Europe
The FTSE 100 is offside as dealer’s cash in their chips ahead of the UK general election tomorrow. The London benchmark is now south of the 7500 level and volatility is anticipated to be low until traders have a better idea of what the election outcome will be.
Oil stocks like BP (LON:BP) and Royal Dutch Shell (LON:RDSa) were dragged lower by the sharp sell-off after the US oil inventories figures were announced.
RBS (LON:RBS) is higher on the day after a positive broker rating. Investec changed its rating from sell to hold, and it upped its price target from 240p to 260p. RBS reached a £200 million settlement with shareholders in relation to the rights issue the bank held during the credit crisis. Traders are glad a line has now been drawn under it.
The CAC and the DAX received a boost after a leak informed the market that the European Central Bank (ECB) are planning on reducing the inflation forecast for the eurozone. After the region posted some solid economic indicators in April and May, some dealers began to speculate that a tightening of the monetary policy would be required. The head of the ECB, Mario Draghi, hasn’t been keen to tighten his policy, and it now looks as if he won’t have to, as a lower inflation outlook would warrant a loose monetary policy.
US
The Dow Jones and the S&P 500 are broadly unchanged. The Volatility index (VIX) is down on the session even though the former head of the FBI, James Comey, is due to appear in front of the Senate today and the House of Congress tomorrow. Mr Comey’s testimony could be the beginning of the end of Mr Trump’s Presidency.
Last month Congressman Al Green called for Donald Trump to be impeached over his connections with Russia, and even though that scandal disappeared from the news headlines, it may resurface again. A lot of money was poured into the US stock market in the hope that Mr Trump would introduce banking reforms, tax cuts and infrastructure projects, and it has yet to be delivered. If the scandal erupts again, we could see a flight out of equities.
FX
The GBP/USD has made up for lost ground in the afternoon session. The UK general election is the focus of trader’s attention. Sterling bulls would prefer a Conservative victory as the party is more pro-business than Labour, but the sliding lead that the Tories have over the opposition in the polls has kept the pound under the cosh. The currency pair is likely to stay in a tight trading range on the run up to the election results.
The EUR/USD endured a sell-off this morning when a leak revealed that European Central Bank (ECB) chief Mario Draghi is expected to lower inflation forecasts at tomorrow’s meeting. The headline CPI and core CPI figures for May came in below expectations. Mr Draghi stated a few weeks ago that he did not want to change the current policy, and if he does lower the inflation forecast he won’t have to adjust the ECB’s strategy.
Commodities
Gold is still in demand and the precious metal is eyeing the $1300 level. Even though the probability of an interest rate hike from the Federal Reserve this month is high, traders are more concerned about what the Fed may or may not do in the remainder of 2017. The political uncertainty in the UK and the US has also given traders a reason to choose the safe haven asset.
WTI and Brent Crude oil suffered severely after the Energy Information Administration (EIA) revealed an increase in inventories of 3.3 million barrels, while the consensus was for a drop of 3.1 million barrels. The oil market has been in decline since the OPEC announcement last month, and now that US stockpiles are rising, we may see a continuation of the decline.
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