Sentiment gets extra boost

The positive economic data coming from all sides, combined with better-than-expected corporate earnings – particularly from the UK financial sector and dovish central banks – has given sentiment an extra boost.

The increased appetite for risk implies that markets are expecting tomorrow’s US payrolls number to at the very least meet consensus, so any failure to match up could give way to some profit-taking.

European markets

Anyone backing a eurozone recovery would have been more than pleased with the manufacturing output numbers today. With the exception of Spain they all came in ahead of expectations, with Italy even seeing manufacturing output crossing into expansion territory. ECB president Mario Draghi reiterated his usual comments with respect to downside risks within the single currency area, which had the useful effect of driving the euro lower.  Financial fragmentation and the lack of credit growth, together with the unsettling lack of inflationary pressures, gave the ECB the excuse to keep rates on hold for as long as necessary. 

Increasing evidence that the UK economy is clambering back to its feet perhaps acknowledges that previous monetary policy actions have worked. It was, therefore, no surprise that new Bank of England governor Mark Carney chose to keep his powder dry for now. 

Manufacturing PMI beat expectations, rising for the fourth consecutive month and recording a 28-month high.

Lloyds led the pack from early on, adding as much as 9% and hitting a three-year high on the back of reports that it was ahead of schedule with respect to capital strength and cost savings. It remains to be seen whether the government will begin to take some profits, though it is likely it will hold fire for the time being; particularly if additional profits can be garnered from the situation.

Aggreko powered down to bottom place on the FTSE, despite a rise in H1 revenues. The cautious outlook for the coming year was enough to send investors running for the hills, and the share price fell by 7.28%.

US markets

Record-breaking highs were the order of the day as the S&P 500 cracked the 1700 level for the first time, and the Dow Jones rallied through the 15,630 level. The Dow Jones Industrial index has now added 140% since the lows of March 2009.

The US economic docket continued to do no wrong, with all data points crushing expectations and ultimately giving the US Federal Reserve more ammunition to taper earlier rather than later. The US jobless claims fell to their lowest levels since early 2008 while ISM manufacturing was very solid, beating expectations by a significant margin and coming in at a two-year high of 55.4 ,with the new orders component shattering the consensus view. US auto sales rocketed once again and are now almost back to pre-crisis levels, and Ford and Chrysler reported 11% gains in sales last month. Much of this can be attributed to the record low interest rates which have helped spur increased borrowing for big ticket items.

Tonight sees the release of LinkedIn’s earnings. The market has become rather accustomed to the social media company beating earnings and expectations since its IPO. Expectations are now high, with earnings per share forecasted at $0.31 on $354m revenue. 

FX

Strong US data and the chase for yield sent the greenback ricocheting off six-week lows, making it the best performing currency on the day. 

The poorly peforming official manufacturing data from China weighed on the Aussie dollar, which fell below the 90 level against the buck as markets digested dovish comments from the RBA’s Glenn Stevens. 

The pound remains under pressure in spite of the lack of action from the Bank of England today. The failure to hold the 1.52 level against the dollar sets sterling on a course to go through the 1.50 levels.

Commodities

Oil prices rose for the right reasons today; expectation of increased demand. Yesterday’s bumper expansion in the US economy – led by the largest global oil consumer and better manufacturing output numbers – gave Brent crude oil (Sep) a push through the key 200-day moving average.  The price is now flirting with the $110/bbl mark, a level not seen since early April.

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