurprisingly given Yellen’s comments last night and today’s better than expected Q2 GDP revisions, hitting its highest levels this month against a basket of currencies.
The biggest losers have been the Norwegian krone after yesterday’s cut in rates by the Norges Bank, while the Japanese yen has weakened as well after the latest Japanese CPI number came in worse than expected for August, suggesting that the Bank of Japan could well take further action to ease monetary policy at its October meeting.
Commodities
Despite concerns about oversupply, oil prices have struggled to push much lower this week, with Brent prices looking to post their first positive week this month. US prices on the other hand look set to post their second successive week of gains, but we’re talking small steps here, not major moves.
There has been some evidence this week that supplies are tightening a little, but with Iran looking to have sanctions relaxed; the threat of new sources of supply coming to market is keeping a lid on prices. Last week’s Baker Hughes rig count index saw the number of rigs fall to a four year low of 842, so any further declines could prompt a retest of the highs this week.
Gold prices have slipped back after yesterday’s move to one month highs on the back of today’s rebound in the US dollar and Yellen’s comments yesterday.
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