Hawkish comments drive US markets lower

A see-saw day for the FTSE 100 sees the index poised to finish the day off its highs, as a poor start from US markets dragged other indices lower.

Wall Street sign
Source: Bloomberg

Housebuilders lift FTSE 250

Housebuilders have helped the FTSE 250 to establish a clear ascendancy over its bigger brother this afternoon, after Mark Carney opted not to impose draconian limits on mortgage lending. Barratt, Taylor Wimpey and Persimmon were among those seeing strong gains, as the Bank of England governor failed even to flash a yellow light at the sector. Essentially the governor is throwing down the challenge to politicians, arguing that there is little the bank can do beyond impose limits on extreme lending.

The FTSE’s attempts to rally were hampered by a poorly-performing banking sector, as former sector darling Standard Chartered slumped 4% and Barclays dived 8%. Investors in the sector have been wearily braced for continual bad news for over five years now, and today indicates we haven’t seen the end of it just yet.

US markets drop sharply

Pre-kickoff entertainment for the US was provided courtesy of James Bullard, as this former dove appeared to switch towards early rate hikes. Although in line with previous utterances, the market is so volume-light at present that such comments are liable to send indices sharply lower, as was the case today. As the quarter end looms, there will be more than a few fund managers eager to sell at the first sign of trouble in a bid to buff up their records for the past three months. However, a close above yesterday’s low of 1949.5 still suggests more gains are in store for the S&P 500, especially if the market can recover 1960 within the next few days.

Oil prices continue to fall

Oil prices continue their descent, driven by news of a possible relaxation of the US export ban and by the absence of news from Iraq. Stockpile data yesterday also boosted the cause of the bears, while the booking of profits from recent spikes continues.

Ahead of the main summer holidays in the US, we can expect to see an increase in output from refineries to meet demand, which for the time being will increase the downward pressure. US crude remains the more bullish picture, with the 2014 uptrend still intact suggesting a slow march towards $108.

Carney's comments lift GBP/USD

He may not have been talking about interest rates, but Mark Carney’s press conference today regarding the housing market has still managed to lift GBP/USD above $1.70. The financial stability report did nothing to alter underlying views of the UK economy, and thus the default view for GBP/USD leaves it on course for additional gains. Bulls should be aware that the 2009 high is only a short distance away, but on a longer-term perspective there seems no reason to change the opinion that a stronger pound is here to stay.

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