Risk appetite returns as DAX hits all-time high

Investors betting on a debt-ceiling resolution sooner rather than later have seen a return of risk appetite today, with the mining sector leading the charge. Heading into the close, the FTSE has added 0.7% and is currently at 6555.

DAX climbs to all-time level

There are just two days to go before the US government hits its borrowing limit, but a glance at the major European indices, particularly the brand new high for the German DAX, would make any bystander question any of the recent 'doom-mongering'. The fact that we are seeing the precious metals sector, which normally thrives on uncertainty, drop to multi-month lows is also lending something to the vote of confidence in US politicians.

UK inflation data came in at 2.7%, a little higher-than-expected but steady from last month. This is still above the ‘knockout’ level of 2.5%. Given the lack of similar inflation levels in the developed world, there is a certain feeling that current inflationary pressures will pare back, which was apparent in the decline of sterling once the news had been digested. Traders are also conscious of the fact that recent factory gate prices are suggesting an imminent slowdown in this important metric.

Empire index shows US shutdown effect

Being in the midst of earnings season in the US is probably not such a bad thing as it tends to distract from the political standoff in Washington. This, and the fact that S&P 500 index prices are within striking distance of an all-time high gives credence to the adage that markets usually climb a wall of worry.

The New York Empire State factory index paints a different story to the equity markets and indicates that the standoff has been and will likely to continue to be to the detriment of the overall US economy. The index came in at 1.5 versus a 6.3 level expected.

Citigroup, the third US bank to report earnings this season, was something of a let-down. Revenues came in $17.9 billion versus the street estimate of $18.2 billion. Earnings per share also disappointed, at $1.02 against the expectation of $1.04.

Coca-Cola had a choppy start to the trading session after the drinks company announced figures that were broadly in line with expectations. Results from Yahoo and Intel are due after the bell tonight. The Dow Jones is currently trading at 15,280, down 21 points on the day.

Safe-havens decline as US debt deal nears

It’s a case of buying the rumour when it comes to the precious metals suite these days, and renewed interest in the US dollar on the optimistic speculation of a debt-ceiling deal has naturally been to the detriment of the traditional safe havens. Gold has fallen to a three-month low and any drop below the $1250 level is likely set up a return to the lows of this year. One could expect to see a degree of buying at the $1200/oz level as this is widely seen as the line in the sand where the profitability of gold production is called into question. Silver has also been under pressure and is looking to target the previous support at the $20/oz level. The sell-off has sent the metal to a two-month low.

Pound under pressure as dollar bounces

Sterling came under some pressure early on despite the fact that inflation remains at sticky levels and well above the Bank of England’s mandated level of 2%. Matching the rise of 2.7% seen in August, the index exceeded market expectations. Core CPI pushed higher by 2.2% on the year, which was a significant margin above the 2% level expected. Today was a day for the dollar bulls and the bounce in the greenback should validate those who stuck rigidly to the view that the sell-off in the world’s reserve currency was merely temporary.


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