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ECB preview & FTSE time to shine after election

Low rates for longer is always a winner in financial markets. The Fed pointing to another year of interest rates at the current low levels satisfied investors who bought US shares and sold the US dollar in the wake of the meeting. The mood in Asia was a little more tempered with a mixed session. In Europe shares have opened higher after the Fed’s decision but gains are capped by uncertainty ahead of the ECB meeting and UK General Election.

What in effect Jerome Powell told investors during the meeting is you can have your cake and eat it. You’ll have the economic growth and we’ll keep interest rates low too. With the benefit of hindsight, this is what we’ve had for an entire decade and goes a long way to explain the ongoing stock market records in the US. As we enter a new decade, we know these conditions aren’t sustainable but still  the era of interest rates at rock bottom and a slow growth recovery keeps going.

We haven’t seen record highs in Europe for some time because the economic growth hasn’t materialised despite negative interest rates. Einstein said the definition of insanity is doing the same thing over and over again and expecting different results. Today we’ll get the first glimpse of how insane the ECB will be with its new President Christine Lagarde. No policy measures are expected until the policy review which is expected to conclude early next year. All we can do is understand from President Lagarde’s tone which way she is leaning. She will want to walk the tightrope of offering some continuity from Draghi while also setting out her stall.

It’s UK election day and the base case scenario of somewhere between a 10-40 seat Conservative majority government is still odds on. The polls have tightened but bookmakers odds are still stacked heavily in favour of a Boris win. Sterling has meandered its way to an 8-month high vs the dollar. Currency strength has seen the FTSE 100 underperform other indices which are pricing in a de-escalation in the US-China trade war.

If the election gives the Conservatives a working majority in parliament and assuming global sentiment holds up, we’d expect the negative FTSE-GBP relationship to break down temporally. Meaning investors simultaneously price in a better economic outcome for the UK by buying Sterling while also loading up on the relative value to be found in UK listed shares

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FTSE 100: The index is in the middle of its three-month old (7000-7400) price range, and quite simply we’d expect it to hit the upper limits of the range on a Conservative win and the lower limit on a Labour win.

DAX: Automakers and other big German exporters should lead the DAX on a breakout above 13,300 this week if new US tariffs are delayed.

S&P 500: Tech stocks and the big Dow industrials should benefit and take the S&P 500 into fresh record highs as soon as the tariff delay becomes official.  

EURUSD: Hints at extra asset purchases by Lagarde could see the euro faded while an over-emphasis on fiscal policy could give the euro a bid.

GBPUSD: 1.33 has capped any rallies in cable for the best part of 18 months. We expect a slim majority gets us up to 1.33 but there is a risk it gets faded. A clear majority should see GBP fly through 1.33 and on track for an aggressive year-end target of 1.37. A hung parliament and we’re back down to 1.30 with further downside risk if Johnson is forced out of No.10. A minority Labour win and a likely coalition with the Scottish Nationalists and we could see a slump down to 1.25.

Crude oil: We still think there is pent up speculative demand from the OPEC decision that just needs the tariff delay to be unleashed and send WTI crude futures up through $60 per barrel.

Gold: $1480 per oz still needs to be exceeded and held for gold to make a more substantive push to the upside.

21-9-2020

Trump approves TikTok deal, Powell & Superdry earnings
MARKETS The Dow Jones fell on Friday as investors had to contend with another selloff in big tech, led by Google. Friday moves came as four major types of options contracts were set to expire in a quadruple witching, triggering a rise in volatility. European e… Read more

18-9-2020

USD/JPY sub-105 and UK retail sales
MARKETS US stocks fell in volatile trading on Thursday amid renewed pressure in shares of major tech companies. Conflicting messaging on the coronavirus vaccine front and uncertainty around further stimulus also weighed on sentiment. European equities fell aro… Read more

16-9-2020

Buffett-backed Snowflake IPO & Fed Preview
MARKETS The Dow Jones ended roughly flat on Tuesday, pressured by a fall in financials and a u-turn in Apple after the tech giant launched a new services bundle and hardware. The S&P 500 was up 0.52% while the Nasdaq added 1.21%. Apple rose 0.2% but had be… Read more

14-9-2020

Brexit bill first debate & tech stock sell-off
Markets The major U.S stock indexes fell for the second week in a row, as technology stocks experienced their worst pullback since March. The market was volatile in a holiday-shortened week, with the Nasdaq posting a 4% decline on Tuesday followed by a nearly… Read more

18-5-2020

Gold hits 7-year high after Powell Warning
Fed Chair Jay Powell has warned the US economic recovery might last through the end of 2021. The Fed is normally too optimistic in its forecasts so the outlook feels bleak. Still, warm weather is encouraging countries to continue exiting lockdown. If the flu s… Read more

14-5-2020

Powell predicts more pain to come but no NIRP
A warning from the top of the US central bank that there’s more pain to come isn’t going down well across markets. Fed Chair Jerome Powell warned yesterday that more stimulus will likely be needed in the US to fend off the economic damage done by virus and pol… Read more

13-5-2020

“Suffering and death” warning hurts markets
A sense of caution has taken hold across markets. Shares, riskier currencies and oil are pointed lower. There’s a reassessment of the likely timeline for economic reopening. Our sense is markets juiced up by higher liquidity may have gotten ahead of themselves… Read more

12-5-2020

Bitcoin halving, dollar breakout on second wave fears
Market sentiment remains fragile. There’s a lot of emphasis being placed on the virus numbers in economies that have been gradually reopening.  Wuhan, the City in China where it all began reported its first ‘cluster’ of new cases yesterday after lifting restri… Read more