US indices lead modest global recovery

Bad news is still available for those in need of it, but for the moment US indices are doing their best to lead a modest recovery in global markets.

Johnson & Johnson
Source: Bloomberg

Earnings season provides rally foundation

After weeks of macro-economic turbulence the start of the real US earnings season is providing indices with a modest foundation on which to build a rally. Earnings from big US banks have been greeted with a sigh of relief, and are a welcome distraction from the troubles of the eurozone and other parts of the world. Even the abysmal ZEW reading from Germany has been shrugged off, with some investors reasoning that if things really are as bad in the eurozone as the data suggests, then 

European Central Bank quantitative easing has just taken a step closer to becoming reality. Burberry’s shares have been knocked back following a downbeat update this morning, but the buyers are still coming back into the picture around the key £14 mark, which has underpinned the share price for over a year. Still, on around 20 times earnings Burberry looks like a rather overconfident bet on strong growth in the luxury sector, at a time when such assumptions are looking increasingly fragile. 

Last week's lows provide buying opportunity

If today’s bounce was to mark the beginning of a steady recovery in US equities, then last week’s lows could be seen to represent the most opportune buying moment investors have had for months. The banks, together with Johnson & Johnson, have certainly got things off to a reasonable start, and a return of volume as the quarter gets into full swing should see some nervous buyers step back in.

Dark clouds remain on the horizon but recent comfortable words from central banks, which have aimed to dispel the idea that rate hikes are a done deal, should calm nerves. A recovery of 1900 in the S&P 500 would be a good first step, as investors look to benefit from the volatility that traders have been enjoying over the past week.

Brent reaching multi-year highs

The IEA has done its best to aid the ongoing rout in crude prices, with the price of Brent pushing to levels not seen since the end of 2010. The organisation’s cut to its demand forecast underscores the plentiful nature of crude supply at present; a situation designed to ensure that we see additional downside coming through in the crude markets. Consumers might cheer lower prices, but it is the drop in oil that is doing much to aid the ongoing deflation process that has confounded the world’s major central banks.

The long-awaited bounce in gold prices has stalled shy of $1240, and any failure to clear this will mean that the way back to $1200 is open once again.

UK price growth hits five-year low

Interest rate hike expectations have been dialled back significantly today as UK price growth hit a five-year low. A November rate hike is as extinct as the proverbial dead parrot, and a February one looks a long shot too. Factor in the general election and the Bank of England’s room for manoeuvre has been effectively eliminated.

A close below last week’s lows would put the pound on a fresh trajectory that would eliminate even more of the bounce from the 2013 lows. 

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