Our analysts have their fingers on the pulse of the world's financial market news.
The US dollar softened against all of its G10 peers in Asia, except the yen. The Aussie and Kiwi were the biggest gainers overnight (>1%). Gold gave back $10, while WTI strengthened 1.42% on improved risk appetite.
Although the FTSE opened upbeat in London this morning, investors should keep in mind that Moody’s, S&P and Fitch have downgraded the UK’s credit rating. And even if UK banks are a better bid during the early hours of trading in London, the market is now pricing in the possibility of a rate cut from the Bank of England in an effort to temper potential economic damages as the UK prepares to quit the European Union.
According to activity in the Gilts market, there is a 75% chance of a BoE cut before the end of this year. Given that the UK’s bank rate is already at a historical low of 0.50%, an attempt to lower rates will of course erode profit margins. On the other hand, UK banks will also bump into regulatory and compliance issues, which could also generate additional costs in the next couple of quarters and weigh on banking sector profitability. It is therefore too early to think that the rally in the banking sector could be a sustainable one. Nevertheless, a rapid glance to the screen suggests a better appetite today; Lloyds (+5.42%), Barclays (+5.94%), HSBC (+1.42%) are paring post-Brexit losses.
We warn that the credit rating downgrades and a lower rate outlook are important red flags that investors should consider before blindly jumping on the back of a bull. We restate that the volatility is a sign of stress on both sides. Rapid gains are as dangerous as wild sell-offs. David Cameron is heading to Brussels to meet European leaders as the EU Parliament debates the implications of a Brexit.
Some colour out of the FX markets
The EURUSD consolidates losses below the 1.1100 level (200-day moving average). Bids are eyed at 1.0940 (major 61.8% retrace). Surpassing the 1.1100 resistance level, the pair could recover towards 1.1235 / 1.1283 (100 and 50-day moving averages respectively).
The yen has been the only loser against the US dollar in Tokyo as a growing number of traders are now expecting two rounds of policy easing from the Bank of Japan within the next year. This is the most efficient way to halt the undesired appreciation in the yen immediately. Following last week’s heavy drop, there is potential for an upside correction towards 105.
Cable is a better bid, yet downside risks prevail as S&P, Moody’s and Fitch downgraded the UK’s credit rating following the Brexit vote.
Despite little appetite in gold today, the yellow metal consolidates gains above the $1300 level. Political uncertainties in the UK and the potential contagion effects across the EU, could encourage a rise towards 1400$/oz in the mid-run.
Randgold Resources (-2.49%) and Fresnillo (-1.99%) are the bigger losers in the FTSE today. Losses are expected to remain limited as we could well be watching a butterfingered optimism.
European markets look set to turn lower at the start of trading on Monday. The new US and Chinese tariffs take effect today so traders in Asia and Europe look cautious. Both continents are more exposed to global trade than the US. For markets, the new tariffs …Read more
Whilst risk sentiment has been healthy across the week, this swelling optimism boosted US stock markets to an all-time high overnight. A rally in tech stocks, which have done a lot of lifting for the indices over the year, in addition to fading concerns over U…Read more
Despite a shaky end to trading on Wall Street overnight, which saw the Dow gain 0.6%, the S&P just 0.1% and the Nasdaq slip by the same, Asian markets moved broadly higher on improved sentiment. European bourses are taking the lead from the US over Asia, w…Read more
Asian markets took the lead from Wall Street overnight, rallying as the latest tit for tat measures in the escalating trade spat have not been quite as severe as the markets had been expecting. Tech stocks were also heavily in demand, bouncing back after steep…Read more
Traders are faced with a sea of red in risk-off trading as markets are set to open on Tuesday. Despite the fact the market has been expecting an escalation in trade tensions between the world’s two largest economies with further tariffs from Trump; the reality…Read more
Escalating trade tensions will once again be a central theme to driving sentiment and trading this week, with President Trump widely expected to levy tariffs on a further $200 billion worth of Chinese imports, potentially as soon as today. The elevated trade c…Read more
European bourses are set to take the lead from a positive session on Wall Street and Asia overnight. A drive higher from tech stocks on Wall Street helped lift Asian equities after their recent battering, pulling them off 2-year lows.
Asian markets were endin…Read more
Today will be a busy day for traders with 2 central bank rate decisions and US inflation data all due for release within a few hours of each other. The BoE monetary policy announcement will kick things off, followed shortly after by the ECB rate announcement a…Read more