UK & Europe
UK and European markets gained more ground on Thursday with UK shares reaching the highest in over two weeks while those in Germany touched fresh three month highs. The FTSE 100 traded above 6380, its highest since November 6 while the German DAX took out 11,300, its reach its highest level since August 11.
If you strip out the one-day drop associated with the Paris terror attacks, European markets have consolidated in a very tight range for the last month. European shares rallied strongly on October 22-23 after ECB president Mario Draghi stunned markets by revealing the bank will review its level of stimulus at the December meeting. The last month’s tight consolidation in share prices is showing an unwillingness to make big directional bets either way until the extent of additional ECB stimulus is revealed.
Talk that the European Central Bank is considering a two-tier deposit rate has raised expectations over the size of stimulusthat the central bank will almost certainly introduce in its meeting next week. Before yesterday’s leak, consensus was for a 10 bps cut to the deposit rate but with a two-tiered system there is room for a cut as big as 20 bps for those banks holding more on deposit at the ECB.
Some sense of relief at a less austere Autumn Statement, indirect benefits for the UK economy from more European monetary stimulus and a bounce in industrial metal prices has supported shares in the UK.
Every sector traded higher on the FTSE 100 in a broad-based rally with the exception of utilities which were dragged by a slide in National Grid (L:NG) shares. Mining companies topped the index supported by a rally in copper as well as other base metals after Chinese regulators announced a possible probe into short-sellers in local metals markets.
The notable exception in the mining space was BHP Billiton (L:BLT) in which shares dropped heavily after the UN found malpractice was the cause of the fatal dam collapse in Brazil.
Barclays (L:BARC) share rose over 1% as investors brushed off the second fine in two weeks after the bank was asked to pay £72m for failing to conduct proper checks on wealthy clients.
US
US markets were closed for Thanksgiving.
FX
With US markets on holiday and little in the way of economic data there was not much movement in the FX market on Thursday. A rally in industrial metals meant the dollar was mostly lower, notably against the commodity-sensitive Australian dollar.
Commodities
Copper prices rallied 2% having gained 4% in Asian markets alongside other base metals after Chinese regulators announced a possible probe into short-sellers in local metals markets. Short-selling is a symptom not the cause of weakness in metals prices so the bounce could be short-lived.
Oil prices dipped after a seven-day rally in Brent crude. Brent had retraced 40% of the losses incurred since November 4. Another weekly build in IEA US crude inventories offset a fall in the rig count reported by Baker Hughes.
Gold is in a tightening trading range ahead of next week’s ECB meeting and UU jobs report.
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