UK and Europe
The ECB dominated proceedings in markets on Thursday, though both talk and action from the central bank were a little thin on the ground. Markets shrugged after the ECB left interest rates and other policies unchanged.
There was no real expectation of the ECB adding to measures only recently implemented, so there was little in the way of market disappointment when indeed nothing new was announced. Stocks proved fairly resilient while the euro only rose modestly during the ECB press conference before falling back.
In his prepared statement, ECB president Mario Draghi noted that markets weathered Brexit volatility with resilience and that a survey of professional forecasters had shown no major impact from Brexit on the inflation outlook.
The euro is sitting in a comfortable range and the German DAX has recovered most of its post-Brexit losses, so there is no financial tightening for the ECB to combat. As such, the central bank remains in wait-and-see mode.
Mr Draghi reiterated that the ECB is ready, willing and able to act if needed but did not outline any new measures or tweaks to the existing program that could be taken. Like the Bank of England, the ECB is showing an unwillingness to act before any hard data is available on the economic impact of Britain leaving the European Union. Instead, the ECB will “review information over the coming months” before any decisions are made.
In relatively benign trading, the FTSE 100 and German DAX were weighed on by airlines shares after both Lufthansa (DE:LHAG) and EasyJet (LON:EZJ) offered profit warnings.
After benefitting from the windfall of lower fuel prices, the outlook for airlines has darkened with traveller confidence dented by recent terror attacks. Easyjet has highlighted the direct impact of Brexit via a lower British pound. CEO Carolyn McCall said the drop in sterling cost company £40m.
William Hill (LON:WMH) was amongst the top mid-cap risers after bookmaker announced its CEO James Henderson was departing. It has been a couple of difficult years following tighter government regulations on the gambling industry and unexpected results typified by Leicester City topping the Premier League.
US
US stocks look set to open down slightly after poorly-received results from Intel (NASDAQ:INTC) afterhours as the Dow Jones aims for its 10th daily rise.
Intel beat earnings expectations but slower revenue growth at its faster-growing data centre business caught investors by surprise, sending the shares lower. General Motors (NYSE:GM) shares rose after the automaker easily surpassed quarterly earnings expectations whilst shares of Southwest Airlines (NYSE:LUV) dipped after its poorly-received Q2 update.
FX
The Japanese yen rose on Thursday after Bank of Japan governor Kuroda said there was “no need and no possibility for helicopter money”. The yen gave back over half its gains when it was revealed the comments were made in June, before Prime Minister Abe’s re-election. The yen has fallen (USD/JPY risen) in the past two weeks because the election expanded the political opportunity for more stimulus, so there is a chance that Kuroda’s opinion may have changed in the last month since he gave the interview.
Nonetheless, the comments will disappoint investors who had been selling the yen in anticipation of the Bank of Japan announcing helicopter money at its meeting next week. After the failure of its current quantitative easing program to boost inflation, helicopter money is one of the few reaming tools in the Bank of Japan’s arsenal.
The euro rose initially during the ECB press conference, but an unexpected drop in weekly US jobless claims tugged EUR/USD back down below 1.10, setting up a possible re-test of its post-Brexit low, just above 1.09.
A bigger than expected dip in monthly retail sales saw the pound trade slightly weaker.
Commodities
Oil prices were unstable again on Thursday with no clear direction. The price was volatile on Thursday after US crude inventories fell but gasoline stocks saw a surprise build. Brent crude remains directionless with a mid-point of around $47 per barrel, so a decisive break above $48 or below $46 is needed to determine a new trend.
The price of gold rose alongside other havens like the Japanese yen. A test for whether gold’s positive trend this year can be extended will be whether the current pullback can hold $1300 per oz.
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