market relief

Equities are in recovery mode today after enduring a turbulent week.

Europe 

A combination of shorting covering and bargain hunting is helping the markets today. It has been a brutal week for investors, but some are keen to step in and take advantage of the fall in prices. There is still a sense we could be in for another leg lower, and for that reason some dealers are reluctant to get back into the market.

Rio Tinto have made a remarkable recovery from the commodity route a couple of years ago, as the company posted a 69% jump in underlying profits. The company earned $8.62 billion, while the consensus was for $8.5 billion. Shareholders have been well rewarded as share buybacks increased and the total dividend for the year was $2.90 per share, a record-high. The company has learned their lesson from the commodity super cycle, and have cut net debt by 60%. The stock has been pushing higher for two years, and if the bullish move continues it could target 4200p.   

Tullow Oil are turning thing around as the strong oil market has helped the company improve cash flow. The stronger cash position will be used to finance expansion, and the company has been issued with a licences to explore for oil in Africa and South America. Tullow has trimmed its net debt position by 27%, which will give them some much needed breathing space.  The stock has been rising since June, and if its holds above its 200-week moving average at 182p, it could target 240p.

US

The Dow Jones and S&P 500 are higher on the day as US stocks continue their bounce back. The volatility index (VIX), or the fear index as it is referred to by traders has slumped, and investors are cautiously optimistic about the US equity market. The crash at the beginning of the week is starting to entice some buyers, but normal business has not resumed as some dealers are still nervous.

Federal Reserve member William Dudley stated the wild swings in the US stock market have not altered his outlook in the US economy. The recent sell-off was sparked by the impressive average earnings figures from the US, which ramped by fears of four interest rate hikes from the US central bank this year. Mr Dudley’s comments made it clear the US central bank are unlikely to be dismayed by this week’s events on Wall Street.

FX

The US dollar is edging up as it is continuing its positive much which begun last month. The greenback starting showing sign of bottoming out recently, and now the prospect of an interest rate hike from the Federal Reserve next month is pushing up the dollar. William Dudley of the Federal Reserve, has not changed his outlook on the US economy despite the volatility in the markets.

GBP/USD is in the red as the strength of the US dollar is impacting sterling. Today’s move is US dollar driven, but the weaker than expected UK house price data didn’t help the pound. In January, UK house prices dipped by 0.6% according to Halifax, and that compared with the 0.2% rise economists had expected.

EUR/USD is also offside too as the push higher in the greenback has dented the euro. Germany released industrial production figures for December, and they showed a decline of 0.6%, and that was a sharp drop from the November increase of 3.4%.

Commodities

Gold is feeling the pinch again as the rally in the US dollar is hurting the metal. The return of stability to the global stock markets is also playing a role in golds weakness, and traders are taking on more risk and buying back into equities. The comments from William Dudley of the Fed, suggest the US central bank could press ahead with its policy of monetary tightening, and that could keep pressure on gold.

WTI and Brent Crude oil sold off heavily after the latest energy information administration (EIA) report showed that US stockpile increased less than expected, and gasoline inventories grew far more than anticipated. Oil inventories jumped by 1.89 million barrels, while traders were expecting a rise of 3.3 million barrels, and gasoline stockpiles jumped by 3.41 million barrels, and that was well ahead of the 1 million barrels rise than traders were expecting.

US oil production reached a record level, and that put pressure on the oil market too  

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