FTSE 100 up nearly 4%
Markets continue to make hay in the aftermath of the Federal Reserve meeting this week. Last Monday investors were very skittish, worried that the Fed would signal that the first rise in US rates in a decade was getting closer. That fear was fully laid to rest during Wednesday’s meeting, and since then we have seen confidence return in force. After weeks of lagging behind, the FTSE 100 has solidly outperformed its peers in Europe and the US, rising nearly 4% for its strongest gain in 2015 so far and the best week since mid-December.
European markets are still much further ahead for the year, but with so much liquidity sloshing around, and lots more to come, it was almost inevitable that some of it would find its way to London and put new life into UK markets. The mid-cap FTSE 250 touched record highs too, underlining the optimistic appraisal of UK economy laid out this week by George Osborne.
Housebuilder Persimmon sits at the bottom of the index as the shares go ex-dividend, while the top end is led by building materials firm CRH, as investors give a definite seal of approval to its deal to acquire from Lafarge and Holcim – with the two European firms still struggling to come to a final merger deal, CRH looks well-placed to capitalise on their indecision and expand its business.
US indices pushed higher by Yellen's stall
After a sharp drop yesterday US indices have resumed their march higher, safe in the knowledge that Janet Yellen is still not ready to call time on this bull market. Fed tightening is perhaps the one thing that can really scare this market, which continues to defy toppy valuations, declining profit forecasts and sluggish growth in many areas outside of the US.
We can expect another bout of worry in April before the next meeting, but that is over five weeks away and leaves us with plenty of time to explore new all-time highs on this side of the Atlantic as well.
Silver 3% higher
Dollar weakness has meant ‘general advance’ has been ordered across the commodities complex, with silver racing 3% higher and oil lifting itself as well. This is a trade that may play itself out for a short time, but the dollar’s temporary setback is just that, and we can expect a resumption of the ‘long dollar, short almost everything else’ trade that prevailed in the first half of March.
Eurozone recovery quickens
Shorts are feeling the squeeze in GBP/USD and EUR/USD this afternoon, as the volatility that marked Wednesday’s session returns. The euro resolutely refuses to follow the plan seemingly pre-ordained for it just a week ago, when parity was ostensibly right around the corner. Eurozone PMIs next week could well provide more fuel for this surge, as the eurozone recovery gathers pace.
Mario Draghi can feel justified in his optimism, as the data certainly appears to be going his way. EUR/USD now targets Wednesday’s highs above $1.10, which would be the most significant reversal in this trend in two months.