FTSE shakes off negative US hangover

The FTSE has retraced the majority of the losses it felt yesterday but remains capped by the 6770 level.

European markets take cues from US and Asia

The financial sector has lost some of yesterday’s momentum, and we’ve seen a reversal of fortune in some of the main UK banks today. Ashmore Group’s results indicated that the increased volatility in emerging market funds had impacted its net fund inflows detrimentally. Given that the financial sector is due to report earnings next month, this may turn out to be more than a one-off issue.

Negative sentiment from the US and Asian sessions fed into early trade in European indices. Better industrial production data from the eurozone, coupled with news that UK inflation was heading in the right direction, helped to neutralise some of the worries associated with weak corporate earnings.

Oil companies were out of favour, and engineering company Amec lost demand and fell in sympathy with peers. News yesterday that the company was to buy Swiss-based rival Foster Wheeler saw the stock lift upwards, and today we’re seeing some profit-taking set in.

BSkyB got a great reception from investors, adding 4.14% on the back of a broker upgrade and scaling to the top of the FTSE 100 index.

The Bank of England governor can breathe a sigh of relief now that UK inflation has finally ticked down to the target of 2%. This certainly removes some of the pressure from calls for imminent rate hikes to temper inflationary pressures. Data from the ONS suggests that annual house-price growth is still an issue – even if London is removed from the equation. With the average house price now 5.4 times earnings and unemployment falling closer to 7%, the pressure to tighten monetary policy will still be felt from some factions.

US retailers defy the big freeze

Many blamed the weather for the poor payrolls number in December, yet the American consumer clearly braved the cold as retail sales rose more than forecast last month. They were helped by holiday-season deals and improving consumer confidence. Breaking down the number, it really only offsets the downward revision to the November data.

The Dow Jones has recouped some of yesterday's triple-digit losses, adding around 50 points. It's currently trading at 16,309.

While both JPMorgan and Wells Fargo reported before the bell, we are seeing contrasting moves in their respective share prices. JP Morgan is being given the benefit of the doubt by investors and has risen over 1% in trade, depsite a 7.3% drop in profits.

Dollar loses ground

The pound took a short trip below the $1.64 level in the immediate aftermath of the CPI release. This was quickly reversed and keeps sterling on its six-month uptrend against the US dollar.

The euro also saw increased upside against the dollar. Denials that any issue or action with deflation concerns was imminent from the ECB’s Nowotny all helped the single currency to drift upwards. It established a 1.5-week high as it tested the 1.37 level.

The return of the safe haven

We may be looking at a short-term upside in gold, owing to the emergence of a technical reversal pattern. The move through the $1241 level this week, supported by large commercial traders adding to their holdings last week, has put gold in a positive light. Any moves through $1268 would put the trajectory on a course to tackle the $1300 level. The volatility or ‘fear’ index yesterday fell to its lowest level since August of last year. This would imply that a degree of caution is puncturing the overtly equity-bullish sentiment, and we may well be seeing a marginal return to the safety trade as we enter deeper into corporate earnings season.

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