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Geopolitical tensions ease
The talk continues to be of Russian intervention in Ukraine, even if saner heads point out that the Kremlin only has 20,000 or so troops on the border. Even a ‘peacekeeping operation’ would need more than this. However, markets are never likely to treat the possibility of war with cool logic, preferring instead a knee-jerk reaction. So long as the Russians opt to stay their side of the border, markets are likely to become more relaxed, but any further ratcheting up of tensions will provide the excuse for more rapid selling.
Pharma firms have been hit hard as US moves to close the tax inversion loophole gather pace, removing one of the key rationales for these deals. Congress needs to move quickly, otherwise the latter part of this year may see a further rush by US companies to lighten their tax burdens by moving overseas.
US markets recover
After triple-digit losses yesterday US markets are looking a touch healthier, but the bears still have the upper hand. Investors will feel relieved if they have managed to survive the past few days without major losses, but if this is the beginning of a correction there is still plenty of downside to come. The dip buyers aren’t out in force yet, and will probably wait a few days before moving back into the market, lest further bad news from the Ukraine prompts another lurch lower.
The fallout from failed M&A deals has seen a number of stocks head lower, and removes another key sign of market confidence.
Gold moves above $1300
Gold and silver have seen a revival of the safe-haven trade after a few days’ puzzling absence, with gold finally moving back above $1300. Expectations of rising inflation are playing their part too, helped along by the increasing commentary surrounding a potential earlier Federeal Reserve rate hike. However there are still barriers to further gold upside, with $1320 likely to be something of a problem once again, as was the case in the latter half of June.
Cable sheds gains
GBP/USD has shed yesterday’s gains in advance of the UK rate decision tomorrow. The feeling is that at least one policymaker on the Monetary Policy Committee needs to break cover soon and vote for a rate hike, lest the market begin to disbelieve the Bank of England and cause the pound to drop back further.
Meanwhile the euro has touched fresh nine-month lows versus the dollar, ahead of an European Central Bank meeting where the bank is widely expected to do little once again.