Stocks have been edging lower ahead of the Federal Reserve meeting this evening.
Europe
Dealers appear to be closing out their long positions in advance of the interest rate decision and press conference.
Glencoreshares are in positive territory after the company revealed a restructuring plan at one of its subsidiaries operating in the Democratic Republic of Congo. The move involves a $5.6 billion debt-for-equity swap, and it will protect the operation, which has the potential to be the biggest cobalt mine in the world. The mineral has become extremely popular recently, as it is used in batteries of smartphones and electric cars. Shares in the mining giant have been in an upward trend since January 2016, and if the positive move continues it could target 402p.
Just Eat shares are in the red after Deliveroo confirmed ambitious expansion plans yesterday. Deliveroo hopes to sign up 5,000 new eateries, and it will offer assistance to restaurants that have their own delivery staff, but need additional drivers during busy periods. The aggressive expansion plans have eroded investor confidence in Just Eat, as dealers feel it will dent profit. However, the stock has been largely moving higher for over four years, and if it remains above the 200-day moving average at 766p, it could go on to target 900p.
Dixons Carphone announced that hackers accessed the card details of 5.9 million of its clients. The cyber breach also saw the personal details of an additional 1.2 million clients being accessed. Dixons Carphone confirmed there is ‘no evidence of any fraud’ as a result of the cyber-attack. This isn’t the first time the firm has been the victim of such an attack. In 2015, more than 3 million Carphone Warehouse clients had their data accessed. The stock is in the red due to the knock-on reputational damage.
US
Equity markets are mixed as investors are in wait-and-see mode in the run-up to the Fed meeting. Trading volumes and market moves are likely to be low until we hear from the US central bank.
Traders will be paying close attention to the meeting and press conference at 7pm and 7.30pm (UK time) respectively. The market considers an interest-rate hike of 0.25% a done deal, and the press conference is expected to be the highlight of the session. Dealers will be listening out for clues as to what the US central bank will do at the back end of the year. Some traders predict there will be a rate hike in September and December, while others feel that is overly optimistic, and that there will only be one rate hike, in December.
The Fed chair, Jerome Powell, is known to be a safe pair of hands and he hasn’t rocked the boat since taking over from Janet Yellen. Last year the Fed hiked rates three times, and tonight’s update could signal how many more increases we can expect this year.
US PPI jumped from 2.6% to 3.1% on an annual basis, while the consensus estimate was for 2.8%. It is hardly a surprise the reading has risen, given the rally in the oil market over the past 12 months. The core PPI reading, which strips out the impact of energy and food prices, ticked up to 2.4% from 2.3%. This points to a real increase in demand, which bodes well for the economy.
FX
EUR/USD is higher ahead of the European Central Bank (ECB) meeting tomorrow. It is believed the ECB will signal the end of the bond buying scheme, and traders are buying the single currency in advance of tomorrow’s event. The weakness in the US dollar ahead of the Fed meeting later is also a factor.
GBP/USD is a little lower on the day as dealers begin the countdown to the US central bank meeting. UK inflation held steady at 2.4%, but the consensus estimate was for 2.5%. The core reading remained at 2.1%, meeting forecasts. The reports were respectable, but they won’t be prompting the Bank of England to tighten its monetary policy any time soon.
Commodities
Gold is largely unchanged ahead of the Fed meeting. Recently the inverse relationship between gold and the US dollar has been strong, and traders are playing the wait-and-see game. The metal has experienced low volatility lately, and has found it difficult to clear the $1,300 mark. A break below $1,282 could pave the way for $1,265 to be tested.
WTI and Brent Crude oil jumped in the wake of the latest Energy Information Administration inventory report. US oil stockpiles dropped by 4.14 million barrels, while the consensus estimate was for a decline of only 2.8 million barrels. Gasoline inventories dropped by 2.2 million barrels, while traders were anticipating an increase of 440,000 barrels.
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