All eyes are on the Federal Reserve as the US central bank is due to announce its interest rate decision at 6pm (UK time), no change to policy is expected.
Europe
The press conference will start 30 minutes after the rate announcement is revealed. Equity markets in Europe have been quiet today as traders are content to sit on their hands ahead of the announcement. Broadly speaking, stocks are mixed, this was partially caused by a move higher in government bond yields. The upward move in yields reflects the views that we are in for higher inflation. In addition to that, an increase in yields usually sparks conversations about hiking interest rates, but for now, the Fed want to leave rates near zero until 2024. Jerome Powell, the Fed chair, won’t want to talk about tightening policy just because yields are rising so he is likely to point out the unemployment rate is still way above the Fed’s target, so the policy will have to remain very loose, even if that means enduring some inflationary pressure in the near-term. The FTSE 100 is underperforming against the markets in mainland Europe as mining stocks are hurting the index.
The financial markets have seen a lot of volatility in the last year because of the lockdowns as well as the subsequent responses from central banks and governments. Hargreaves Lansdown, the stockbroking firm, saw a jump in client activity in the past 12 months on account of what went on in the markets. This morning, the group announced that it expects full year profit to be above the top end of analysts’ forecasts.
Capita posted poor full year figures but the company’s restructuring programme is going well and further changes are on the horizon. Group revenue was £3.3 billion, down from £3.6 billion last year, the pre-tax loss was £49.4 million which was a big difference from the profit of over £62 million last year. Capita confirmed the results today were in line with expectations that were set out in the first half. In a bid to whip itself into shape, the property consolidation programme was sped up, which led to the closure of 49 offices, in 2021 office space will be reduced by a further 15%. Thanks to its restructuring, the firm said it is on track to achieve annual organic revenue growth, which would be the first time in six years. Capita intends to sell off £700 million worth of assets.
HSBC issued a buy rating for Standard Chartered, an upgrade from its previous hold rating, the price target was upped from 430p to 550p.
Rolls Royce shares hit a three month high as JPMorgan lifted its price target from 45p to 105p. The US bank also increased its rating for the engineering titan from underweight to neutral.
BT is one of the biggest risers on the FTSE 100 as the telecoms company bought a bigger tranche of the 5G spectrum than its rivals, the move ties in with its large investment plans. BT snapped up £452 million worth of 5G spectrum while Three and 02 invested £280 million, and Vodafone spent £176.4 million.
US
The mood on Wall Street is a little cautious as the US 10-year yield is above 1.68%, setting a fresh 13 month high. The Fed is in focus and the nudge higher in yields has encouraged traders to curtail their exposure to stocks, especially tech shares, the NASDAQ 100 is -1.1%, while the S&P 500 is off 0.4%.
Plug Power shares slumped as the company cautioned that some of its previous financial statements can’t be relied upon. Whenever there are concerns over the accuracy of accounts, it is common for dealers to dump the stock as having inaccurate financial details is a serious breach of trust. The power company said it will restate its results for 2018 and 2019. This is a step in the right direction but it will probably take a lot of time to regain the trust of traders.
Uber lost a legal battle in the UK so it will now have to grant in excess of 70,000 drivers certain benefits, such as holiday time pension contributions and minimum pay. Individuals driving for Uber in Britain will receive better financial conditions but they will not have the exact same rights as full time employees.
CrowdStrike’s fourth quarter update was well received. EPS came in at 13 cents, ahead of forecasts. In the final three months of the financial year, revenue was $264.9 million, which topped the $250.4 million consensus estimate. The cybersecurity firm’s outlook impressed traders, the full year revenue guidance is $1.31-$1.32 billion and that topped the $1.22 billion that equity analysts had predicted.
FX
The CMC EUR Index is one of the best performers today but keep in mind that last week it fell to its lowest level since July, so today’s positive move seems to be driven by a combination of bargain hunting and short covering.
Overall, the foreign exchange market is pretty quiet as the update from the US central bank is the major event of the day. The CMC USD Index is a touch higher but volatility is very low. Should Mr Powell say that an increase in inflation is on the cards, that is likely to push up the dollar. Even if the central banker tries to play down the pressures of rising costs, the dollar is unlikely to endure a large scale decline due to the US’s solid economic rebound.
Commodities
Gold hasn’ t moved much today as the absence of volatility in the markets has influenced the commodity. Over one week ago, the metal fell to a nine month low and even though it has recovered somewhat, the broader bearish trend is still in place. If the Fed caution about inflation, it will probably spell trouble for gold as the dollar is likely to jump due to such a warning.
WTI and Brent crude oil are in the red again as traders have been unwinding their long positions in oil in recent sessions – last week oil hit a 14 month high. There are mild concerns doing the rounds about major European countries partially suspending their vaccine schemes so that is chipping away at demand prospects. The EIA report showed that US oil inventories increased by 2.39 billion barrels, slightly below the 2.96 million barrels consensus estimate. Gasoline stockpiles grew by over 470,000 barrels, while analysts were expecting a draw of 2.99 million barrels. It seems that things have gone back to normal with respect to stockpiles as the big freeze distorted the inventory levels – refining capacity slumped, which caused a colossal build in stockpiles.
