Chinese data lifts mining sector
The FTSE 100 has endured something of a seesaw day, hopping between gains and losses, but the overall impression has been of a market in a more relaxed frame of mind than was the case earlier in the week.
Chinese data, which when positive always provides a useful tonic, provided support for the mining sector, rallying on hopes of increased consumption and helping to allay fears about weaker growth. Adding spice to the day was some bid talk in the tobacco arena, providing the wider market with a reason to remain in positive territory.
The same cannot be said of Royal Mail, which has sunk further as the day has gone on. The earnings were important, but the main focus was the talk around the firm’s requirement to provide a universal service. The requirement is unlikely to be dropped, but expect loud comments from both Royal Mail and the government about a potential renegotiation, as the company seeks to win more favourable terms.
S&P 500 close to recent highs
Positive momentum from yesterday has carried Wall Street higher, putting the S&P 500 back within easy distance of recent highs. It seems we may be on course for the first weekly close above 1891 so long as Friday does not see the usual end of week selling.
Bulls will be encouraged by the outperformance today of the Russell 2000, after weeks of declines for the small cap index, but there will still be some hesitation ahead of Hewlett Packard’s Q2 earnings this evening. The company needs to reassure the recovery plan is still on track, with appropriate progress in cloud computing and perhaps a greater focus on research and development to allow it to catch up with rivals like IBM.
Gold pressing higher
Gold has shrugged off weakness from the Federal Reserve minutes yesterday and is now pressing higher as traders’ views towards the statement inclined more to the dovish interpretation. There may have been a discussion about a ‘rate hike process’ there may have been, but there is no real indication of how the Fed will go about tightening its balance sheet. In the immediate term, this has given traders an excuse to push gold higher, but it seems difficult to understand how gold can rally in the longer-term when the Fed is getting ever closer (albeit at a glacial pace) to a rate hike.
Oil prices were pleased with the minutes, it seems, as both US and Brent crude extended gains for yet another day. In this context the drop in US inventories was an added bonus, adding to the overall bullish picture.
US dollar takes a bite out of euro and sterling
A stronger dollar has taken a bite out of the EUR/USD and GBP/USD rallies today, and a second revision of UK GDP was insufficient to help sterling. The strong GDP print fits in with the general pattern of better data, but the absence of an upward revision meant that buying pressure was limited, traders being unwilling to push the pound higher on the basis of information that is already widely known.