Europe
European stock markets were left a little out of breath on Thursday as government bond markets pulled a full 180 degree turn from savage losses to a sizeable move higher. A fall in crude oil prices tempered the inflation fears that have caused a massive jump in bond yields this week.
The German bund was headed for its biggest two week drop since its inception as yields spiked across the UK, Europe and Asia but US jobless claims holding at 15 year lows took some of the sting out of oil prices as the dollar rallied.
The resulting fall in the euro helped European equities edge back towards positive territory led by the export-orientated German DAX index.
Election Day uncertainty has created hesitancy in markets rather than outright fear of the unknown. There’s hardly been a tidal wave of selling but seemingly an unwillingness to jump in with two feet to any stocks until the election result is known.
The bigger risk to markets will come tomorrow in case of any shock result. The city is pricing in another coalition, which hasn’t actually proved to be too bad for the economy in the last four years. Since a coalition is expected, a majority could actually provide to be the kind of shock needed to create a substantial move in prices. Since a conclusive result probably won’t be clear for a number of days, any sudden movements on Friday seem unlikely.
Morrison’s was a big drag as shares dropped by as much as 7% after presenting the latest set of disappointing results for the big four supermarkets.
BT shares lost some ground on Thursday as full-year revenues missed estimates but optimism over the EE deal and the growth in its TV arm meant losses were minimal.
US
Strong gains for Alibaba (NYSE:BABA) after it announced better than expected earnings and a new CEO lifted sentiment in US markets as unemployment claims remained close to fifteen year lows.
Falling oil prices and a rallying US dollar limited gains in the stock market but there was a certain degree of relief at the pause in the rout on US treasury bonds.
FX
The US dollar traded higher on strong weekly jobless claims, offsetting some of the concerns about the US labour market generated by the missed ADP unemployment report on Wednesday. The data offered traders a chance to lighten up on what had become quite and over-extended sell-off in the dollar.
Euro weakness was accelerated by a weaker than expected gain in German industrial orders as EUR/USD stalled just ahead of 1.14 and slipped back beneath 1.13 while EUR/GBP fell back from its highest levels since early February to 0.74.
The British pound was bereft of any last ditch election fears, trading slightly in the negative as UK gilt yields dropped after the major rally seen this week.
Commodities
Gold couldn’t make it back above the key $1200 per oz this week and extended losses on Thursday as the US dollar rallied following the better jobless claims.
Profit taking at $60 per barrel in US crude oil prompted a quick reversal of gains made after the first decline in US oil inventories in four months. Oil prices had pre-empted the changing tide in US oil production so now it’s just selling on the news that it’s actually happened.
$40 per barrel doesn’t seem on the cards for now but there is still a massive global supply glut which should put a cap on the upside potential for oil.
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