The FTSE 100 has been at the mercy of the pound today and even though the market managed to swing to positive territory earlier today, it was dragged back into the red as sterling pickled up. 

Europe

Investors are optimistic about a potential political deal between the Christian Democratic Union (CDU) and the Social Democratic Party (SDP) as the two parties are meeting day. Germany hasn’t had a functioning government for two months, but the economy is still moving in the right direction, and the potential for a grand coalition might boost investor sentiment. The DAX was higher throughout the day, but lost ground due to the strength of the euro.

Mining stocks like Vedanta Resources, Rio Tinto and BHP Billiton are lower on the day even though China’s manufacturing grew at a faster pace in November. The reading came in at 51.8, while the market was expecting a reading of 51.5, and the previous reading was 51.6. China’s economy is broadly growing at a slower rate and this is weighing on the basic resource stocks.  

Greene King announced saw first-half profits by 8%, and like-for-like sales dipped by 1.4%. The pub operator also stated it plans to sell-off between 50 and 60 pubs.  Greene King are facing the industry wide problems of reduced consumer demand and rising costs. The pub industry has been finding it tough lately and Greene King’s share have been losing ground for the past two years, and if the negative trend continues it may hit 470p.  

 

US

The S&P 500 hit a new record high and the Dow Jones topped 24,000 – also posting yet another record high. There is some optimism doing the rounds in the US in relation to the Senate’s vote on the tax proposals.

Politics rarely runs smoothly as we have heard from Senator Susan Collins who is not backing the tax proposals. On the other hand, Senator Mitch McConnell foresees the change to the tax system being approved today or tomorrow.

The core personal consumption expenditure (PCE) came in a 1.4%, meeting expectations. The September report was revised from 1.3% to 1.4%. This indicator is the Federal Reserve’s preferred measure of inflation, so since it is rising it is likely to keep the US central bank on their path of monetary tightening.  

 

FX

GBP/USD is motoring higher as the political outlook for the UK in terms of Brexit seem to be picking up. The UK and the EU agreed upon a ‘divorce bill’ yesterday, and there is a sense of optimism surrounding the Irish boarder talks.  The pound hit a two month high versus the US dollar today, and the weakness in the US dollar due to the uncertainty surrounding the US Senate vote on the tax proposals is also boosting sterling. The drop in US personal consumption to 0.1% from 0.5% in October is put pressure on the greenback.  

EUR/USD is strong on the day as the weakness in the US dollar overshadowed the mediocre eurozone inflation report. The cost of living in the eurozone ticked up to 1.5% from 1.4% in October, but economists were expecting a reading of 1.6%. It is encouraging to see the eurozone CPI rate edged up but the missed expectation could have been costly for the single currency had it not been for the relatively weak US dollar today.

 

Commodities

Gold is weaker as traders are in risk-off mode and the increase in PCE also added to the downward move in gold. With fresh record highs on US equity benchmarks you can see why gold isn’t popular today. The Fed pay close attention to the PCE reading, which came in at 1.4%, it matched the positively revised figure for September.

WTI and Brent Crude sold-off after OPEC announced that the oil production cut will be extended until the end of 2018 – which was widely expected. The group also stated the decision would come under review in June 2018, which is seen as a break clause. Traders have been bullish on oil on the run up to the meeting, and now we are seeing some positions being unwound.

There is still uncertainty over non-OPEC members like Russia as to what they are going to do in relation to the co-ordinated production freeze.  

 

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