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The ECB and the Bank of England have tried to neutralise the effects of US Federal Reserve tapering with forward guidance and to a point it has worked, with equity markets in Europe surging higher on the loose liquidity premise. Helping the cause for the bulls were better-than-expected earnings from US bellwether Alcoa, which gave the UK mining sector a boost, with Vedanta Resources adding 9%.
Poor manufacturing numbers from the UK may well have negatively buffeted the sails of the bull run, with equity markets paring back some of today’s gains as we head into the close. More to the point, it would seem that perhaps there is a little bit of tension ahead of the FOMC statement tomorrow which has brought about some inevitable profit-taking. The UK trade deficit widened to £8.49 billion in May which also served to dampen euphoria from the recent PMI numbers, yet in many respects gave gravitas to the departing Bank of England governor Sir Mervyn King's parting shot that the UK is not out of the woods yet, thus underpinning the prolonging of the UK's low interest rates.
US equities are in the black after Alcoa, the world's largest aluminium producer, kicked-off the US reporting season last night, and despite falling metal prices the company managed to beat analysts' estimates. Traders are going long as not only did Alcoa top estimates, but the reporting season has traditionally provided a boost to markets.
Copper is weaker today after the latest Chinese producer price index (PPI) failed to impress investors. Weighing on the price is the possibility that the Federal Reserve will talk up the strength of the US economy tomorrow. This will add to the dollar's already strong gains and is likely to put more pressure on the base metal.
Sterling continues to get a pounding with the trade-weighted index falling to a four-month low, and GBP/USD has declined to a level not seen since mid-March on the back of poor UK industrial and manufacturing numbers.
The euro has gained against the pound and is consolidating below the 87p mark, as it would seem that the loose lips and monetary policy from central banks is helping to cancel out any significant moves.