Europe
The FTSE 100 is down 0.25% as the hawkish comments from the Bank of England Governor yesterday triggered a round of selling. Mark Carney, head of the Bank of England, surprised traders by saying that the loose monetary policy could be tightened. Only last week Mr Carney delivered a very dovish speech, so yesterday’s comments encouraged traders to rethink their long positions, and the jump in the pound also added to the sell-off.
Copper has rallied to its highest level in nearly three months and it lifted the share price of BHP Billiton (LON:BLT), Anglo American (LON:AAL), Rio Tinto (LON:RIO) and Glencore (LON:GLEN). The London market would be much lower if it were not for the rally in mining stocks.
The rally in the euro has put a big dent in the eurozone stock markets. Even though we had good inflation figures from Germany today, the strength of the euro outweighed positive sentiment in the country. The DAX is down over 1.6%, while the CAC 40 has fallen 1.9%, and the IBEX 35 is 1.5% lower. The single currency is at a 12 month high versus the greenback and the continental equity markets are paying the price for it.
US
The Dow Jones and the S&P 500 are lower as profit taking kicks in after last night’s solid performance. By comparison, the US indices are holding up much better than their European counterparts. The US banking sector is still enjoying the positive run on the back of all the banks passing the Federal Reserves’ second round of stress tests.
Stocks like JPMorgan Chase (NYSE:JPM), State Street (NYSE:STT) and Wells Fargo (NYSE:WFC) are all in positive territory as they all announced plans to hike their dividends. US banks couldn’t increase their capital returns to shareholders until they passed the second round of the stress test, and seeing as the hurdle has been cleared, shareholders are in for a higher payout.
FX
The GBP/USD is pushing higher as traders are still taking their cues from Mark Carney’s comments yesterday. Mr Carney, the Governor of the Bank of England, stated that some of the stimulus could be removed, and this is still fuelling the buying of the pound. The pound traded above the $1.30 mark today – a level not seen since late May. Some dealers feel that Mr Carney was too hasty in further easing the Bank of England’s monetary policy in the wake of Brexit, and now he appears to be adding some stability to the pound.
The EUR/USD is at its highest level in just over a year as the bullish sentiment surrounding the single currency continues. Even though the European Central Bank made it clear they will keep their monetary policy unchanged, dealers are latching onto the encouraging signs of economic improvement from the region. Germany’s inflation rate ticked up on a yearly basis from 1.5% to 1.6% in June. This is evidence that the largest economy in the eurozone is experiencing growing demand.
Commodities
Gold grinded lower as the final reading of US first-quarter gross domestic product came in at 1.4%, while traders were expecting a reading of 1.2%. The yellow metal has been falling since early June and considering the growth rate in the US was higher than initially thought, we could see this trend continue. The Federal Reserve is keen to keep tightening monetary policy, and today’s report would suggest the US economy is gaining momentum. Some traders are sceptical that the Fed isn't as hawkish as they are letting on, and Janet Yellen, the Fed chief, doesn’t want to rush into further interest rate hikes.
WTI and Brent Crude oil are continuing to drive higher. The energy market been on the rise since the 21st of June. There is a sense the severe sell-off oil endured from late May to the middle of June was over-done, and now a mixture of short covering and bargain hunting is driving the price higher. Outside of the relatively small decline in US oil production last week – 1.06%, the fundaments of the oil market remain weak as demand from Asia is falling and production from some OPEC members is rising.
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