Equities buoyant after Yellen testimony

The positive sentiment from the record highs in US indices last night has found its way into European trade this morning.

The FTSE 100 has pushed marginally higher on expectations that the US Federal Reserve quantitative easing punchbowl contains enough servings for another few rounds.

It’s almost ironic that equity indices are close to five-year highs, and adding to those gains, following Janet Yellen’s dovish testimony. This tends to negate the incoming Fed chairwoman’s categorical denials that a bubble may be forming in equities on the back of easy monetary policies.

The more risky equities are gathering momentum, with basic materials, energy and financial sectors all on the front foot. Vedanta is failing to keep step with the rest of the mining sector, falling 2.15% following reports that first- half revenue had dropped 17% to $6.16bn. The price declines across all commodities, in particular copper, can take a lot of the blame for the less-than-stellar numbers, and would account for why the FTSE has tended to underperform its European counterparts. Moreover, the below-par growth in key commodity importers has ultimately led to a pull-back in demand for base metals, and shows the continuing divergence between the stock market and the underlying economies.

Serco climbs to the top of the FTSE heap today, adding 2.85%. This will be of little comfort to shareholders, given the declines witnessed yesterday and the plethora of broker downgrades, which show little signs of relenting.

As momentum weakness starts to be felt in the eurozone core countries, the Ecofin meetings today are likely to focus on the never-ending discussions about the scope of the single resolution mechanism, and the knotty issue of bank recapitalisation via the European Stability Mechanism.

Macro data continues to support the eurozone's ‘fragile recovery’ story, and the year-on-year inflation slowing to 0.7% could well give the ECB cause to look at reducing base rates even further.

Later in the US, data in respect of industrial and manufacturing production will be released. Both reports are expected to be fairly weak despite some positive PMI data recently, with a 0.1% increase expected for both.

The Dow is currently expected to open up six points at 15,882.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Find articles by analysts

Een artikel zoeken

Form has failed to submit. Please contact IG directly.

  • Ik wens per e-mail informatie van IG Group bedrijven te ontvangen over handelsideeën en IG's producten en diensten.

Voor meer informatie over hoe wij uw gegevens mogelijk kunnen gebruiken, bekijkt u ons Privacy- en toegangsbeleid en onze privacy website.

CFD’s zijn complexe instrumenten en brengen vanwege het hefboomeffect een hoog risico mee van snel oplopende verliezen. 79% van de retailbeleggers lijdt verlies op de handel in CFD’s met deze aanbieder.
Het is belangrijk dat u goed begrijpt hoe CFD's werken en dat u nagaat of u zich het hoge risico op verlies kunt permitteren.
CFD’s zijn complexe instrumenten en brengen vanwege het hefboomeffect een hoog risico mee van snel oplopende verliezen.