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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.

24-1-2020

Markets cheery and central bankers dreary…
EQUITIES Shares in Europe look set for a strong start to trading on Friday morning. The World Health Organisation not designating the Wuhan coronavirus an international emergency has taken the fear gauge down a few notches. The travel restrictions and cutback… Read more

23-1-2020

Risk aversion back on coronavirus & US-EU Trade. ECB up next
EQUITIES Risk aversion has taken hold across Asian markets with the sad and worrying news of more deaths due to the coronavirus in China. Official reports now indicate nearly 600 cases and Macau has cancelled Lunar New Year celebrations after a second case of… Read more

22-1-2020

DAX record high, Tesla $100B & markets brush off pandemic
EQUITIES Blowout fourth quarter earnings and subscriber growth at Netflix has refocused investors’ attention on market fundamentals. Market sentiment had been impaired by worries about the new coronavirus out of China, which has now spread to the United State… Read more

20-1-2020

Oil prices spike on Libya pipeline closure, Europe to open higher
EQUITIES European shares are set to open higher on Monday in what may be a more muted day of trading with Wall Street closed for Martin Luther King Jr. Day. Trading in Asia was light with US investors on holiday today and Chinese New Year celebrations set to b… Read more

17-1-2020

S&P 500 tops 3,300 as Alphabet reaches $1 trillion
EQUITIES European shares look set to open higher on Friday bolstered by stats showing stable economic growth in China and another record-breaking session on Wall Street that saw the S&P500 top 3,300 for the first time. Mining companies are likely to featur… Read more

16-1-2020

Europe to open higher & Sterling recovers
Shares in Europe and on Wall Street are set for a higher open on Thursday after a positive session in Asia.   Wall Street notched up new records and finished the day higher after the signing of the phase one US China trade deal. That the S&P 500 and Nasdaq… Read more

15-1-2020

Stocks, oil lower as Tariffs stay in place, Persimmon, Goldman Sachs, Saunders, UK CPI
European shares are lower on Wednesday after a down session in Asia while LCG pricing points to a lower start on Wall Street. US Treasury Secretary Steve Mnuchin confirmed that tariffs against China will remain until November, after the US election. The tariff… Read more

14-1-2020

Currency manipulator, China exports, Yuan 5-month high, US bank earnings
European shares are flat on Monday after a mixed session in Asia while LCG pricing points to a lower start on Wall Street. INDICES: US removes China currency manipulator status Wall Street has yet again reached new record highs in the lead-up to the signing… Read more