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Central bankers help equities

Stock markets have been on the rise for nearly a week and dovish remarks from central banks assist the rally.

The PBoC building
Source: Bloomberg

A relatively calm overnight session in Asia has helped equity markets in Europe continue their rally that begun nearly a week ago. The major sell-off in global stock markets in 2016 has made shares very cheap, but previously traders have been cautious to go long for fear of another sharp decline.

Central bankers have been assisting stock markets this week as Mario Draghi of the European Central Bank (ECB) stated he would provide additional easing at next month’s meeting. Also, Federal Reserve member Eric Rosenberg said the US central bank is in no rush to increase interest rates. The dovish commentary provided investors the perfect excuse to go bargain hunting.

The FTSE 100 has been trending higher since 11 February and buyers will be keeping an eye on 5945 and 6000. The DAX has also been driving higher since last week and the next big resistance level in sight is 9337.

EUR/USD is continuing its descent from last week and the single currency remains under pressure after Mario Draghi dropped a big hint on Monday that he would provide additional stimulus if necessary. The ECB chief has history of talking about easing without always delivering. EUR/USD has been pushing lower for nearly a week and bears will be keeping an eye on $1.1086 and any rallies will run into resistance at $1.1252.

Gold has bounced back from its largest daily decline in nearly a year yesterday. The renewed interest in equities has taken some of the shine off the metal. Gold is back above $1200 and while it holds above this level its outlook will be positive. Bulls will be looking towards $1217 and $1232, but should it fall below $1200 investors will be keeping an eye on $1191.

Oil has regained some of the ground it lost yesterday ahead of the meeting in Iran today. Yesterday, Saudi Arabia and Russia agreed to keep production at January’s levels – which is near an all-time high, and Kuwait, Venezuela and Qatar are also looking at keeping production levels on hold. Iran is keen to recoup its market share since the sanctions have been lifted and convincing it to freeze production will be difficult. The downward move the energy market has been in since late January is still in place and while WTI is under $32 and Brent is below $34 the outlook will remain bearish.

FTSE 100 risers and fallers (as of 9.30m) 

Company % change Index points
Glencore +6.65 +3.11
Reckitt Benckiser Group +1.87 +2.97
Vodafone Group +1.35 +2.95
AstraZeneca +1.42 +2.92
Prudential +2.15 +2.53

 

Company % change Index points
National Grid -0.81 -1.13
Centrica -0.63 -0.23
Randgold Resources Ltd -0.67 -0.14
Severn Trent -0.61 -0.12
United Utilities Group -0.49 -0.11

The day ahead

Economic reports:
1.30pm – US building permits (January), housing starts (January): building permits: MoM expected -0.1%, prior 3.9%, YoY expected 1203K, prior 1232K. Housing starts: MoM expected 2.5%, prior -2.5%, YoY expected 1178K, prior 1149K.
7pm: US Federal Reserve minutes.
11.50pm – Japan trade balance (January): expected –Y105 billion, prior -Y140 billion .

Company reporting:
No major US names reporting today.

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