FTSE rises as geopolitical tensions ease

The FTSE’s bounce has continued this afternoon, supported by a fresh rebound in US markets, as geopolitical concerns ease.

Canary Wharf
Source: Bloomberg

FTSE close to 6800

Talk of a new Cold War was always rather excessive, but fears of a renewed freezing over in east-west relations have diminished today, on signs of co-operation in the investigative efforts in Ukraine. Add to that the restart of US earnings season after Monday’s quiet session, and markets have taken their cue to rally once again.

The FTSE is on the cusp of 6800, and a move higher then raises the possibility of yet another attempt to break 6880.

ARM has built on its morning gains and is on track to end the day 5% higher, as talk of a takeover begins to swirl once again. It would be easy for one of the big US firms to scoop up the company, and would represent a great reward for investors that have stuck with the company through good times and bad. 

US markets await Apple results

For the S&P 500 the big challenge of 2000 is still a real possibility, especially if today can see a close above 1985. This market continues to take major global events in its stride, and the in-line inflation reading reduced concerns that a sudden spike in price growth would lead to a sharp change in Fed thinking and an earlier-than-expected rate increase.

The overall backdrop still remains conducive for equities – improving growth and company earnings, with no sign of a central bank about to opt for rate hikes. All eyes turn to Apple, which has five consecutive quarters of earnings beats behind it, in order to maintain the gains we’ve seen today.

Gold heads back towards $1300

A drop back in US core inflation in June, to just 0.1% month-on-month from May took the fight out of a budding rally in gold, leaving it condemned to push back towards $1300. However, the real risk for gold lies around $1294, a drop through here would leave it rather exposed to fresh drops towards $1280.

With risk appetite in equity markets back on, and earnings season still doing its bit to prop up the market, the brief rush to own gold has rapidly disappeared.

Euro drops through $1.35

The long-awaited break through $1.35 for EUR/USD puts the single currency at its lowest level versus the US dollar since mid-November. Unlike recent readings on CPI today’s headline number was in line with expectations, and thus there was only a modest move towards the dollar. We will need to see inflation push firmly in the direction of 2.5% in coming months for the market to begin to reassess its broad view that a US rate hike is not on the cards until mid-2015 at the earliest.

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