Resurgent dollar sends equities lower

Heading into the close, the FTSE 100 is 40 points lower, as indices retreat on a combination of Greece and a stronger US dollar. 

Leadenhall building
Source: Bloomberg

Traders flee European stocks

The pattern of the week has been repeated in London today, as the FTSE suffers from Greek nerves but maintains a degree of calm compared to heavy losses on major eurozone indices. Greece may have been able to bundle together its repayments into one larger, possibly unmanageable, payout later in the month, but this is only a temporary breathing space. Indeed, the very lack of any progress has meant that investors are banking on further volatility in June and thus have continued to pull money from European stocks.

UK stocks have not been immune, and we have seen the index test 6800 during the course of Friday’s session. As we look to the coming week, the themes of the past one remains with us – Greece and a stronger US dollar.

Today’s job numbers prompted more dollar buying, with the chances of a 2015 Federal Reserve rate hike greater once again. The summer is not shaping up well for equities.

Strong US jobs number heigtens interest rate talk

US indices are once again facing an increased prospect of higher interest rates later in the year, as job numbers came in ahead of expectations. Even a small rise in unemployment was not considered bearish for the dollar, since it arises from more workers re-entering the labour force. Wages were up as well, with today’s job report being perhaps the first universally positive one in a number of months.

There was still some buying of stocks during the afternoon, with the Dow Jones off its lows in the opening hours, as further ructions in Greece caused equity buyers to move from Europe and across the Atlantic. However, the resurgent dollar leaves equity indices looking vulnerable to more downside in the week to come.

Brent holds near $62

Although off the lows for the day, oil prices look to have their course mapped out for them. OPEC has done as expected and left production levels unchanged. The organisation has decided that demand will pick up sufficiently to put upward pressure into the market, but this sunny outlook seems to fly in the face of overwhelming levels of supply.

Brent crude is holding close to $62, while WTI is clinging on around $58, but with any hope of an OPEC supply cut eliminated from the outlook Western drivers can be reasonably confident that the petrol at their pumps will get cheaper.

Gold is under further pressure too, as a positive set of US payrolls leaves the metal looking distinctly unsupported.

USD/JPY at multi-year highs

Fresh multi-year highs for the dollar against the yen was symbolic of a day in which the US currency once again swept all before it. It was another tough day for the pound and the euro, as good economic news from America set investors to frantic buying of the US currency.

Mario Draghi might have been quite upbeat at his press conference yesterday, but the US currency doesn’t have an existential crisis on its hands in the way that the euro does. The latest failure to hold on around $1.14 raises the prospect of a return to the year’s lows, and even a fresh step in the direction of parity.

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