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FTSE could challenge 7000
Stock markets in Europe continue to be of the opinion that a Greek deal is on its way later in the week. Yesterday’s developments have been taken as a signal that investors can stop worrying about Greece for now, as some sort of solution is on its way. If we reach the end of the week without a deal, the response could be ugly. Already Greek lawmakers are indicating their displeasure, and there is still much work to be done before we can safely say that the issue is resolved, but for now the default assumption remains that a successful end is on its way.
The UK market is lagging behind its counterparts, but having continued to build on yesterday’s gains it looks in a position to challenge 7000 once again.
Weir Group shares are on the up today after a difficult few sessions, helped along by a read-across from Petrofac’s results, as investors begin to hope that the months to come will prove to be a more fruitful environment for firms connected with the oil market.
Bunzl however failed to join in the wider market rally, on concerns that the recent acquisition spree will take a while to digest, with a consequent impact on margins over the coming few months.
Powell's comments breathe life into dollar
US indices failed to replicate the strong showing of their European peers this afternoon, with gains stymied by the return of monetary policy commentary from Federal Reserve members. Jerome Powell, a voting member of the committee, has aired his views on the rate outlook, with the opinion that a September rate hike is now a 50% chance, with a steady rise in rates in coming years. This is hardly a radical departure from the established view, but such a clear view from a voting member was enough to put new fight into the US dollar, leaving equities unable to sustain yesterday’s gains.
The year 2015 so far has seen US indices fare poorly on the day after a rally of at least 0.5%, and today has been no different.
Dip buyers are still active, but faced with a rising dollar they can make only the slightest headway.
Gold could break new year-lows
Unsurprisingly, the combination of Greece optimism and Mr Powell’s comments meant that gold and silver went into full reverse, making a second day of heavy losses for precious metals that has transformed the outlook from bullish to firmly bearish.
A steady rise in US rates is anathema to the gold market, which now threatens to break to new lows for the year.
Euro suffers on Greek deal expectations
It was a day of dollar dominance, with the currency carrying all before it thanks to Mr Powell. Although we saw some of the moves reversed in the afternoon, with the dollar index easing off the session highs, it looks like dollar bulls are planning to make hay once again.
The euro continues to suffer from expectations that a Greek deal is incoming later in the week, repeating the pattern of recent days. Repeated extensions of the European Central Bank’s liquidity cap reinforces the impression that eurozone institutions will do what is needed to provide politicians with the time to hammer out a deal, despite previous assertions that time was fast running out.