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Talk of stimulus boosts UK markets
Yesterday’s six-week low has been swiftly forgotten, as investors bet that China might be about to boost stimulus measures to help counteract a slowing economy. In western eyes, the Communist Party has unfettered power to maintain China’s growth rates, so miners are rallying today as risk appetite recovers.
Strong corporate news is also playing its part, and investors in Kingfisher will be particularly pleased that the company has constructed a strong narrative and painted a picture that indicates an improving global outlook. A rise above 430p means that the shares have cleared the previous high around 421p, setting them up for a further rally.
Also helping European equity markets are comments from Deutsche Bundesbank chief Jens Weidmann, who appears to be keen to do his bit to shore up the situation by hinting that quantatitive easing in Europe is not entirely impossibile. To hear a German make this comment is a novelty, given their previous intransigence. Perhaps there is hope for some European Central Bank action after all.
So, the sum of today’s situation is talk of stimulus in China, and talk of stimulus in the eurozone. But, no actual stimulus, and if markets think that talk is the only thing likely to happen, today’s rally could easily evaporate.
Poor economic data affects US markets
US markets are proving to be more recalcitrant in their gains today, with the Dow Jones shedding more than half its early move. This is due to the catalogue of economic data we had today, most of which came in on the downside. Particularly grim was the Richmond Federal Reserve reading, at -7 for March from 4 in February, while a 3.3% drop in new home sales in February added to the gloomy atmosphere. Perhaps it is the cold weather, or perhaps the US economy is finding it difficult to maintain its growth rate, but the net result is not encouraging for stock markets when we have a Fed that is set on its current course.
Copper still in downtrend
Copper is back through the $3/pound level for the first time in almost two weeks, with China news being the chief driver here. More stimulus means more construction and more industrial output, which is beneficial for copper. A look at the broader long-term move is not encouraging, however, since we’d need to actually see evidence of stimulus in China to break copper out of the current, seemingly inexorable, downtrend, and for now all we have is talk.
EUR/USD knocked back
Mr Weidmann’s comments have knocked EUR/USD back towards the 50-day moving average, wiping out the sharp move higher we saw yesterday. We are once again probing the lows around $1.3750, helped on the way by the drop in the German IFO sentiment index this morning.
Longer-term, the EUR/USD uptrend is still intact, but if today’s QE comments are indicative of any longer-term shift in ECB thinking then we could be in for a significant boost in volatility.