Financial market research and analysis

Whilst the previous session in Europe had been rather restrained, risk on sentiment surged through the US session. Banking and tech stocks sealed another rally on Wall Street overnight, with the Dow surging over 25,000 for the first time since March and the Nasdaq hitting another record high – the third in a row.

Tech stocks managed to put in another impressive performance despite Brussels preparing to slap a fine on Google parent Alphabet, for abusing its dominance through the Android operating system. Whilst traded volume in Alphabet was over 7 times greater than Tuesday, the share price showed impressive resistance falling just 0.2%. Clearly investors aren’t overly concerned about the most significant regulatory move against Google’s business model.

Risk on in Wall Street, transferred to a solid session in Asia and is seen lifting European markets into the opening bell. Despite talks of retaliation measures from US allies on trade tariffs, which in the words of the World Bank, risks sending the global economy back to a state similar to that 10 years ago, global equity markets continue bounding higher.

Oil pushes higher; still on track for weekly loss
Crude oi prices are expected to be under the spotlight, as they remain on track for the third straight losing week. After a sharp decline in the previous session, oil was clawing back some of the losses overnight, supported by news overnight of plunging Venezuelan exports. Troubles over supply from Venezuela come at a time when OPEC is considering easing supply cuts which have been in place since 2017 and were implemented to support the price. The big question for oil is whether or not OPEC decides to ease the production cuts, with the meeting still some 2 weeks away, oil traders could be in for an increased bout of volatility.

EUR/USD hits $1.18 on ECB Taper Talk
The euro extended its ECB inspired rally overnight hitting a high of €1.18. ECB policymaker Peter Praet, saying that the ECB will need to assess at next week’s meeting whether to unwind the QE programme, as good as confirmed earlier reports that the ECB were willing to discuss what has been the elephant in the room for most of this year.

Yet just because the ECB are ready to talk about a subject which they have remained tight lipped on all year, doesn’t mean that that follow through action will be speedy or in any way rushed. A winding down is almost guaranteed, but will that be a winding into the scheduled September end date, or a winding as from September. The euro is by no means out if the woods yet. With bond buying set to wind down and the stronger euro of the past 10 month potentially weighing on price growth, the winding down of QE by no means is a direct move onto rate hiking; given these headwinds we still envisage a significant ride to the 2% target.


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