Visa earnings fuel US market rally

Heading into the close the FTSE 100 is up six points at 6460 as the artificially high US GDP figures fooled nobody.

Wall street sign
Source: Bloomberg

FTSE makes quick recovery

In London, the FTSE has made a rapid recovery as the US growth figure isn’t as impressive as initially thought. When the 3.5% US GDP figure flashed on the screens it was traders’ worst nightmare. Dealers feared a rate rise must be around the corner but after closer inspection the jump in growth was largely down to Washington’s spending on defence. After nearly six years of QE from the US, traders still have the attitude that bad news is good news; old habits die hard.

RBS will update the market on its third-quarter performance tomorrow. The bailed-out bank raised traders’ hopes last month by stating loan impairments would be greatly reduced; the bank has big expectations to meet.

IG is offering a binary bet on the outcome of the next UK general election. UKIP’s rise has eaten into the chances of a Conservative majority and the problems in the Scottish Labour party have now diminished the likelihood of a Labour majority. IG’s binary is now indicating a 55% chance of a hung parliament.

Visa earnings lift US markets

In the US, the Dow Jones is up 134 points at 17,108 as a great result from Visa is fuelling the rally in broader index. The credit card company contributed 126 points to the Dow’s 134 point rally. Visa must be cash rich is it can afford to hike the dividend by 20% and announce a $5 billion share buyback scheme. The Dow would be broadly unchanged if it wasn’t for the Visa move, which says a lot about the market after QE3 was brought to and end. The US stock market will have to stand on its own two feet from now as the safety net has been removed. 

Shares in CME Group are trading lower after the biggest futures exchange in the world marginally missed revenue estimates despite being on track  for a record month.

Gold losing its appeal

Gold is a goner. The precious metal suffered a major blow yesterday when the Federal Reserve announced the end of QE3. Without a soft US dollar the metal is losing its appeal and when the Federal Reserve make noises about hiking rates next year then it will really be in trouble.

October has not been a good month for copper, first Chinese growth decelerates and then the Fed stops the stimulus package. Much of this was already priced in to the red metal but its outlook isn’t too bright.

EUR/USD above $1.26

The dollar's dominance of the currency markets was brought to an abrupt end when traders delved deeper into the US advance GDP report. The headline figure looked bullish but a dip in imports and disproportionally high defence spending by the government prompted traders to dump the dollar. 

Sterling is making the most of the soft US dollar as it scrambles to scale back the losses it suffered yesterday at the hands of the Fed.

The euro has popped above the $1.26 mark but the single currency can’t rely on a weak US dollar for its gains. The inflation reports from the eurozone tomorrow will be the acid test for the euro.

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