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Europe rallies while Spain still suffers

European equity markets are broadly higher this morning as the bullish sentiment still lingers after the European Central Bank’s (ECB) update yesterday. 

The central bank outlined plans to extend the time frame, and reduce the size of the bond buying scheme, but it also left the door open to additional easing if needed.

The IBEX 35 is the notable exception to Europe’s positive move this morning, as the market is in the red. The Spanish Senate is expected to vote in favour of stripping Catalonia of its autonomous powers and impose direct rule from Madrid. Such a move is likely to stir up tensions in the region, and investors are staying clear of Spanish stocks.

Shares in RBS are up 1.2% after the bank posted a third-quarter profit of £392 million, topping analysts’ forecasts of £310 million. In the same period last year the company registered a loss of £469 million. The swing to profit was largely due to cost cutting as the low interest rate environment is making it harder for the bank to ramp up revenue. The firm is on track to achieve its financial targets, and the share price hit its highest level since January 2016, so investors are clearly convinced the bank is being turned around.  

Tullow Oil shares are down 4.6% after it plugged and abandoned an exploration well off the coast of Suriname. Great efficiency was used in the process so it was relatively inexpensive, and that is why the move isn’t in the double digits.  

EUR/USD is still suffering from the fallout of yesterday’s ECB meeting. The possibility of another extension to the stimulus programme is keeping the euro in the red. Germany posted import and export prices of 0.9% and 3% respectively, while the market expecting 0.5% and 2.6% respectively, but it failed to halt the euro decline.

GBP/USD remains weak as the Halifax house price optimism index fell to 30 in October, down from 44 in September. This is the weakest reading in nearly five years, and it has made traders nervous about the Bank of England’s (BoE) meeting next week.

We are expecting the Dow Jones to open 27 points higher at 23,427, and we are calling the S&P 500 up 7 points at 2567.

At 1.30pm (UK time) the US will announce the third-quarter advance GDP reading, and the consensus is 2.6%, and the previous report was 3.1%.

At 3pm (UK time) the US will reveal the University of Michigan consumer sentiment report for October, and economists are expecting a reading of 100.9, and that would be an improvement on the September reading of 95.1.


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