Financial market research and analysis

The US dollar remains in the driver’s seat, yet defusing a two-sided volatility across the markets. As speculators play USD-based, the global markets lack a clear direction.

The risk appetite is deteriorating. Gains in risk assets and the equity complex remain limited. Treasuries are stuck in the tightest trading range since a decade. It feels as the market is holding its breath waiting for Janet Yellen to speak.

FOMC Chair Janet Yellen is due to speak at Jackson Hole Symposium on Friday. She is expected to deliver a balanced and cautious speech, yet investors will be reading between the lines to figure out how aligned she is with the most hawkish Fed members calling for a rate hike before the end of 2016.

The market gives a 28% probability for a September rate hike compared to 22% last week, and a 54% probability of a December hike.

FTSE buoyant

Oil extends losses on a stronger US dollar. The barrel of WTI lost 1.52% in Asia, which could put further pressure on the FTSE to the downside, after the index failed to clear resistance at 6880p.

The FTSE aggressively sold-off to 6822p at the London open then bounced back above 6850p. Given the cheaper oil prices, the upside path is expected to remain slippery. Offers are sheltered at the 6880/6900 area.

Zooming into the FTSE, miners and energy stocks are again under rising selling pressure. Meagre first half results from mining giant Glencore (-2.53%) have been a fresh reminder of how vulnerable the UK’s mining sector still is.

Predictably, Glencore’s first half profits tumbled by 66% on cheap commodity prices. However, the company’s efforts to generate cash and reduce debt has paid-off among investors who gradually returned back to the stock. News that the company inked a deal to sell a 30% stake and all of the gold in Ernest Henry mine may have also tempered the post-results sell-off.

Glencore is reducing its debt at a satisfactory pace. As of today; one investor out of two is a buyer with a twelve month average price target of 196.95p, 35% remain on hold, while only 14% prefer to stay in the sell camp. Nevertheless, reducing debt by selling assets results in a contracting core business, and will certainly keep future growth opportunities limited once the global commodity demand picks up.