FTSE stumbles but US rebounds

Heading into the close the FTSE 100 is down 55 points, testing levels not seen for two months.

Wall Street sign
Source: Bloomberg

FTSE gives back post-FOMC gains

The tone of markets has remained firmly negative, as the FTSE 100 gives back all of its post-FOMC gains following a US GDP reading that has got worse with each passing revision. This and the Iraq situation have been the sole macro events of note, and in neither area can traders find much comfort.

Even so, technical traders will note that the index is fast heading in the direction of the 200-day moving average at 6700, and this could well bring out the dip buyers, especially those frustrated by the small size of the losses earlier in June. In addition, US data from Q2 has been resolutely better, signalling that Q1, while bleak, may have been the outlier.

US markets lifted by PMI reports

US markets have been the rock around which investors can rally this afternoon, edging higher as indices in Europe drop back. Unlike other indices, the S&P 500 and Dow Jones seem in much healthier form, and appear to be finishing the second quarter in a much stronger fashion than the first quarter. This could turn out to be a prediction for the second quarter in economic data too, providing the basis for a grind towards new highs in the third quarter, and PMIs this afternoon support this idea nicely. Strength in the mid- and small-cap arena proves that dip buyers are still prepared to step in when opportunities present themselves.

Iraq tensions drive selling in oil

Brave souls looking for volatility in markets need look no further than their old friends the oil contracts. Weaker US GDP and some lessening of Iraq tensions have prompted further selling, and expectations of lower US consumption have signalled that for now the oil spike appears to have run its course. However, even with the risk of a loss of Iraqi supply receding, the world will have to get used to oil running at a slightly higher level for the foreseeable future, so long as the ‘doomsday scenario’ of an Iraq completely under ISIS control remains.

US dollar at five-week lows

US GDP for the first quarter has plumbed new depths, and this has sent the US dollar to five-week lows. Some flight to safety buying has seen Treasuries advance, while the battered euro has at last been able to catch its breath, pushing out to its highest level in almost a week. But with the European Central Bank looming and eurozone data seemingly not getting any better, the upside for the euro looks limited, particularly if Mario Draghi opts to give his views on the possibility of quantitative easing an airing.

 

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