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FTSE at five-week low
Heavy selling on Vodafone and BG Group today has sent the FTSE at a five-week low. With traders in full risk-off mode, the utilities companies are benefiting from defensive capital flow. Contagion from the sell-off in emerging markets as tapering fears gather steam and worries that a high-yield Chinese investment trust product is on the cusp of default are both contributing to this downside; but the main factor is that equities have risen too much too quickly. A correction to the downside was inevitable and is, in many respects, healthy.
United Utilities is due to provide a trading update later this week, and has floated up 2.18% to the top of the index. Severn Trent is also finding its feet and rising through the 1700p mark for the first time in three weeks.
Vodafone shares are back at October levels, as AT&T reneged on any potential takeover deal. Some could argue that much of the upside in the telecommunications company's share price since September of last year has been founded on sand rather than any fundamental changes to the company trading.
Positive services boost US markets
US equity indices opened higher, helped by better-than-expected activity in its services output which rose to 56.6 from 55.7 in December.
Heavy machinery manufacturer Caterpillar reported a 44% increase in fourth-quarter profits and holds quite an upbeat assessment on global economic growth. Given the bellwether status the company holds, this has helped to bring a little buoyancy to US indices in early trade.
New home sales have been less impressive, dropping more than forecast in December. Sales decreased some 7% to 414,000, which was well below the consensus of 457,000. Higher borrowing costs can certainly take some of the blame, but it is poor weather in the US recently that is likely to have caused a temporary setback during what is normally a quiet time for house buying anyway. Put into perspective, the sales of new homes hit 428,000 in 2013 which was the most since 2008.
The Dow Jones is struggling to make any decent headway through 15,950. Trapped in a tight range it is currently trading up 30 points at 15,910.
The S&P 500 is trading below the important 1800 level, which may well indicate that additional losses in the indices are on the cards.
Apple, due to report this evening, may help to bring back some positive sentiment. Earnings per share is forecast to increase to $14.09 from $13.81 year-on-year, while revenue is projected to rise 5.4% to $57.46 billion.
Currency traders uncertain
The pound has powered ahead, paring back some of last week’s losses and benefiting from the safe haven capital flow along with positive sentiment ahead of the UK GDP release for Q4 tomorrow.
The resilience of the euro has run out of steam around $1.37 today. With eurozone inflation data due out later this week, along with a probable quantitative easing taper from the Federal Reserve, it’s quite likely that the EUR/USD could see a range-bound move as traders attempt to pick an overall trend based on uncertain central bank policy action. Currency traders are at the mercy of both the European Central Bank and the Fed for the time being.
Stronger dollar caps gold
Having spent the past five weeks slowly but surely ramping higher from the $1180 level, gold prices were limited to a 10-week high of $1276/oz following profit-taking and speculation as to what route the Federal Reserve will choose with respect to tapering later this week. A stronger dollar is keeping a cap on any moves towards the $1300 metric at this juncture. This marks a strong resistance area due to the position of the 144-day moving average, which has kept the gold price in check for a full 52 weeks.
Oil price gains were also fairly muted as the prospect of a further reduction in central bank stimulus underpinned the dollar. Slowing growth in China has also been a factor and, with manufacturing output in the second largest global economy slated to show a decline this month, oil may well be in for additional losses.