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FTSE driven lower by under-performing supermarkets
Greek negotiations have taken a turn for the worst this week, with both sides having walked away from the table to focus on telling the world why it wouldn't be their fault should the unthinkable happen later this month. Unfortunately more effort appears to be going into preparing for a Greek default than avoiding it and one can’t help but think that both sides are coming close to giving up on this whole process. Ultimately, the anti-austerity measures of Syriza fly in the fact of the debt mountain that needs to be met and debts will need to be written down via a default, haircut or whatever other technique is conjured up to lessen the burden.
An early 2015 rate hike from the BoE edged closer with today's spike in average earnings, which provided the final piece in the puzzle for Mark Carney. Low unemployment has now been accompanied by strong wage growth and low, but positive inflation provides an increasingly convincing story for a rate hike. As such, yesterday's rebound in the FTSE proved short-lived, with the index falling to the crucial 6672 support level once more. It seem another major sell off could be just around the corner.
UK supermarkets helped lead the FTSE 100 lower, with the unsettled sector likely to suffer owing to the disruptive nature of the likes of Aldi and Lidl. Credit Suisse initiated coverage on the firm today, providing a fairly scolding indictment of the upside potential for the big dogs Tesco and Sainsbury’s who are rated at ‘underperform’.
RBS was today back in the limelight, as a technical glitch saw 600,000 payments unprocessed, causing embarrassment for the firm ahead of its full privatisation. The stock price remained relatively steady following a downturn on Monday but this comes at a bad time for the bank when a public selloff from the government is in the offing. Something tells me there will be a number of clients who opt against investing in the offering off the back of their experience today.
Markets brace themselves for FOMC announcement
US markets are trading with significantly less gusto than yesterday as we approach the biggest event of the week when the FOMC announces not only its latest monetary policy decision but also economic projections for the forthcoming years.
The prolonged US downturn that extended well past Q1 points towards a likely revision lower in growth, yet with oil prices on the rise inflation levels should be moved higher to reflect an environment that would be healthy enough to allow a Fed rate hike later this year. Market expectations point towards a September rate rise, however much of this will become clearer down the line as the threat of a Greek train wreck points to possible contagion effects.
For this reason, Janet Yellen will likely become patient once more and the prudent stance would be to reiterate her expectation of a 2015 rate hike, whilst considering that this is dependent on a suitably stable and healthy economic environment at the time of implementation.
Today's announcement that Allergan Inc is set to buy KYTHERA Biopharmaceuticals injected life into Kythera's share price as investors benefitted from the premium paid to get the $2.1 billion deal across the line. Allergan now has the enviable tag of holding the only non-surgical treatment for excess fat under the chin, and on the face of it, investors appear to be relatively satisfied with the terms given the moderate rise in Allergan shares.
FedEx shares failed to fare quite so well, posting a Q4 net loss to send the stock 2.6% lower at the open. The strong dollar yet again played a part in FedEx losses, yet ultimately with such a fuel intensive business, the benefit of lowered oil prices should have helped the firm more than it did. It makes you wonder what the impact of another move lower in the USD coupled with resilient oil prices would do for profitability.
Crude continues to fall
Crude oil inventories fell a further 2.7 million barrels today, representing the seventh consecutive weekly fall in stockpiles. Coming off the back of a particularly strong day in the crude markets, the fact that we are seeing the US inventories slowly drown down without an adverse effect on prices is very telling.
However, with cost-cutting measures having driven down the level at which US fracking production becomes economically viable, the likeliness is that another move higher in crude would lead supply coming back on to the market once more.
GBP/USD to test resistance levels
With the FOMC meeting looming, the FX market has been relatively quiet from the US dollar side. However, a strong UK jobs report sent GBP/USD spiking earlier in the session, which despite hitting the buffers somewhat later, brings us within very close proximity to the bullish $1.5815 resistance level.
A move above $1.5815 indicates a likely continuation of the uptrend we have seen in recent months. However, with the dollar so exposed to the Fed's decision later today, there is a high likeliness that we will see volatility begin to rise.