The FTSE 100 has had a rough star to the New Year.
Mining stocks like Rio Tinto, BHP Billiton and Glencore have all lost ground today even though China posted robust manufacturing figures overnight. The Caixin survey of Chinese manufacturing came in at 51.5 in December, and traders were expecting a reading of 50.7. The reading in November was 50.8, so last month’s figure was a steady increase in the rate of expansion. Today’s move in the mining companies must be put in the context of the bullish move that we saw at the back end of last week.
The tax reform in the US will cause BP to be hit by a one-off charge of $1.5 billion as it will impact the company’s deferred tax assets and liabilities. The move by the US government to cut corporate tax rates from 35% to 21% will benefit BP in the long-run. The share price has been pushing higher since August, and the upward trend is still in place, so this pullback could entice new buyers into the fold.
Royal Dutch Shell shares are also under pressure after the company stated it terminated its deal with Dansk Olieselskab regarding the sale of assets. Royal Dutch Shell will hold onto assets it agreed to sell to Dansk Olieselskab in 2016, but it assured investors that it plans to finish its disinvestment programme this year.
The rally in the euro has hit eurozone equity indices like the DAX, CAC 40 and FTSEMIB earlier in the session, but we have seen a turnaround in some of the markets. The single currency hit a three and a half week high against the US dollar, and it reached a five week high against the pound.
The Dow Jones, S&P 500 and NASDAQ 100 are all in positive territory as the bullish sentiment that was alive and well last year has slipped into 2018. Traders are still optimistic the US tax reforms will boost corporate profitability, and could see higher dividends and or stock buybacks. The weakness in the US dollar is also helping international investors gain exposure to the American markets.
The US manufacturing report for December came in at 55.1, its highest reading since April 2015. The US economy is continuing to move in the right direction which is giving traders further reason to be optimistic about the stock market.
EUR/USD hit a level not seen since September as the weakness in the US dollar has propelled the single currency higher. The US dollar has been sliding for nearly three weeks as dealers are concerned that US economy may not get the economic boost that many previously predicted on the back of the tax proposals.
The manufacturing PMI reports from Spain, Italy and France all came in below expectations, but were still showing high levels of activity. While, the German report showed an increase on the month and met economist’s expectations.
GBP/USD shrugged off the worse than expected manufacturing for the UK and pushed higher. In December the British manufacturing sector grew at a slow pace, the reading came in at 56.3, down from 58.2 in November. Even though there was a noticeable drop in the growth rate, and the dip in the US dollar kept pushing the pound higher.
Gold hit its highest level since mid-September as the soft US dollar is making the metal more attractive. Gold has enjoyed a bullish run since the Federal Reserve hiked interest rates in the middle of December. Traders are not fearful of another rate hike from the Fed for a number of months and the metal has rallied in the previous two January’s, so history may repeat itself.
WTI and Brent Crude oil both notched up fresh two and a year highs in the early hours of trading, but have been sliding in the afternoon. Anti-government protests in Iran fuelled the buying in the energy as the country is one of the biggest oil producers in the world. Whenever there is political upheaval in the Middle East oil traders usually fears for the worst and stock up as they fear that supply lines will be disrupted.
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