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  • European stocks rise tentatively after strong session the day before
  • Wall Street record highs as DC turmoil is shrugged off
  • Congress confirms Biden election as president
  • WTI hits $51, bond yields rise further

“The people cannot be all, and always, well informed. The part which is wrong will be discontented in proportion to the importance of the facts they misconceive; if they remain quiet under such misconceptions it is a lethargy, the forerunner of death to the public liberty.” – Thomas Jefferson.

No one can accuse the US of tending to lethargy. Turmoil in Washington D.C. has been largely shrugged off by global markets, as investors bet more stimulus and fiscal expansion from a Democrat-controlled Congress will be the driving force for the upside to show more gains. The Dow Jones industrial average ended the day at the record high even as scenes of protestors entering the Capitol were broadcast. The Dow climbed 438pts, or 1.4%, to close at a record high, having touched the 31k level earlier in the session. The S&P 500 rose 0.6% to 3,748, achieving an intra-day high at 3,783. The Russell 200 closed almost 4% higher off the back of the reflation-rotation boost from the Democrat win in Georgia. Any whispered concerns about higher taxes and more regulation are being shouted down by the prospect of more spending.

European markets have shrugged off the scenes since it most think it shouldn’t amount to much more than a rather bizarre, unfortunate (and deadly) footnote in the history of the Trump presidency. Following the protest Joe Biden has now been confirmed as president which should hopefully draw a line under the last four years and deliver more certainty to the market.

The FTSE 100 struck 6,900 in early trade having yesterday enjoyed its best day since November 9th – when it rallied almost 5% following the announcement by Pfizer and BioNTech of their vaccine’s high efficacy. The blue chip index jumped 3.66% on Wednesday following a good day for value, especially energy and financials. Basic materials also performed well on hopes that reflationary macros and expansionary fiscal policy will boost demand. Signs that the UK government is taking serious steps to get vaccines rolled out as quickly as possible is encouraging and allows investors to continue to ignore short-term risks from lockdowns going on for longer and ride the reopening narrative. HSBC and Standard Chartered +10% or so in a day was not normal and probably highlights how mispriced some of these value stocks have become due the pandemic and vaccines. The FTSE is up over 6% this week.

Sainsbury’s shares advanced 4% after raising full-year profit guidance to at least £330m from the previous guidance of around £270m after surging champagne sales, among other things, helped to put the fizz in a sparkling Christmas. Like-for-like sales over the festive period rose 9.3% with Q3 LFLs +8.6%. Digital sales rose 81% and made up a remarkable 44% of total sales.

Bargain retailer B&M also reported a strong Q3 over Christmas with sales up 22.5% on a constant currency basis, with UK LFLs +21.1% over the period. The company also said it would return £200m to shareholders with a 20p special dividend.

Oil prices rose with WTI spiking above $51 a barrel again as US crude oil inventories declined by more than 8m barrels, far exceeding that roughly 2m drawdown expected and marking the biggest decline since August. Crude oil stocks at the Cushing, Oklahoma hub rose 792k, whilst gasoline stocks rose 4.5m barrels despite production dipping from 9.2m bpd to 8m bpd for the week. Distillates inventories rose 6.4m barrels. Saudi Arabia said it would raise prices for US and Asian customers and has committed to unilaterally cutting output by an additional 1m bpd.

The dollar eased off its lows, with some bid come through for USD around 13:30 yesterday as yields drew in and the 10yr Treasury dipped under 1%. Deflation continues to stalk the Eurozone, which maybe weighed a tad on the euro’s ascent, with Germany reporting its fourth straight month of deflation in December. CPI declined –0.3% for the month. This combined with some decent factory orders numbers from the US (+1% vs +0.7% expected) lifted the USD off its lows through the afternoon session here in Europe, albeit US 10s returned to 1.05% by the European close and have advanced to 1.063% this morning as the European session gets underway. EURUSD retook 1.23, having yesterday hit its strongest level since Apr 2018 at 1.2340 before taking a trip to 1.2266; and GBPUSD recovered 1.36 in early trade this morning after taking lows at 1.3540 yesterday.

Gold finally took fright at the rising yield outlook with spot retreating from a HOD at $1,960 to dip under $1,910 again, closing the gap back to Monday’s opening lows. But the bears couldn’t hold the close here and prices eased back to $1,920.

Gold finally took fright at the rising yield outlook with spot retreating from a HOD at $1,960 to dip under $1,910 again but prices eased back to $1,920.

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