European equity markets received a boost from this afternoon’s European Central Bank (ECB) update. 

Europe

Mario Draghi, the head of the ECB, stated that underlying inflation is subdued and that ‘victory’ can’t be declared yet. The implication is the region still has some way to go in order to stimulate demand. The dovish tone of the press conference encouraged buying of stocks, and the slide in the euro added to the bullish sentiment.

Shares in Spirent Communications soared today after the company swung into profit. The company posted a profit of $46.6 million, and that was a major improvement on last year’s loss of $46 million. Cutting out non-core activities and reducing costs was instrumental in the turnaround. The company rewarded its shareholders by increasing the total dividend by 7% to 4.08p, and it also declared a special dividend of 5p. The share price hit its highest level since August, and if the bullish move continues it could target 130p.    

Aviva revealed an aggressive plan to reshape its balance sheet. The company is using £2 billion of excess cash to pay down debt by £900 million; £500 million will be returned to shareholders; and £600 will be set aside for acquisitions. The company’s drive to beef up its investment management business has worked, as assets under management jumped by 9%, and that contributed to a 2% increase in operating profits. The figures were respectable, and the plans are ambitious, but investors will want to see the results before buying back into the stock.

US

American stock markets are higher on the session after last night’s announcement that Canada and Mexico may be exempt from any steel and aluminium tariffs the US may impose. It gives off the impression that Mr Trump could initiate a less aggressive trade war. Investors are expecting an update from Mr Trump either today or tomorrow in relation to his protectionist policies. The US president may want to ‘put America first’, but it could put global investors last.

Jobless claims ticked up to 231,000 last week, while economists were anticipating a reading of 220,000. The jobless rate may have increased, but keep in mind the previous report was the lowest level since December 1969 – so the jobs market is strong.

FX

EUR/USD is weaker today on the back of the ECB update, and the lowering of the inflation target for 2019 to 1.4% from 1.5% put pressure on the single currency. The currency bloc is tipped to grow at a faster rate than expected, but inflation remains muted. German industrial order dropped by 3.9% in January, which was a much bigger fall than the 1.6% drop that economists were anticipating. To make matters worse, the December reading was revised lower to 3% from 3.8%. This is further proof that we are seeing a slight cooling in the German economy.

GBP/USD came under pressure from the jump in the US dollar. There were no major economic accouchements from the UK today, so the pound was pushed around by the greenback. Traders are still nervous about the prospect of a US trade war, and the strong dollar today is largely down to a weak euro.  

Commodities

Gold sold-off on account of the firmer US dollar. Dealers don’t want to get overly short of gold as the US trade war story is still doing the rounds. The metal could act as a safe-haven should we see President Trump go down the route of imposing tariffs.

WTI and Brent Crude oil continue to be weak as traders are still concerned about the excessive US production levels. Yesterday, the energy information administration report showed that US output jumped to a weekly record. There is talk the US will overtake Russia in terms of output, and this is weighing on the energy market. Traders will be keeping an eye on the February lows, as a break below them could signal further losses.  

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