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Volatility jumps on surprise Fed rate cut, gold pops, dollar tumbles

Volatility jumps on surprise Fed rate cut, gold pops, dollar tumbles

Traders had high hopes for the G7 conference call, as there was chatter that a coordinated stimulus package would be announced. 


Equities rallied in advanced of the update, but in the end the news wasn’t that exciting. The group basically said they were on standby to act should they feel in was required. Dealers reacted to the dull announcement by trimming their exposure to equities.

Around 80 minutes ago, the Federal Reserve announced a surprise decision to cut rates by 0.5%. Keep in mind the Reserve Bank of Australia lowered rates overnight to 0.5% - a record low. Equity markets in Europe we jolted higher by the shock move from the US central bank, but a large portion, if not all those gains, have already been handed back. The unexpected cut from the Fed could be viewed as a sign of weakness as it suggests the US central bank are desperate to pander to global equity markets.  

The beleaguered travel sector has managed to claw back some of the ground that it lost in recent sessions. Airlines such as Lufthansa, International Consolidated Airlines Group, Wizz Air as well as Ryanair are all higher this afternoon as the fear surrounding the tourist trade has faded a little, despite the deepening health crisis.  

Aggreko shares jumped today on the back of the solid full-year figures. Group revenue slipped by 8% to £1.6 billion, but operating profit ticked up by 10% to £241 million. The company confirmed that operating profit margin ticked up by 2.4 percentage points to 14.9. The rental solutions division was the standout performer as operating profit jumped by 22%, and that accounted for 55% of group operating profit.  

Ashtead posted its nine month figures and even though they were respectable. Revenue and operating profit jumped by 13% and 11% respectively. The group revealed record cash flow of £363 million. Focusing in on the third-quarter revenue alone, Ashtead confirmed the revenue growth was ‘industry leading’.

Travis Perkins shares are in demand today on the back of the solid full-year results. Adjusted operating profit ticked up by 7.8%, and like-for-like revenue growth was 3.8%. Toolstation, the group’s merchant business, continues to perform well despite ‘challenging market conditions’. A rebound in the company’s retail arm, Wickes, helped too. Toolstation underwent an expansion during the year, while the demerger of Wickes could be wrapped up by the second-quarter of 2020. Travis Perkins reaffirmed its commitment to cost cutting.   

Greggs continues to perform well although trading in February as been hindered by the rough weather. For the year, the company revealed a 13.5% rise in sales, and pre-tax profit excluding exceptional items rose by in excess of 27%. In a sign of confidence, the company hiked its total dividend by 25.8%. The bakery group will be rolling out its delivery service with Just Eat, and that should provide another revenue stream     

Direct Line shares are higher today as the company reiterated that it will achieve its target of at least a 15% return on tangible equity, even though there was a 12.2% fall in full-year profit. The coronavirus crisis has cost the firm £1 million in relation to travel insurance claims – this is something that could tick up in the months ahead. 

Sirius Minerals shareholders are voting today on the takeover proposal from Anglo American. The company is in a difficult position as it is strapped for cash, and without the funds from Anglo, the group could face bankruptcy. 


For all the volatility on Wall Street the S&P 500 is lower as traders are still making their minds up about how they feel about the Fed’s surprise rate cut. Typically a reduction in interest rates would help the stock market, but if you are seen to be doing it from a position of weakness, traders will see through it. A large cut out of the blue might not instil confidence, it could have the opposite effect.    

Tesla shares are in demand today on the back of the upgrade from JPMorgan – the bank changed its outlook on the stock from market perform to outperform. In addition to that, the Wall Street firm issued a price target of $1,060 for Tesla.

Target shares are slightly lower on the back of mixed fourth-quarter figures. EPS were $1 69, topping the $1.65 forecast. Revenue edged up by 1.8% to $23.40 billion, but equity analysts were expecting $23.50 billion. Same store sales grew by 1.5% - in line with forecasts. Looking ahead to the first-quarter, the company predicts EPS will be $1.69, and that topped the consensus estimate of $1.66. Target is performing well in e-commerce, but store sales are robust too, it registered 11 straight quarters of same store sales growth – which is impressive as many traditional retailers are feeling the pressure from online firms. 

Kohl’s revealed largely well received fourth-quarter figures. EPS came in at $1.99, while dealers were expecting $1.88. Net sales in the three month period were largely flat at $6.54 billion – fractionally ahead of forecasts. Same store sales were unchanged, and traders were anticipating a dip of 0.1%. Going in to the update, traders were mindful of the poor November and December sales figures that were posted in January.


EUR/USD is now higher on the session thanks to the US central bank’s rate cut. During the day the single currency was in the red versus the greenback, but now the sentiment has swung the other way. The headline CPI rate in the eurozone cooled to 1.2% from 1.4% in January – the reading met forecasts. On the other hand, the core CPI reading edged up from 1.1% to 1.2%. The latter report is often deemed to be a better gauge of true demand so the currency area is in better shape that the top line report suggests.

GBP/USD is higher following four consecutive days of declines, but it is worth noting the pound was higher versus the US dollar in advance of the Fed rate cut. The UK construction PMI reading jumped to a 14 month high of 52.6 in February. The reading was a decent improvement on the 48.4 level recorded in January. A number of construction companies said that activity has picked up since the UK general election in December, and the industry report ties in with those updates. Mark Carney, the BoE chief, was speaking before the House of Commons Treasury Select Committee, and he said the possibility of a coronavirus crisis in the UK is likely to be ‘temporary, should it happen. If the situation requires assistance from the central bank, the institution would use ‘all necessary steps’.               


WTI as well Brent crude racked up solid gains during the session as the chatter about OPEC potentially agreeing to cut output drove up the oil price. Some of the buying earlier in the session was driven by the hopes the G7 would reveal plans to coordinate a fiscal stimulus package in an effort to address the coronavirus crisis. The update from the G7 was a bit of a let-down so the mood in the oil market after the fact was muted. The Fed news added volatility to the energy market as did the Joint Technical Committee’s recommendation to OPEC+ that they cut production by 600,000 – 1 million barrels per day.        

Gold is higher on the back of the Fed rate cut but keep on mind the metal was in positive territory in advance of the news. The weakened US dollar has made the commodity more attractive but the fact the Fed took such as drastic decision implies they are nervous about the health emergency. When the dust settles, dealers might become more worried about the state of the US economy, and not less, and that might benefit gold too.   



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