Upward progress still absent in FTSE
Today’s narrow range in London proves just how distracted markets are becoming, as major sporting events get underway. Aer Lingus became the second airline in as many days to publish a profit warning, putting the sector on the back foot yet again. This fits in with the World Bank’s forecast of lower growth, a view that is itself reinforced by the rise in oil prices and the concerns that this will negatively affect growth in developed economies.
There were some short-lived gains for the overall index, but the index has settled down with modest losses as the session comes to a close. Upward progress is still absent, but so long as the 6800 level holds the assumption remains that we will see further gains.
JK Rowling may have angered sections of the Scottish National community with her defence of the Union and her donation to the No campaign, but her intervention has made IG clients even more certain that the independence referendum will go against Alex Salmond. The IG referendum market now suggests an 83% chance of a no vote, a far greater lead than that suggested by recent polls.
US markets still in consolidation phase
US markets have pushed back to pre-NFP levels this afternoon, as the modest sell-off enters its second day. Negative news is in the ascendant thanks to the World Bank and Iraq, but it still doesn’t seem like there is a major bearish catalyst developing. Instead, we are witnessing an extended consolidation phase that will likely run into tomorrow, with the usual reluctance to hold positions over the weekend. Even a move back to 1920 on the S&P 500 does not seriously endanger the long-term rally, and the target on the S&P 500 still remains somewhere north of 1960.
Oil prices soar
Traders have seen the words ‘Iraq’ and ‘civil war’ in headlines and duly sent oil prices flying today. So far, the direct impact of the fall of Mosul and Tikrit has been limited in production terms, but it is a situation that will bear close attention. The longer-term worry is the impact of higher oil prices on inflation readings for major economies – it might finally deliver the higher price growth that Mario Draghi wants, but with inflation edging up in the US there will be concerns that CPI growth might get out of hand and force the Federal Reserve to take action. This is the worst-case scenario, but markets are more than capable of focusing on that to the exclusion of all others.
Worries about higher oil prices and the US economy have prompted buying in gold and silver, transforming the outlook in these from extreme-bearishness to guarded optimism.
AUD/USD challenging April highs
Equity markets might be struggling today but risk appetite is alive and well in the AUD/USD pair. This is now challenging April highs above 0.9400, reigniting the 2014 uptrend, following the New Zealand rate hike. However, aside from this, there is a generally quieter atmosphere in FX markets, with US retail sales registering a mixed picture that left the US dollar generally friendless. Heading into tomorrow, German CPI will be the key event for EUR/USD, as it looks to finally touch $1.3500 after last week’s plunge.