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Eurozone markets lift FTSE
The London market is being driven higher by easing from Europe and the possibility of easing from China. As strong as the London market is, it is playing second fiddle to continental Europe as the early days of the European Central Bank's quantitative easing scheme is sending eurozone equity markets soaring.
Looking across the English Channel there appears to be no stopping the continental stock markets, and even though Germany and Greece are still at loggerheads this has been brushed aside by the easing euphoria.
Beijing is believed to be in favour of boosting private sector demand by announcing a stimulus package, and the mining stocks are reaping the rewards of this.
Dow higher despite weak macro data
The Dow Jones is up 1% as the week of the Federal Reserve’s meeting gets off to a good start, and the mildly worse-than-expected empire manufacturing figures from the US puts concerns about an interest rate rise at bay. The US equity market has fallen back into the bad habit of viewing disappointing economic indicators as positive sign for loosening monetary policy.
Traders will have to be patient over the next two days before they can listen out for the word ‘patience’ in Janet Yellen’s statement. A number of traders are pencilling in an interest rate hike in June and I suspect the fear of an interest rate cut will have a bigger impact on stocks than an actual rate hike will.
When the Fed decides to deliver its hawkish commentary, the selloff will be short-lived as the end of tapering didn’t plunge Wall Street into turmoil.
Oil continues heading lower
Oil has resumed its downward trajectory as the possibility of bringing Iran in from the cold could open up the country’s oil exporting prospects. Talks between the US and Iran over a nuclear deal are making progress, and Washington DC is closer to ending sanctions which would increase the supply of oil into a market that is already heavy on the supply side.
It is hardly surprising that gold is offside on the week the Federal Reserve is meeting. The precious metal has done well to stay in demand with all the monetary easing that has been taking place, but as we move closer to a Fed rate rise the metal will lose its shine.
The dollar has pulled back against major currencies as traders book their profits ahead of the Federal Open Market Committee meeting on Wednesday. The US is on track to raise interest rates this year but there is still speculation as to when the trigger will be pulled. The mixed economic announcements from the US in recent months have left traders on the dovish side of the debate.
Even though the pound has gained ground the BoE minutes on Wednesday continue to hang over the currency as the UK edges towards a eurozone-style deflation situation.
The euro is in demand for once as traders are taking advantage of the weak dollar, but the single currency’s time in the sun won’t last long while Germany and Greece are in a standoff.