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Markets await Mansion House speeches
The grim shadow of the past three weeks appears to have been left behind today, with European equities leading the world higher. Markets do not move in a straight line and at some point the negativity surrounding a likelier 2015 rate hike driven by Friday's payrolls number, along with continued Greek fears was going to dissipate. Weak manufacturing production data out of the UK did little to dampen market positivity, with the FTSE 100 and 250 bouncing just in time to stop a more significant rout that would have been likely given the significant support levels below yesterday's low.
Markets are turning towards the Mansion House as a possible volatility driver, yet with Mark Carney far from any significant change to policy, the focus will be on George Osborne who is likely to necessitate a budget surplus for any future government that is in charge of a growing economy. Frankly, the necessity of Mr Osborne to dictate how future governments are run seems to overstep the mark and aims to reduce the flexibility of the chancellor function going forward. Such a rule has tones of the US debt ceiling, which seems sensible at first, but ultimately sees the goalposts moved as and when it is necessary.
Yesterday's HSBC announcement of substantial UK job losses points towards a fightback from the sector in the face of growing taxation and regulation in the UK. Thus with Mr Osborne set to take to the stand, markets will be watching to see if the banks have an easier ride off the back of the HSBC revolt, or whether the likes of the levy tax are given the go ahead.
FirstGroup earnings drove shares 5% higher, as the school bus business took off, driven by higher margins. While lower oil prices reduced costs, the US Greyhound bus service particularly suffered from the increased affordability of cars on the road.
Target double share buyback scheme
US equities followed the lead of European markets in bouncing higher from a thoroughly frustrating three weeks for bulls. Calls for a more protracted downturn across global indices appear to have been pulled for many, as the technical outlook began to turn bullish following yesterday's inability to maintain the losses seen in the early part of the day's trading. Ultimately the possibility of an early rate rise, as highlighted by Friday's spike in payrolls, should not be taken too seriously until we see consistent outperformance.
It is not worth looking at any single month in isolation and knowing the Federal Reserve, there will likely soon be another reason around the corner to push any such hike down the line.
The decision from Target to double its share buyback scheme is the latest in a long line of such decisions as low interest rates make borrowing cheap and funding easy for major firms. At a time when M&A activity also dominates, the fact is that buybacks are a relatively risk-free way of investing money and as such investors typically welcome any move to avoid rocking the boat, while also boosting the share price.
Meanwhile, the news of Apple's decision to move into music streaming services has met its match as Spotify raised another $526 million to value the firm at $8.53 billion. With 75% of all UK streamers using the Spotify service and a total 75 million worldwide users, Apple will find itself as the underdog for once and the with the 'cool factor' waning for Apple products, Spotify is likely to remain the market leader for some time yet.
USD weakness encourages gold strength
US oil inventories fell by the largest amount in almost a year today, with 6.8 million barrels trimmed off the circa 470 million barrels that are currently stored in the US. Nevertheless, despite falling US rigs, production continues to rise, forcing the likes of WTI and Brent southward. Given the recent resurgence of crude prices, it feels like the sellers are likely to come back into play soon and this announcement could mark that moment.
Meanwhile, gold strength continues to be driven by USD weakness, with its foray below the crucial $1180 level proving to be brief. Bullish momentum is likely to be here to stay, with a move back to $1220 likely in the coming weeks.
Long-term downtrend expected to return for EUR/USD
EUR/USD is struggling to hold on to its gains for a second consecutive day despite early pressure from the bulls. The likeliness of a Greek deal to save the day is currently overriding any euro bears with an eye on monetary policy divergence. However, any such deal would likely see a limited period of enthusiasm and the long-term downtrend is expected to return sooner or later.