The cloud of US tapering fears continues to hang over equity markets, comfortably outweighing the continuing trickle of encouraging European economic data. As global economic regions have shown signs of improvement, the fears over their ability to destabilise the US recovery have faded, clearing a path for a swifter implementation of quantitative easing tapering.
It is always more dangerous to draw conclusions about the markets in the middle of the summer holiday season. As equity volumes struggle to reach the year averages, it can create misleading data. With the likes of easyJet and TUI Travel being two of the top five fallers today, it does appear that traders have decided to take profits off the table following their good first-half figures. Even with a number of commodities performing particularly well, the mining sector stocks in the FTSE have failed to show much enthusiasm to head higher.
The slump in US equity indices continues, and the Dow has now been down in seven of the last nine trading days, dropping almost 3.5%. Speculation that the quantitative easing taps will start to be turned off before the end of the year appears to have taken hold, and as yet the 'buy-on-dip' traders are conspicuous by their absence. The collapse does appear to be spread out evenly between all the sectors, however there is one equity that sticks out a little more than the rest. JP Morgan is now dealing with certain consequences: the $6.2 billion loss that the London Whale created will only be the start, as it will almost certainly receive fines from both US and UK regulators for its lack of oversight to company exposure, and for the subsequent inaccurate statements made to the public about the company's profitability.
Commodity traders have their pick of moving markets today, with copper hitting nine-week highs, boosted by the encouraging economic commentary coming out of China. Whisper it quietly, but gold is threatening to break out of the bear run it has been embedded in for the past ten months. The political and civil unrest in Egypt is causing oil traders to hit the panic buttons, as they worry about potential tightening of supply coinciding with improving global economic data and a subsequent increase in demand.
GBP/USD has again charged upwards, setting new six-week highs, and looks to have the appetite to breach the 1.5600 level in the coming days. Not to be outdone, GBP/EUR has also set new six-week highs. Both of these currency crosses will be attracting the attention of momentum traders, as there has been a notable shift in sentiment towards a strong sterling.