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Alcoa earnings lift US markets

Heading into the close the FTSE 100 is 40 points higher, rallying along with European and US equities, as hopes of European Central Bank quantitative easing are given another boost.

An Alcoa sign
Source: Bloomberg

Supermarkets lead FTSE higher

The Tuesday bounce is in action today, following a Monday session that had been distinctly choppy. After a lacklustre start to the week stock markets have found their footing, aided by decent results from Alcoa that have kicked off US earnings season in good form and a revival of expectations that ECB easing is on its way.

Supermarkets topped the leaderboard in London, after Morrisons excited markets with a decision to drop its chief executive and a plan to cut ten stores. It worked for Tesco, and it seems to have worked for Morrisons, with investors ignoring the 3% drop in like-for-like sales over the festive period. The shares gave back some of the early ground gained in the session, but still looked set for a 4% gain as the day ended.

Tullow Oil dutifully dropped another 5% as oil prices fell once more, with the shares heading rapidly back to the December low at 350p. Down 11% so far in 2015, it looks like the year ahead could be another difficult one for one of the worst performers of 2014.

US markets make early gains

US markets made solid gains in the early part of the session, shrugging off the ongoing fall in oil prices. Alcoa’s earnings gave the market a decent catalyst on which to pin a rally, although the Dow Jones is showing real reluctance to push above the 17,900 level that held it back during the course of last week.

Gains need to be made against a backdrop of falling oil prices, which makes a sustained rally difficult, but earnings season has been a good foundation for gains in recent quarters and this trend should prevail again this time around.

It seems we are set for a continuation of the see-saw battle between the idea that the drop in oil is good for consumers, versus its negative effect on actual oil companies.

Gold continues to rise

Industrial commodities like oil and copper continue to see heavy selling, as both suffer from supply gluts that have driven prices lower and will continue to do so even if world economic growth suddenly picks up. Investors could probably ignore the move if one or the other were falling, but the rout in both sends warning signals that can’t be ignored.

Having broken the monthly trend yesterday, the gold price continued to rise, although in a fairly roundabout fashion. Hopes that the ECB will take action next week have underpinned the gold buying, with some jitters over the oil price helping matters as well.

GBP/USD rallies after early drop

It was an exciting day in GBP/USD as the pound first dived against the dollar and then rallied. The first move was because of the drop to a record low in UK CPI, which prompted the governor to dash off a letter to the Chancellor explaining how the fall was actually outside of the Bank of England’s control, while the rally around midday was caused by governor Carney hinting that rate rises, when they come, will be steady and gradual. At present no one really expects them to arrive at all, at least not this year, making it increasingly likely that the pound will resume its fall against the dollar based on interest rate expectations.

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