Europe
The use of the Hellenic Financial Stability fund in Greece to address part of the country’s cash shortfall as well as more weakness in the euro helped European benchmarks take out recent peaks.
As the euro fell to new multi-year lows versus the US dollar and British pound European equities outperformed those in the UK and US on the benefits to be had by exporters.
Greece faces a payment to the IMF of €1.5bn euros this month so the €500m yoinked from the bank rescue fund covers part of it. Unless it secures further funding from the Eurogroup in the meantime the new government may have to dip into public pensions. Taking the pensions is hardly a sign of fighting the good fight for the Greek people and may have serious political ramifications for the Syriza party.
UK
Initial higher momentum in UK markets was constrained by poor economic data from China that weighed on UK listed commodity stocks. Brent crude oil was higher but the renewed weakness in the commodity of late especially in the WTI contract was again weighing on UK energy companies. A monthly downturn in UK industrial production weighed further on indices sending them back into the red.
It was big data misses all round from China that again raises concern over the slowdown taking place in the country and its implication for global growth. Retail sales, industrial production and fixed asset investment data all widely missed the mark. The data is a concern but does raise the chance of further government and central bank stimulus which could be of benefit to Chinese equities. UK-listed mining stocks however were mostly down on the likelihood the slowdown in commodity demand is set to continue and perhaps even accelerate.
The FTSE 100 hovered around 6,700 with Aggreko (LONDON:AGGK) and Royal Mail (LONDON:RMG) seeing strong gains while Sainsbury’s and Sports Direct Intl Plc (LONDON:SPD) were big fallers.
US
Disappointing Chinese data, a strong dollar and more oil price weakness after another rise in oil inventories scuppered a meaningful recovery in US stocks by mid-morning trading.
US stocks are far from down and out but there is going to be volatility going into each Fed meeting and while the consensus is for hawkish tones, the volatility is likely to be biased to the downside.
Every man and his dog is long equities and the long the US dollar at this point in a massively overcrowded trade of not fighting the Fed (and ECB and all the other central banks who have cut rates this year). The result is an ongoing source of volatility in FX, dollar-denominated commodities and commodity-heavy stock indices.
Google (NASDAQ:GOOGL) was trading modestly higher despite news its CFO Patrick Pichette is retiring.
Large US banks including JPMorgan Chase & Co (NYSE:JPM), Wells Fargo & Company (NYSE:WFC), Citigroup Inc (NYSE:C) and Bank of America Corporation (NYSE:BAC) are expected to win Fed approval to increase dividends and buybacks having recently passed stress tests.
FX
The US dollar was again dominating on Wednesday leading into retail sales data on Thursday and the meeting of the Federal Reserve next week.
EUR/USD slipped below 1.06 to new twelve year lows after ECB President Mario Draghi admitted there are risks to the bank’s QE program although insisted they are contained and that the policy is not unconventional.
GBP/USD dropped back below 1.50 and made new nineteen month lows after the surprise drop in industrial production and manufacturing data.
Commodities
Brent crude was slightly higher over concerns on the output from Libya despite general US dollar strength while WTI was down over 1.5% following another stock build in the weekly oil inventories data.
Gold and silver fell back towards critical levels seen in November last year with gold dropping below $1,150 per oz and silver falling back towards $15. There is still considerable uncertainty in Greece and the ECB has just embarked on a massive reflationary monetary policy. The weakness of precious metals in this backdrop of huge uncertainty is almost entirely a US dollar phenomenon.
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