Europe
European markets snapped out of a quiet morning when the advanced second quarter GDP growth figure for the US beat what appeared to be already optimistic forecasts with a stellar 4% growth rate.
Consumer price inflation picked up slightly in Germany to 0.3% which should give a boost to the overall Eurozone figure but disinflation in France and some of the periphery are likely to keep European inflation muted.
Despite a brief lift from the US GDP report the FTSE was mostly slumped in negative territory with the oil and gas sector dragging the index lower with Shell, BP and BG Group all in the red over upcoming energy sanctions against Russia.
The energy sector is most exposed because any retaliation from Russia against the sanctions, however unlikely would probably come through its oil and gas market supply dominance. Listed in the FTSE are some of the world’s largest oil companies.
US
US markets, particularly the tech-heavy Nasdaq were looking strong from the start today after Twitter (NYSE:TWTR) jumped 30% afterhours by smashing user growth expectations.
Like the FTSE, the Dow was underperforming because of its heavy weighting from energy giants Exxon and Chevron which were both put into the red on fears surrounding the sanctions on Russia. Exxon and Chevron report earnings later this week and like BP could voice concerns over the impact of Sanctions on Russia, one of the world’s largest oil exporters on results for the second half of the year.
Markets got a lift from the big turnaround in US economic growth to 4% annualised in the second quarter as last quarter was revised to a more palatable -2.1% contraction leaving the US, as of now with a net 1.9% growth for 2014.
Not long after, the major benchmarks rolled over as reality kicked in that the good economic data may mean tightening from the Fed.
It’s entirely possible that the Fed will continue to find more reasons for keeping monetary policy easy for longer in today’s FOMC statement with the latest excuse being wage growth.
With GDP growth at 4% this quarter, unemployment possibly having dropped below 6% and core PCE price inflation at 2% annually, conditions are returning to normal and no longer need extraordinary monetary policies.
If the Fed chooses to alter its wording on the timing of raising rates or gives a more rosy assessment of the labour market then this would been seen as hawkish and stocks could retreat further.
FX
The dollar was again gaining momentum today on the stronger economic outlook for the Fed after today’s GDP report.
The British pound failed to push back through 1.70 and is now threatening 1.69 as US economic growth now looks to have outdone the UK in the second quarter.
The yen was seeing the most weakness on dollar strength and a rallying Nikkei.
Commodities
Gold fell back below 1,300 on US dollar strength while crude oil initially rallied on the GDP news it then fell back to be flat ahead of the FOMC rate statement.
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