See important Research Disclaimer.
A late-session rally in US markets meant that we have enjoyed two consecutive up days for Wall Street, and this has provided the foundation for further gains in the UK and Europe this morning.
There certainly are plenty of reasons to be broadly optimistic. Both Intel and Yahoo were able to furnish results that cheered the market, while investors have been reassured by Chinese GDP and retail figures that were better than expected. Admittedly, the year-on-year GDP growth was weaker than the previous quarter, but the slight rise in the growth rate will encourage belief that the Chinese economy has managed to find its footing once again.
The pound has been given another impressive push higher, after unemployment dropped through the key 7% rate. However, this rise in sterling comes at cost, as Burberry pointed out this morning; a stronger home currency has significant implications for UK companies dependent on overseas earnings.
Tesco has enjoyed a bounce this morning after it was able to beat expectations, but there are serious troubles below the surface. Its full-year profit is down 6%, which has increased pressure on the chief executive. Nonetheless, this is still a company that is churning out £3.3 billion a year in group profits – investors looking for a safe haven from the carnage in pumped-up momentum stocks could do worse than to look at Tesco. A ubiquitous geographical presence and tested model easily trumps a shiny website and a toppy valuation.
Today’s action-packed session barely pauses for breath this afternoon, with Bank of America earnings before the bell, followed up by housing starts and building permits, with another Janet Yellen speech to throw into the mix as well. To round off, we have the Federal Reserve Beige Book, then IBM and Google figures after the bell. This gives plenty of scope for traders to cherry-pick the data that fits their viewpoint, but the steady drift higher in US futures this morning is beginning to suggest a market that is minded to retest last week’s highs.
Ahead of the open, we expect the Dow Jones to start 88 points higher, at 16,350.