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FTSE firmly in the red
There have been scarier Friday the 13ths in markets, but for the FTSE a drop of 1% has been rather unnerving. Crucially the index tested the 6770 level around midday, but as expected, buyers were found. Disappointingly however, any bounce from here will run straight back into the 6870 region that has been a real barrier so far this year.
The real damage from Mr Carney’s speech has been wrought in housebuilders, which have been shown to be extremely vulnerable to greater speculation about rate hikes. Crucially, Mr Carney stressed that increases would be gradual. In a sense, the UK is going through its own ‘taper tantrum’. Ben Bernanke’s careful hints about a reduction in QE set the cat among the pigeons, but when the taper did arrive markets were much calmer. Mark Carney is presumably aiming for a similar effect. Such is the magic of central banking.
US markets find buyers
US markets have rebounded this afternoon, and two down days appears to be all the bears can muster for now, as the market works off its overbought condition. Bullish sentiment had become stretched over the past week, but now there is a growing number of buyers. Crucially, the weekly trend has not even been dented over the past week, an indication of just how strong upward momentum is at present.
World Cups usually see an S&P 500 decline of around 2.5%, but it seems the bulls are going to take advantage of low volumes to move back in the direction of 1950 in due course.
Oil drops back from highs
Tensions in the oil market have diminished significantly this afternoon. Either that, or traders with long positions have been busily booking profits ahead of the weekend. In either case, oil has dropped back from its highs. But with the situation in Iraq still looking bleak the upside bias remains firmly in place. The recent events promise to be much more disruptive than events in the Ukraine, as rational state actors are less important. Instead, investors will have to worry about ISIS, which is likely to be less bothered by the disruption to the global economy caused by surging oil prices.
Lack of appetite sends cable lower
GBP/USD is dropping back as well this afternoon, indicating a lack of appetite to push towards $1.7000. Cable was certainly overbought on an hourly chart, and as with oil prices, a degree of profit-taking is in order here, but it does suggest that we will now see GBP/USD attempting to settle around $1.6950 for a time.
Bank of England minutes next week will need to show a move to increase interest rates if Mark Carney is to avoid looking as if he was just firing a warning shot, or worse, just fishing for headlines to steal the limelight from the chancellor.