Markets cautious ahead of Fed minutes

Equity indices are still in retreat, as markets take their usual cautious approach to events ahead of Federal Reserve minutes and the start of earnings season tonight.

Tesco store
Source: Bloomberg

Tesco share price bounces back

Day three of the global growth scare sees indices struggling to hold their ground. Bonds have become the destination of choice once again as the equity bull market faces its most serious test in months. The danger is now that a hawkish set of Federal Reserve minutes, pointing to an earlier hike in rates, could easily put markets into a tailspin from which they could struggle to recover.

It’s a testament to how far Tesco has fallen that its three-day rise is being talked about in such glowing terms. Ultimately however, the share price is simply seeing a bounceback from the heavy beating witnessed in recent weeks. Memories of the profit warning are still fresh however, so we can expect the bearish sentiment to take hold again if the upcoming set of figures fails to live up to (admittedly low) expectations.

Positive outlook on Alcoa earnings

US indices are in no mood to rally this afternoon, as they push back to the lows seen last week. It is almost as if the job numbers last Friday didn’t happen, and job recovery or not if minutes this evening adopt a more hawkish tone then the way to further downside will be opened.

At least Alcoa’s earnings could provide reason for a positive frame of mind but at around 22 times earnings, the shares do not leave much room for negative surprises. Earnings season needs to step up and rescue equity markets, since all else seems to point to reasons for further selling.

Gold halted before $1220

It must be disappointing being an advocate of higher gold prices, given that each rally still seems to be used as an excuse to short the commodity once more. This morning’s push in the direction of $1220 has come to a juddering halt, with the price now sitting close to the lows of the day.

If Federal Open Market Committee minutes this evening tread, as has been the trend, towards the hawkish end of things then a retest of the Monday lows close to $1180 is eminently possible. There is still no respite for oil prices, which remain on course to breach multi-year lows barring any game-changing decision from OPEC.

USD/JPY no longer overbought

After two days of losses dollar bulls seem to have regained the upper hand in USD/JPY, defending the ¥108 level as if their lives depend on it. Having seen the currency pair work off its overbought condition over the past 48 hours, it now looks as if we could be about to witness the next move higher for the dollar, pushing through the October highs as the divergence between central bank policy in the US and Japan becomes ever more stark.

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