Yellen and Draghi soothe traders
Central bankers seem to be doing their (unintended) best to talk up global equity indices at present, as first Janet Yellen and then Mario Draghi uttered words that served to soothe the frayed nerves of traders. Ms Yellen succeeded her complex game of Q&A dodgeball, carefully tiptoeing around the question of when the first rate hike would take place. Today, Mario Draghi effectively signalled some sort of action in June to fight the ongoing menace of low inflation in the eurozone.
A profit warning for Supergroup sent the stock downwards today, falling 12% after the trendy retailer said profits would be at the lower end of expectations. Supergroup is something of a momentum stock par excellence, and the disappointing update crowns what has been a very difficult few weeks for the share price.
Dow unable to break 16,600
The Dow Jones continues to bump against the top of the recent trading range, although it still hasn’t been able to mount a meaningful attempt to break 16,600. Jobless claims were better than expected, but overall US indices have still taken their cue from the European Central Bank, after a somewhat directionless morning for futures. Mr Draghi’s suggestion of action removes one area of concern, namely that the ECB could let low inflation persist in a manner that would prove detrimental to eurozone recovery. Overall, the absence of any bad news today has helped maintain the positive atmosphere, and even the disappointment from Tesla last night has failed to dampen sentiment.
Gold testing 200-DMA
Gold and silver have paused after the heavy losses seen yesterday, with the former now testing the 200-day moving average. We saw a modest rally in the first part of the day for gold, coming back towards $1295, but the ECB press conference then saw a fresh drop that paved the way for new lows. However, we are still above last week’s lows and above the key $1280 level, and, while this holds, rangebound trading is still the default outcome. Declining supply inventories provided the impetus for a modest rally in crude prices but we are still seeing some selling here as traders unwind long positions following the move upward yesterday.
Euro takes a beating
The euro has taken a battering this afternoon, just minutes after reaching towards $1.40 and a two-and-a-half-year high. The lack of any change in policy prompted a surge, but this was merely a ruse to sniff out some latecomers to the party. In the press conference, Mr Draghi said that officials would be happy to act in June if necessary, surprising markets with a more dovish tone than many had expected. As usual, he didn’t specify what form this action would take, but the likelihood is that we’ll see a rate cut next month that will lay the groundwork for some form of monetary stimulus in September.