Financial market research and analysis

Market action seems a little more circumspect this morning despite a weak Asian session. The firmer yen contributed to the fall back in the Nikkei but the jitters over the demise of oil prices is also holding back any bullish sentiment. Certainly we can attribute much of the equity downside to year end positioning, in fact we saw a similar rout this time last year. The difference between now and then is that the Fed rate hike next week is considered a done deal. Even a small rate hike should not make much difference to risk assets but the prospect of an even firmer dollar and that fact that monetary tightening is for some a rather exotic and elusive prospect only adds to the uncertainty of how financial markets will react when it finally happens.

A small reversal in the fortunes of mining stocks is keeping the wolf from the door in respect of the FTSE price action. Once again the psychological 6000 level has held and provided dip buyers with an opportunity. It would appear that dip buyers are somewhat thin on the ground these days but the index is still off by 0.3% despite the 10% gain witnessed in Glencore’s stock price. The plan to reduce its net debt to $18-19bn appears to be sitting well with investors this morning. The company is also mulling a possible flotation of its agriculture business. In the context of the year to date moves in the share price however, it’s a drop in the ocean and clambering back from the lows as copper prices remain depressed will be no easy task.

The pound is higher against both the dollar and the euro this morning ahead of the BOE latest policy decision. While nobody expects any change in policy with the mixed economic backdrop for the UK in recent months but any change to the voting structure would likely push sterling higher. As the BOE tends to lag the FOMC by 4-5 months, there are many expecting something to happen in MAY. The market has priced in a 80% probability of a 25bp hike by November next year.

Oil prices are marginally higher with Brent holding above the crucial $40/bbl but base metals are still out of favour.

We call the Dow 30 points higher.