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Mining sector dominated by risk-off attitude
The geopolitical tensions between the US and Russia formed the basis for most market activity in early trade, with the FTSE shedding 50 points before paring some losses on the release of better-than-expected US data. This risk-off attitude has been reflected in the mining sector, which has fallen out of favour as investors booked profits and looked to more defensive plays.
Better-than-expected US data has helped the index pare some losses and downside has been limited due to additional mergers and acquisition activity. News that Liberty Global has acquired a 6.4% stake in ITV has allowed the commercial broadcaster to retain the top spot today on the UK benchmark.
What remains to be seen is if there will be any escalation in the current political wrangling – any suspicion that Russia will retaliate could well give additional weight to the bears.
US markets see mixed reports
In terms of macro data today, it’s been a mixed bag for the US. Construction on new homes was a disappointment, falling 9.3% in June – ultimately bearing witness to recent comments from Janet Yellen that the housing market is cooling. By contrast the labour market continues to surprise to the upside, with the number of Americans claiming unemployment benefits falling by 3,000 to 302,000 last week. Manufacturing activity in the Philadelphia region surged in July, expanding at its fastest pace in over three years. The good news has outweighed the bad and indications that the US economic story is on an even keel have helped to instigate some stability to afternoon price action, and even allowed the Dow Jones to garner a new record high.
Strong dollar caps gold
Gold continues to oscillate around the $1300/oz mark with the stronger dollar benefiting from safe haven flow, keeping a cap on any real upside for now. Any retaliation from Russia could well act as a catalyst for a price move northwards.
It’s almost ironic that Brent crude oil prices have been in free-fall for the past number of weeks due to concerns of oversupply. Yesterday’s report of a drop in stockpiles surprised participants and this, coupled with the risk premium attached to Russian sanctions, has helped the price and trading volume spike today.
Pound loses shine
The yen has fallen quickly back into favour today as the US sanctions sent many investors towards safe havens, pushing it to its highest level against the euro since early February this year.
Some of the shine has come off the British pound as traders take some money of the table, owing to the uncertain timeframe for monetary policy tightening from the Bank of England.
The US dollar is also looking slightly perkier on the back of US treasury demand.