European markets consolidate
With several event risks in the form of two central bank meetings, and with the ever-publicised US non-farm payrolls data later this week, equity markets are mainly consolidating before deciding on the next move. The financials, basic material and oil sectors have all ramped up gains, the former being something of a surprise given the level of exposure to emerging markets the majority of European banks hold. BP showed a drop in earnings with its replacement cost-profit declining to $2.8 billion from $3.9 billion a year earlier. BG Group also managed to make gains as bargain hunters looked beyond the losses, believing that the share price has been punished enough.
Tech stocks have not held up so well and ARM Holdings stock has plunged owing to one-off charges which contributed to a loss in the fourth quarter.
UK manufacturing output may have disappointed yesterday, but this has been almost wholly neutralised by the six-and-a-half-year high seen in construction output in January. The good news is that perhaps housing supply has an inside chance of keeping up with demand, which may help to cool the overheating property market. It is highly unlikely that better economic data will sway the Bank of England from the current forward guidance scheme tomorrow.
US stocks see firmer upside
Firmer upside in US stocks was also a theme of the day. The reaction to lower-than-expected manufacturing output in the US and weak car sales was perhaps a tad overdone; many purport that record cold weather should take the blame.
Yum Brands reported quarterly earnings that beat analysts' expectations on Monday, but some store sales in US and China stores disappointed. The stock rallied 9%, mainly on the back of the company’s buoyant outlook. Yum said it was confident of growth in the current year, and forecast profits to rise by 20%. Factory orders fell by 1.5% in December; however, given that upside catalysts for the bulls are few and far between right now, this was taken as a positive as it beat expectations for a decline of 1.9%.
Worries abound that the US debt ceiling have, in the manner of Groundhog Day, become something of a seasonal event, meaning markets may soon have to contend with some volatility. Warnings from treasury secretary Jack Lew that the Federal Reserve debt limit could be breached by the end of February have for now made little impact to sentiment.
The Dow Jones has added 55 points to stand at 15,437.
Pound regains some losses
The pound jumped on a robust construction survey, taking back some its losses against the euro and the dollar today.
The Japanese yen continues to be the currency to watch and the sell-off in the Nikkei overnight reflected the heightened importance of the safe-haven currency. It is settling around the 101Y level against the dollar for now – any break below this will add just a little more turmoil to what has been a fairly volatile 2014.
Gold holds back
The reprieve for equities today has seen gold continue to dance around the 100-day moving average, unable to commit fully to a charge higher. The catalyst here needs to be a break through the $1278 metric, which stood as last week’s high and should be taken as a serious reversal of the overall bearish trend.