Pre-NFP caution returns to US markets

Heading into the close the FTSE 100 is rallying hard, up over 65 points, as oil stocks are lifted following heavy losses and an entertaining bid rumour.

People at a jobs fair
Source: Bloomberg

M&A story sparks FTSE rally

If all else fails, an M&A story, however far-fetched it might seem, is always a way of boosting interest. Reports emerged during the day that suggested BP and Shell may be looking to merge. The news gave a lift to the firms’ respective share prices, and helped to add around twenty points to the FTSE, putting the UK index comfortably ahead of its peers. Such a merger would be a brave move at a time of heightened uncertainty – those who suggest it must know that they would either be labelled as geniuses or madmen depending on the eventual result.

Over on the continent the DAX broke through 10,000 once more, but proved the validity of the saying that ‘it is better to travel than to arrive’.

Although it breezed higher for a time, selling took it back in the direction of 9900. However, with the European Central Bank looming on Thursday another attempt on the big round number is a very plausible outcome.

US markets in need of catalyst

US markets made cautious gains, but they have a sense of running on air at present, waiting for a real fundamental driver. The default position for many investors remains ‘buy’, but with increasing caution ahead of non-farms on Friday.

A reiteration of the Fed’s data-driven perspective on events helped to assuage concerns about the pace of tightening, but for now US indices remain broadly where they were two sessions ago, but without much desire to move higher.

The buyers are coming back to Apple, helping the giant to recover its poise following the volatility seen on Monday, and once again the strength in this stock is a useful barometer for market appetite as a whole.

Brent's bounce fades

Normal service has been resumed in oil today, after one of those rare days yesterday in which the price doesn’t go down. In Brent the $73 level has proved to be a big resistance point for a third successive session, as the temporary bounce fades as quickly as all the others. As the OPEC-related excitement disappears, the fundamentals will take control yet again, which implies additional downside for crude into the year-end.

Gold prices are fluctuating madly around $1200, with the sense that a make or break situation is developing. A close above $1200 might give the bulls the upper hand for now, especially since the general consensus on the ECB is that the bank will do something, anything, to keep the eurozone situation from worsening.

US dollar heads higher

An empty US macro calendar and a content-light speech from Janet Yellen provided the perfect opportunity for the US dollar to push higher once more, touching its highest level in over four and a half years.

This has the feel of a sudden rush towards the currency by those that had remained sceptical of the post-summer rally. Divergence in monetary policy is driving this move, a fact likely to be underlined by an ECB meeting this week that is going to highlight how much trouble the eurozone is actually in.

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