Investors await economic releases

The residual positivity from the US equity closes this morning has worn off, as investors look ahead to the rest of the week and the economic releases that may potentially cement even a small scaling-back of asset purchases this month.

Flight to FTSE safety

The FTSE 100 has benefited from a minor flight to safety as caution creeps in, outperforming other European benchmarks today.

Gold prices caught a bounce on bargain hunting, sending Randgold Resources to the top of the index with a 4% hike in share price. 

Liquidity issues aside, the fundamentals still matter. Retail sales may have beaten the consensus, but with Chinese industrial production falling short of expectations it may manifest poorly in the manufacturing sector – which is key to both domestic and global growth expectations. The Chinese government will take part in its annual conference today and should we see a cut in its growth target from 7.5% to 7% it could well have ripple effects through western economies and indeed investor confidence.

It was a case of selling on the news for TUI Travel today as it neared its all-time high of 400p per share. Strong sales of higher-end holidays in Germany and the UK have helped the tour operator to exceed its own profit forecasts and offer a better final dividend for 2014. The outlook for the year ahead is also upbeat and puts the stock in a good place to push through the recent highs.

US sees profit taking

Yesterday’s investor exuberance which pushed US indices to all-time highs has today been beset by profit taking and the ongoing trepidation that better retail sales and unemployment claims due out later this week could cement any view of a token taper this month. Once again comments from Federal Reserve members and the absence of any macro data today have seen investors pause.

35% of economists polled expect a change in monetary policy this month and given how wrong the market got it last September, there is a distinct reticence to jump on any singular band wagon at this juncture.

The Dow Jones is currently testing the 16,000 metric.

Gold skims year lows

Gold has traded close to its year lows in recent days, with demand tampered by some expectations that the Fed may scale back asset purchases this month. $1200/oz offers a decent support level rising from the October 2008 lows. Technical buying and holiday bargain hunting have seen the metal seemingly trying to establish itself as the comeback king today. The propensity to make a corrective return to the 50-day moving average at $1287/oz cannot be ruled out in the near-term, but it will take a lot of demand to reverse the worst year of trading for gold since 1981.

Oil rebounded after yesterday’s sell-off as a weaker dollar and a sustained demand forecast from OPEC supported prices. Crude outperformed its Brent counterpart adding 1%. Brent continues to slump mainly due to the weaker German industrial output reported earlier this week.

Euro is best performer

The dollar declined below the 80.00 level against a basket of currencies. The mixed outlook from various Fed members over the past few days tends to indicate that forward guidance should not be taken literally. The US trade balance due tomorrow may see investors buying into potential dollar strength.

The mere idea of Japanese-style deflationary spiral for Europe was dismissed out of hand by Mario Draghi today. Speaking at the Bank of Italy’s conference, the European Central Bank president reiterated the need for economic reforms and a banking union. Europe may well be losing in the currency wars; the euro is the best performer in the G10 currency markets this year and with liquidity in the interbank market looking tighter owing to the long-term refinancing operation repayments, a move through the recent high of 1.3833 sets the single currency on a $1.43 target.

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