The magnitude of yesterday’s rally will have caught many by surprise, and while markets are moving a touch lower this morning it seems like the bulls are still firmly in control. The 10% correction was a nasty shock, but with the end of the year looming there will be a lot of investors looking to jump on board a late-stage rally that will do much to buff performance figures for the year.
British American Tobacco’s disappointing numbers today have sent the shares to their lowest level since April, although the strong pound’s impact will diminish in the next update given that sterling is continuing to fall.
Speaking of sterling, the currency was given another shove in the direction of $1.60 as minutes from the Bank of England pointed towards a delay in interest rate hikes. This backs up the public statements made last week at the height of the market’s volatile period, but it illustrates how the attempt at clear forward guidance simply leaves the bank at the mercy of events.
Yahoo picked up the baton from Apple last night, keeping markets in positive mood thanks to good earnings numbers, but the big event is likely to be the CPI reading. Downward pressure on the number is likely to come from the broad selloff in oil prices, which gives the Federal Reserve additional wiggle room on monetary policy, even if QE is still set to leave us next week.
More important is the outlook on rates and in this the Federal Open Market Committee is likely to emulate the BoE in due course, signalling that renewed global headwinds will be the key worry regarding the outlook for the US economy.
Ahead of the open, we expect the Dow Jones to start 30 points lower at 16,586.